Highly anticipated "Super Central Bank Week": Fed rate cut finally landed, with exciting moves from the central banks of China and Japan

A summary of major financial events from September 16th to September 22nd, all in Beijing time:

Next week is the "Super Central Bank Week", with a focus on the interest rate decisions of the US and Japan central banks, China's September LPR quotation and MLF continuation, as well as interest rate decisions from central banks in the UK, Brazil, Norway, Indonesia, and others. ECB President Lagarde and several members will also deliver speeches during the week.

Also, pay attention to: US August retail sales, Japan August CPI, Eurozone September preliminary consumer confidence, and the Asia-Pacific stock exchange holiday arrangements during the Mid-Autumn Festival.

Will the September LPR "cut rates"?

On Friday (September 20th), the People's Bank of China will announce the September LPR quotation.

Following a 10 basis point cut in the 1-year and 5-year LPR on July 1, the August LPR remained unchanged, with the current 1-year LPR quotation at 3.35% and the 5-year LPR quotation at 3.85%.

On Friday the 13th, the National Bureau of Statistics released financial data for August. In response to weak demand for residential loans, Wen Bin, Chief Economist of China Minsheng Bank, indicated that there is a high demand in the market for a further reduction in existing home loan rates. Lowering existing home loan rates to a certain extent is beneficial for alleviating early repayment of mortgages, enhancing the sustainability of household debt, promoting the recovery of consumer demand, and creating a fairer financing environment.

Wen Bin stated that there is a high probability of a reduction in existing home loan rates in the future, gradually approaching the pricing of new mortgages, which overall helps stabilize household credit. However, in an environment where bank interest rate spreads are increasingly under pressure, it is also necessary to further reduce deposit rates and lower the cost of liabilities to enhance the sustainability of financial support for entities.

When interpreting the August financial statistics, officials from the People's Bank of China mentioned that monetary policy will be more flexible, precise, and effective, with increased control efforts. They will accelerate the implementation and effectiveness of financial policy measures already introduced, begin to introduce some incremental policy measures, further reduce corporate financing and household credit costs, and maintain reasonable and adequate liquidity. Xiong Yuan, Chief Economist of Guosheng Securities, predicts that the People's Bank of China may still cut reserve requirements and interest rates within the year, and is likely to adjust existing home loan rates.

Huatai Securities pointed out in their analysis of August economic data that looking ahead, the improvement in China's manufacturing competitiveness is expected to support export growth. However, the weak domestic demand situation may intensify the urgency and necessity of counter-cyclical policy adjustments. It is expected that September to October may see a "window period" of loose monetary policy. In response to the timing of policy adjustments such as reserve requirement ratio cuts and interest rate cuts, Zou Lan, Director of the Monetary Policy Department of the People's Bank of China, also responded at a press conference held by the State Council Information Office, stating that "it is still necessary to observe the economic trends." Zou Lan also mentioned that by comprehensively using tools such as statutory deposit reserve ratio, 7-day reverse repurchase agreements, medium-term lending facilities, and buying and selling government bonds, the goal is to maintain the liquidity of the banking system reasonably adequate. As for interest rate cuts, it is still constrained by the dual pressures of "deposit migration" and net interest margin pressure on banks.

On Wednesday (September 18), the central bank had 591 billion yuan of 1-year medium-term lending facilities (MLF) maturing, and attention was focused on the central bank's decision on whether to renew the maturing MLF.

The MLF that matured on the 15th of last month was renewed on August 26. Wen Bin stated that the central bank announced the renewal of MLF within the month on the 26th, further signaling the routine extension of MLF operations to the 25th. Wang Qing, Chief Macro Analyst at Orient Securities, also believes that with the fading color of MLF policy rates, it is no longer necessary to conduct MLF operations on the 15th of each month to provide a pricing basis for the LPR quotation of the month.

The "decoupling" between MLF rates and LPR rates is gradually becoming apparent. In the monetary policy report for the second quarter released earlier, the central bank stated that the LPR quotation is shifting to more reference the central bank's short-term policy rates, gradually straightening out the interest rate transmission relationship from short to long term.

All eyes on the Fed interest rate decision: 50 basis points or 25 basis points?

In the early hours of Thursday (September 19), the Federal Reserve announced its September interest rate decision, and Federal Reserve Chairman Powell will speak at 2:30.

Currently, a rate cut by the Federal Reserve is almost certain, but the extent of the rate cut remains uncertain.

The recently released data has been "mixed," whether it is inflation or employment data, neither has decisively determined the extent of the rate cut. Wednesday's CPI data showed that inflation still has stickiness, raising the probability of a 25 basis point rate cut, while Thursday's PPI data showed a significant cooling on a year-on-year basis, increasing the possibility of a 50 basis point rate cut.

On Thursday local time, an article by Nick Timiraos, a Wall Street Journal reporter known as the "Fed News Agency," stated that starting with a 25 basis point rate cut is the least resistant approach, avoiding market panic caused by a large rate cut and the challenge of explaining a substantial rate cut before the election; however, starting with a 50 basis point rate cut can reduce the debate on the extent of subsequent rate cuts.

