All eyes will be on the US Wednesday as a bevy of headline events come calling, but there are at least two notables from abroad.
The kiwi logged one of its best days in the last 12 months, surging some 1% against the greenback after the RBNZ unexpectedly held rates steady, against expectations for a cut.
That sounds terribly boring, but it’s actually quite interesting. RBNZ was among the first to the rate cut party during this mini-easing cycle and Wednesday’s decision to stand pat and lean against the market is indicative of policymakers’ inclination to take a wait-and-see approach to further easing. The Fed is essentially adopting a similar stance in the US.
The bank did slash its forecasts for growth to 2.2% in the year through March 2020 (versus 2.7% previously) and indicated it stands ready to act, but the important bit is the message this sends about how policymakers plan to approach things going forward. The RBA stood pat recently as well. “Economic developments since the August Statement do not warrant a change to the already stimulatory monetary setting at this time”, RBNZ said, adding that “we expect economic growth to remain subdued over the remainder of the calendar year [and] will continue to monitor economic developments and remain prepared to act as required”.
You don’t have to look very hard to find skeptics who will tell you that RBNZ will need to cut rates again (indeed, Capital Economics, one of only five desks to correctly predict today’s hold, says another 50bps of cuts are in the cards eventually), but the point is simply that for the time being, central banks are keen to sit on their hands and hope that the accommodation they’ve already delivered will be sufficient to engineer an upturn in growth, just as it’s bolstered markets since the December swoon.
Meanwhile, Hong Kong shares took another dive on Wednesday amid more unrest in the city.
Wednesday’s 1.8% loss for the Hang Seng comes just 48 hours after a 2.6% swoon that served as a reality check for local shares, which had surged into overbought territory despite persistent demonstrations and news that the economy plunged into a far deeper recession in the third quarter than anticipated.
In the wake of Monday’s dramatics during which a man was set on fire and a protester was shot at close range, some fear the city is on the brink of descending into outright chaos.
On Wednesday, banks told employees to stay home, the government said it would shutter public schools and, perhaps most ominously, Chinese state media warned of consequences, calling this the “most critical juncture”.
Mitch McConnell on Tuesday expressed support for the pro-democracy demonstrations, suggesting the Senate could move quickly (or what counts as “quickly” when you’re talking about Mitch and the GOP-controlled chamber).
Chinese Foreign Ministry spokesman Geng Shuang isn’t amused. US lawmakers should “immediately stop interfering in China’s affairs”, Geng said Wednesday.