The Chinese economy has come back into focus for investors. For the second time in roughly three months, the People’s Bank of China announced a rate cut today. The central bank reduced the one-year benchmark rate by 25 basis points to 5.35 percent for lending and 2.5 percent on deposits. Accompanying public statements from officials indicated that the driving force behind the move was concerns over deflation and property markets. Separately, media reports over the weekend indicate that regulators in Beijing are mulling further moves to liberalize requirements for second home purchases in order to soften the ongoing slump in property prices. While an uptick in purchasing manager’s index readings from both the China Federation of Logistics and Purchases and HSBC reveal hope for a marginal rebound in industrial activity, slumping demand and investment measures in recent months suggest that there will be no quick fix for the economy as a whole.
India budget unveiled. On Saturday the Indian government released its annual budget for 2015–’16 that included plans to bolster the Make in India program, such as increased import duties and greater domestic corporate tax breaks, and increased direct foreign investment thresholds. Critically, the budget delays the 3 percent fiscal deficit target until 2017–’18. Consensus among currency analysts appears to be net-positive for the rupee on the likelihood of better external balances because of the new measures.
The Oracle of Omaha speaks. In his 50th annual letter to shareholders, Berkshire Hathaway chairman and CEO Warren Buffett announced earnings of $2,412 per class-A share, significantly lower than analyst estimates. In his usual folksy tone, the legendary investor opined on a variety of topics, including past mistakes and his distaste for modern private equity practices.
Macro data expected to show upbeat mood among U.S. shoppers. January personal consumption expenditure data from the Bureau of Economic Analysis is projected to show an uptick in spending, as cheap gasoline keeps consumers in a positive mood. Critically, investors will focus on the wages and salaries sub-index which grew by a meager 0.1 percent in December after a sharp contraction the previous month. Also scheduled for release today are February composite Institute for Supply Management manufacturing purchasing manager index levels.
Murder investigation underway in Moscow. Protesters took to the streets in Russia’s capital as the official investigation into the assassination of opposition leader Boris Nemtsov continues. For the Kremlin, outcry from the governments of the European Union has yet to translate to increased concerns over fresh sanctions. This apparently is not a view shared by market participants, as yields on five-year government debt reached multimonth highs in trading today.
Consumer price index data falls in Europe. Euro zone consumer price data released today by Eurostat indicated a third consecutive contraction in February, as soft commodity prices continue to weigh heavily on the currency bloc’s price basket. According to the release, prices in the region contracted by 0.3 percent from the same month’s levels in 2014.
Portfolio Perspective: Turkey: From Sarcastically Bullish to Pragmatically Bearish — Benoît Anne, Société Générale
Not so long ago, we turned sarcastically bullish on Turkey. What I meant by that was that despite all the problems facing the country — from the elevated macro vulnerabilities to the recent policy credibility shock — I thought that valuations were compelling enough. I am afraid I have to backtrack in the face of rising political noise in Turkey, however. Phoenix Kalen, our Europe, Middle East and Africa (EMEA) macro strategist, exited her long local bond and rates receiver recommendation, while Bernd Berg, our director of emerging-market strategy, entered a tactical long U.S. dollar to Turkish lira, targeting a move to 2.65. I am afraid we have seen this many times before. The central bank will have to show it stands ready to defend the lira. It will tighten short-term liquidity, rates will shoot up and with a bit of luck, when the market settles down, the Central Bank of the Republic of Turkey will go back to easing mode. For now, we are swinging back into financial stability risk watch. It certainly does not help commodities-importing Turkey that the price of oil is rebounding. To be fair, EMEA as a whole is not trading well at all today, so for once I can’t really single out Turkey. But the mounting domestic political noise is a point of concern.
Benoît Anne is the head of emerging-markets strategy for Société Générale in London.