After Timiraos' article was published, the market significantly increased the probability of a rate cut in September, erasing the decline after Wednesday's CPI data.

Former Federal Reserve "number three" and former New York Fed President Bill Dudley's speech at a forum in Singapore this Friday also fueled expectations of a substantial rate cut

"I believe that whether they (the Federal Reserve) cut interest rates or not, there is sufficient reason to cut by 50 basis points."

As of Friday evening local time, traders are betting that the probability of the Federal Reserve cutting interest rates by 50 basis points next week has surged to 50%, up from 15% on Thursday.

With the expectation of a rate cut likely to be realized soon, gold prices broke through historical highs on Friday (September 13th), with spot gold prices reaching $2,586.09 per ounce at one point. The price this week has risen by over $80, marking the strongest weekly performance since 2020.

Focus on the timing of the next rate hike by the Bank of Japan

On Friday morning (September 20th), the Bank of Japan will announce its September interest rate decision, with Governor Haruhiko Kuroda holding a monetary policy press conference at 14:30.

Market surveys show that slightly more than half of observers believe that the Bank of Japan's next rate hike will be in December, with no rate hike expected at the September meeting. Attention will be paid to Kuroda's remarks on the timing of the next rate hike after the meeting.

However, Bank of Japan board member Junko Nakata stated in a speech on Wednesday (September 11th) that the pace of adjusting the level of monetary easing depends on economic, inflation, and financial conditions. As long as the economic performance meets expectations, the BOJ will continue to adjust its monetary policy.

Currently, traders are assessing the impact of the Bank of Japan's monetary policy and the U.S. presidential debate on the foreign exchange market. Analysts suggest that if Japan's next rate hike is in December, it may trigger a significant rebound in the USD/JPY pair, and the best window for USD bulls to re-enter the market is expected to appear before the end of next week.

Other important data, meetings, and events

• U.S. Retail Sales in August

On Tuesday (September 17th), the U.S. Census Bureau will release the month-on-month data for retail sales in August. Data released last month showed that U.S. retail sales in July increased by 1% month-on-month, exceeding expectations across the board. The overall retail sales growth rate hit a new high in a year and a half, but the data for the previous month was revised down for the eighth consecutive month, and the view of an economic soft landing still needs more data support.

The recently released Consumer Confidence Index for September shows that with the decline in U.S. inflation, consumers' short-term inflation expectations have fallen to a new low since December 2020, and the preliminary value of the U.S. Consumer Confidence Index in September hit a four-month high. The improvement in durable goods purchase conditions is the main factor driving the growth of the Consumer Confidence Index, as consumers believe prices are more favorable.

• 9th Huawei Connect Conference The 9th Huawei Full Connect Conference will be held from September 19th to September 21st with the theme "Winning Together in Industry Intelligence", including topics such as Kunpeng, Ascend AI computing base, HarmonyOS native development ecosystem, and AI application landing.

During the conference, Huawei will also showcase its intelligent solutions in nine major fields including finance, government affairs, manufacturing, electricity, and railways. This includes Huawei's Star River AI Network, new energy power prediction AI solutions, to promote its comprehensive intelligence strategy (All Intelligence).

• Japan's August CPI

On Friday (September 20th), Japan's Ministry of Internal Affairs and Communications will release the August CPI data. Last month's data showed that the core CPI, excluding fresh food, rose by 2.7% year-on-year to 108.3, marking the 35th consecutive month of year-on-year increase, with the growth rate expanding for 3 consecutive months, indicating a steady rise in inflation.

Due to the Japanese government's cancellation of electricity and gas subsidy, the rise in energy prices has become the main reason for pushing up the CPI. In July this year, electricity prices in Japan rose by 22.3% year-on-year, urban gas prices rose by 10.8%, driving energy prices to rise by 12.0% year-on-year, significantly exceeding June's 7.7%, with an impact of 0.9 percentage points on the CPI increase.

• Domestic Refined Oil to Start a New Round of Price Adjustment Window

At 24:00 on Friday (September 20th), a new round of price adjustment window for domestic refined oil will open.

On September 5th, domestic oil prices welcomed the "seventh decrease" of the year: 92# gasoline decreased by 0.08 yuan per liter, 95# gasoline decreased by 0.08 yuan per liter, 0# diesel decreased by 0.08 yuan per liter. According to media estimates, for a typical family car with a 50-liter fuel tank, filling up with 92# gasoline will save 4 yuan.

Since the beginning of this year, China's refined oil prices have experienced 18 price adjustment windows, including 7 increases, 7 decreases, and 4 suspensions.

IPO Opportunities

During the week (September 16th to September 20th), there are 2 new stocks issued online in the A-share market, and Midea Group will be listed on the Hong Kong Stock Exchange, achieving an "A+H" listing.

There are a total of 9 new funds issued during the week (A and C classes combined), including 0 bond funds, 2 hybrid funds, 0 stock funds, 4 index funds, and 1 Reits.