90 seconds at 9 am: PBoC tries to ease yuan appreciation

China bans soft cheese imports; Tries to dampen yuan appreciation; Inflation rebounds; Canada's unemployment rate at 9-year low; Hurricane Irma to cause up to US$65b of damage; UST 10yr yield at 2.05%; oil down, gold stable; NZ$1 = 72.7 US¢, TWI-5 = 74.3

11th Sep 17, 8:06am by Jenée Tibshraeny

Here's my wrap of what’s happened around the world over the weekend.

China's central bank is trying to slow the pace of yuan appreciation, after its biggest two-week surge in at least a decade. It is relaxing its foreign exchange policy by cutting the 20% FX margin requirement for financial institutions when buying USD, to zero. It is also eliminating onshore agency banks’ need to establish a dedicated reserve account for withholding deposits placed by offshore banks. The move will increase New Zealand's purchasing power of Chinese goods.

China is taking a hard line on soft cheese. It is reportedly temporarily banning the import of cheese like brie and camembert that contain “too much bacteria”. Mozzarella – one of Fonterra’s major cheese exports – isn’t affected by the policy. China has temporarily banned the import of cheese in the past due to health concerns.

Inflation accelerated more than expected in China last month. Hitting a four-month high at 6.3%, the producer price index was buoyed by strong gains in raw materials prices. Activity in China's steel industry expanded at the fastest pace since April last year. Meanwhile, hitting a seven-month high, China’s consumer price index rose to 1.7%. These price gains are however still modest, meaning there’s little pressure on the central bank to tighten monetary policy further.

Hurricane Irma is believed to have caused between US$20 billion and US$65 billion of damage to the US and parts of the Caribbean. However according to catastrophe modelling firm, AIR Worldwide, only to US$15 billion to US$50 billion of losses will be covered by insurance.

New York Federal Reserve President William Dudley is optimistic the rebuild post Irma and Harvey will boost the economy. He says the catastrophes won’t have any bearing on the central bank’s policy in the short term.

Canada’s unemployment rate has hit a nine-year low. With 0.1% more people employed in August than July, its unemployment rate dropped to 6.2%. Canada’s statistics agency notes the number of employed people over 55-years-old increased over the month, while the number of employed under-25s fell.

The UST 10yr yield remains the lowest it's been since November, at 2.05%.

The price of crude oil has fallen since Friday to US$47 a barrel. The Brent benchmark is just below US$54.

Gold is stable at US$1,346/oz.

The New Zealand dollar has strengthened since Friday to 72.7 US cents, 90.1 Australian cents and 60.5 euro cents. The TWI-5 index is up to 74.3.

If you'd like to catch up with all the changes from Friday, we have an update here.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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6 Comments

by ham n eggs | 11th Sep 17, 9:20am 1505078438

"New York Federal Reserve President William Dudley is optimist the rebuild post Irma and Harvey will boost the economy."

Which shows you how stupid economics is. If only Irma could clear the whole planet and demand would really take off. Because you are not replacing money with thin air money. You are replacing a whole lot of embedded energy in infrastructure and requiring bucket loads of less abundant, more difficult & costly NET energy to "fund" the replacement. And this according to economists is a boost...

by Stephen Hulme | 11th Sep 17, 10:13am 1505081583

It's a global monetary mess, which needs to be abandoned, together with it's economist proponents.

...., we can’t find any trace of QE in any part of Europe where it really should show up. More immediate than inflation is lending; loans are, in fact, the vehicle by which QE and the LSAP’s were supposed to affect real economic outcomes, washing out in the end as consistent and stable 2% inflation.

Lending in Europe remains instead at a standstill. Total loans in July 2017 were a paltry €60 billion more than in March 2015 despite €1.93 trillion in asset purchases among the three major LSAP channels.

One major point of emphasis with these monetary policies was to get lending and credit flowing into the business sector. Yet, the total volume of loans to NFC’s (non-financial corporations) was actually €9 billion less in July than when QE made its first purchase more than two years before. It doesn’t matter in the slightest, it seems, that Europe’s central bank also purchased more than €100 billion in corporate bonds dating back to last June. Read more

by Stephen Hulme | 11th Sep 17, 10:21am 1505082115

The UST 10yr yield remains the lowest it's been since November, at 2.05%.

Indeed!!!!

Bond yields have been moving lower almost all year, suggesting tighter money not from monetary policy but in spite of the FOMC (think the behavior of eurodollar futures). The relationship between oil and bills seems to establish collateral swaps as one likely culprit, though, as is so often the case, there is almost surely more going on than just the one thing.

After all, we know that dealers are still holding/hoarding very high levels of UST positions, especially factoring bills. And repo fails have been consistently elevated since March (after major problems last year during the bond selloff). Collateral problems, as indicated by all of this, are like textbook “tight” money. Read more

by dictator | 11th Sep 17, 12:51pm 1505091108

I think the linked article is on the right track; there's a lack of collateral. Many of the EU Banks are essentially operating while illiquid, and they have so few assets they are perpetually on the cusp of collapsing on a cashflow basis.

What they need to do if they want to keep the banks is get them to write off all the bad debts that they told the banks to keep on the books. Then just print money and give it to the banks up to their capital requirements. This needs to be coupled with making the banks retail banks only. This would get them operating instead of the money being used to buy leveraged instruments that they are currently betting on.

At least in my opinion this would work better than creating a massive bubble in the bond market.

by waymad | 11th Sep 17, 11:52am 1505087560

China's 'too much bacteria' cheese ban means more for Gorgonzola and Stilton lovers. These practically shake yer hand as you open 'em...

by Roger Witherspoon | 11th Sep 17, 6:59pm 1505113151

Yes, indeed, but whose hand is China slapping? Where does the mysterious naughty cheese come from and what did they do or say that President, sorry, I mean Emperor Xi didn't like?