UK shares finally erased their pandemic declines, China reported a record amount of new yuan loans and the BoJ moved to cap 10-year yields.
Those were some notables from Thursday’s reel, as traders awaited US CPI data which will define the price action for the remainder of the week.
The FTSE 100 hit the highest since January 17, 2020, helped along by results from AstraZeneca (figure below).
It was the last major European index to recoup the entirety of the initial losses from the collapse that accompanied the onset of the pandemic. UK stocks have outperformed the Stoxx 600 in 2022.
Moving quickly along, the PBoC said institutions offered 3.98 trillion in new yuan loans last month (figure below). That was a record and nearly matched the highest estimate from two-dozen economists. Consensus expected 3.7 trillion.
Even considering the seasonal impulse, China’s credit provision numbers were strong. Aggregate financing was 6.17 trillion yuan, well more than the 5.4 trillion the market expected and easily above the highest forecast. Total outstanding aggregate financing at the end of last month was up 10.5% YoY.
Context is critical. The PBoC pivoted to easing late in 2021, stepping up efforts to support the economy following a property-driven slowdown triggered by regulatory tightening and exacerbated by a laundry list of headwinds. January’s credit data was thus a barometer of the central bank’s success in prodding banks along. After successive reductions to the loan prime rate (in December and January), OMO cuts and a hodgepodge of targeted measures, analysts expect another RRR cut at some point soon. M2 growth was 9.8% YoY last month. That matched the highest estimate.
As developed market central banks pivot to tightening, the PBoC is pursuing a different course entirely, much as it did for the second half of 2020 and for most of 2021, when the bank kept a neutral stance while policymakers in advanced economies cut rates and bought trillions in assets.
Speaking of policymakers in advanced economies where rates are low and central bank balance sheets bloated, the BoJ on Thursday finally moved to cap 10-year yields, which were challenging the upper-end of the tolerance band (figure below).
Yields rose near 0.23% Thursday prior to the BoJ’s announcement. The bank will buy unlimited 10-year JGBs next week.
Apparently, the BoJ wanted to get ahead of the US CPI figures, which could’ve put additional upward pressure on local yields.
In an interview published Thursday, Haruhiko Kuroda said there’s “no chance” of the BoJ reducing monetary easing. The odds of inflation spiraling in Japan the way it has in other nations are “very low,” he added.
