China Economic Indicators: The People’s Bank of China and Loan Prime Rates
On Monday, July 22, the People’s Bank of China (PBoC) will set the one-year and five-year Loan Prime Rates (LPR).
Economists expect the LPRs to remain steady at 3.45% and 3.95%, respectively.
However, an unexpected cut could fuel demand for the Aussie dollar. Lower lending rates could drive demand for credit and increase consumption. Higher demand could boost the Australian economy through trade. China accounts for one-third of Australian exports, with Australia having a trade-to-GDP ratio of over 50%. Additionally, 20% of the Australian workforce is in trade-related jobs.
Improving trade terms with China could increase Aussie exports and trade-related jobs.
Last week, the Communist Party’s Third Plenum disappointed economists.
Nataxis Asia Pacific Chief Economist Alicia Garcia Herrero commented on the readout and press conference, stating,
“Nothing new under the sun: the same industrial policies, the same sense of things. Really no change in direction, no consumption-led growth, nothing. No sentence on the power of market forces, nothing. So, it’s really disappointing.”
Monetary policy measures to support demand could offer releif.
Amidst growing uncertainty about China and the RBA rate path, US economic indicators require consideration.
US Economic Data: Services Sector and the Fed
Economists forecast the S&P Global Services PMI, out on Wednesday, to fall from 55.3 to 55.0 in July.
Weaker-than-expected numbers would support investor expectations of multiple 2024 Fed rate cuts. The services sector accounts for over 70% of the US economy. An unexpected drop below 50 could trigger fears of a hard US landing.
However, investors should consider input and output price trends. The services sector is a major contributor to headline inflation. Upward price trends could reduce investor bets on multiple 2024 Fed rate cuts.
The US Labor Market and Economy
US labor market data and Q2 GDP numbers will require consideration on Thursday, July 25. Higher Q2 GDP numbers could ease immediate fears of a hard landing. However, labor market data may have more influence on the Fed rate path.
Economists forecast Continuing Jobless Claims by 2k to 1,869k in the week ending July 13.
Weaker labor market conditions could affect wage growth and lower disposable income. Reducing disposable income could curb consumer spending and dampen demand-driven inflation. A softer inflation outlook would support September and December Fed rate cuts.
