China's PBOC infuses cash, ECB stays guarded

China's massive financial injection, ECB's cautious rate policy amid global economic shifts.

By Ahmed Azzam | @3zzamous | 15 December 2023

Market open
  • Record 800 billion yuan PBOC move to bolster China's economy

  • Industrial strength vs. real estate downturn in China

  • ECB curbs rate cut speculations with a cautious outlook

PBOC's strategic economic boost

The People's Bank of China (PBOC) has taken a significant step, injecting an unprecedented 800 billion yuan ($112 billion) into the economy. This move, aimed at mitigating the economic downturn, particularly in the property sector, highlights China's proactive approach to managing its economic challenges. The contrast between the robust industrial output and the declining property development investment, which plummeted by 9.4%, underscores the complexities of the current economic situation.

ECB's cautious monetary policy

The European Central Bank (ECB) is demonstrating a cautious approach to interest rate decisions, especially in the context of market expectations for rate cuts. Madis Muller, a member of the ECB Governing Council, advocates for a patient and data-driven strategy, underscoring the importance of waiting for clearer signs of sustained inflation reduction before adjusting rates. This stance is a clear message to the markets, tempering expectations for immediate policy shifts.

Mixed economic indicators in Europe

The Euro area's manufacturing PMI is expected to show a slight improvement to 44.6, though it remains indicative of a contraction phase. The services sector is also expected to experience a modest uptick, contributing to a composite index around 48. In the UK, early manufacturing data suggests slight improvements, but the sectors are not expected to enter expansion territory.

Upcoming economic data

Key economic data on the horizon includes the Empire State manufacturing survey, which may indicate a potential cooling of the economy with a projection of falling to 2.1. However, November's industrial production is likely to see an improvement, possibly influenced by the end of the auto strike.

Revised yield forecasts

Reflecting the evolving economic landscape, major financial institutions like Goldman Sachs and JPMorgan have adjusted their forecasts for 10-year yields. Goldman Sachs now anticipates yields to reach 4% by the end of 2024, down from their earlier forecast of 4.3%. Similarly, JPMorgan has revised its forecast to 4.1%. These projections take into account the changing inflation dynamics and market expectations for rate cuts, drawing on historical analysis of yield behaviors during past economic downturns.