China's central bank may be pushing on a string.
From Marc to Market:
Overview: A surprise cut in China's seven-day repo and a stronger than expected UK employment report are session's highlights ahead of the US CPI. The base effect alone suggests a sharp fall in the year-over-year rate, while the median forecast in Bloomberg's survey has been shaved to a 0.1% month-over-month gain. The dollar is under pressure and is weaker against nearly all the G10 currencies. It is mixed against the emerging market currencies. The dollar gapped higher against the Chinese yuan for the second consecutive session and is higher against the South African rand, Mexican peso, and Turkish lira, among a few others.
It is a risk-on day, with equity market advancing. Tokyo and Taiwan advanced by more than 1%, while nearly all the large bourses in the Asia Pacific region advanced. Europe's Stoxx 600 is edging higher for the second consecutive session and US equity futures are firm. Benchmark 10-year bond yields are mostly a little lower, except for UK Gilts, where the strong employment and wage growth are lifting the 10-year yield by a handful of basis points to nearly 4.40%. Gold is consolidating in a narrow range around $1960. After falling 4.3% yesterday, following a 3.2% drop in the last two session of last week, July WTI is stabilizing today (~$67.15-$68.15).
Asia Pacific
The PBOC unexpectedly cut the seven-day repo rate by10 bp to 1.90%. It is the first such cut since last August and elevated speculation of a cut in the one-year medium-term lending facility later this week and a reduction in the loan prime rates next week. There is also scope for a cut in reserve requirements though the reduction in interest rates may push it into Q3. Reports suggest officials are considering a broader package of stimulative measures, including more support for the property market. Separately, but perhaps not unrelated, China reported a smaller than expected rise in new bank loans (CNY1.36 trillion, while nearly double the April lending, below the CNY1.55 trillion expected). The lending figures also indicate that shadow bank lending slowed to about CNY200 bln from about CNY500 bln in April. ....
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