A coordinated effort by government agencies to boost the Chinese economy supported sentiment on stock markets in early Friday trading. Chinese authorities lowered foreign currency reserve requirements for banks and increased some tax breaks in an effort to prop up the world’s second-largest economy, which has been under pressure from a housing crisis, weak exports and rising unemployment. Equity markets were trading mostly higher after the announcement of the stimulus measures on Friday despite a weak close on Wall Street a day earlier.
The People’s bank of China said it will allow banks to hold a lower amount of foreign currency deposits in an effort to increase the number of loans banks give out. Authorities also lowered the minimum down payment for loans. Additionally, policymakers increased personal income tax deductions for childcare and other expenditures earlier Friday. The measures as a whole are intended to support the sagging real estate market and boost consumer spending after a disappointing reopening of the Chinese economy this year.
In Asia, stock markets were mostly up in early Friday trading. The official manufacturing purchasing managers index out of China came in at 49.7, just below the level of 50, which separates expansion from contraction. Hong Kong's Hang Seng Index was roughly flat, while the Shanghai Composite was up 0.2%. In Tokyo, the Nikkei 225 gained 0.5% and in South Korea, the Kospi was up 0.3%. Australia’s S&P/ASX 200 lost 0.3%.
In the US, Core Personal Consumption Expenditures (PCE) – which leave out volatile food and energy prices – increased 0.2% in July, its second month in a row increasing at that pace. Together, June and July were the smallest back-to-back increases in the data since late 2020. Overall PCE also increased 0.2% in July. Core PCE is watched particularly closely by market participants as it is the Fed’s preferred measure of inflation.
In addition to the low PCE figures, labour market data came out showing the number of people seeking employment assistance has been relatively stable. The weekly initial jobless claims out the US came in at 228,000 last week, down slightly from the 232,000 in the week before, making it the third week of lower applications for new unemployment. Traders will get a treasure trove of labour market data to sift through on Friday when the government releases its labour market report, which may provide clues about the state of the world’s largest economy and whether the Fed can pause or end its interest rate hiking cycle this month.
In New York, equity markets slipped into negative territory late in Thursday’s session as traders took positions ahead of US labour data due out Friday. The Dow Jones Industrial closed down 0.48% at 34,721.91 points and the S&P 500 lost 0.16% to finish at 4507.66 points. The Nasdaq-100 managed to squeeze out a mild gain of 0.25% to finish Thursday’s session at 15,501.07 points.
In individual stocks, UBS shares gained more than 6% after the bank presented its second-quarter results and said it is targeting 3000 domestic job cuts and more than 10 billion US dollars in cost savings. The bank also signalled it will close down most of Credit Suisse’s investment banking operations during a presentation accompanying the quarterly results on Thursday. UBS shares have shot up more than a third this year and are trading at the highest levels since the stock’s freefall during the Great Financial Crisis of 2008.
Corporate news in focus: There is no major corporate news scheduled today.
Economic data in focus: Swiss Consumer Price Index (08:30); Manufacturing Purchasing Managers’ Indices: Spain (09:15), Switzerland (09:30), Italy (09:45), France (09:50), Germany (09:55), eurozone (10:00); Italian GDP Q2 (10:00); US labour market data (14:30); US Manufacturing PMI (15:45), US ISM Manufacturing PMI (16:00).
Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.