Today's Market Focus: The Risk of Default in the United States is Higher than in Spain


China's Big Four banks cut existing first-home mortgage rates. Foreign reserves fell in August while gold reserves rose for the 10th month. U.S. labor market cools, and default risk is higher than Spain's.

Market Review


Key News

Chinese Market

1. The Big Four Banks Officially Announce A Mass Reduction in First-Home Loan Rates

The four major state-owned banks, Agricultural Bank, Bank of China, China Construction Bank, and Industrial and Commercial Bank of China, have successively released announcements regarding the adjustment of interest rates for existing first-time personal home loans. The announcements stated that loans issued between October 8, 2019, and May 14, 2022, which use the LPR as the floating rate, can now be adjusted to the national policy's lower limit for first-home loan rates, i.e., the corresponding LPR without additional points (if the original lower limit on the first-home loan rates in the city where the loan was granted is higher than the LPR, the execution will be based on the lower limit of the city's policy at the time of loan issuance).

2. Foreign Reserves Decline in August, Gold Reserves Rise for Tenth Consecutive Month

According to statistics from the State Administration of Foreign Exchange, influenced by factors such as macroeconomic data from major economies, monetary policy expectations, the rise of the U.S. dollar index, a general decrease in global financial asset prices, exchange rate conversion, and changes in asset prices, China's foreign exchange reserves amounted to $3.1601 trillion, a decrease of 1.38% compared to the end of July. Gold reserves reported were 69.62 million ounces, an increase of 930,000 ounces, marking the tenth consecutive month of increase.

3. Shanghai Adjusts the Maximum Loan Period for Using Housing Provident Funds to Buy Second-Hand Homes

The Shanghai Housing and Urban-Rural Development Commission stated that to further enhance the role of housing provident funds in improving residents' living quality and conditions, the maximum loan period for borrowers purchasing second-hand homes aged between 6 (inclusive) and 35 years has been adjusted. This adjustment supports the extraction of housing provident funds for rental during the construction period and expands the scope of applicants for extraction.

4. State Media Stance on Illegal Share Reduction Enforcement Intensifies

China National Radio's Capital Eyes stated that against the backdrop of the Central Government's call to "energize the capital market and boost investor confidence," appropriately increasing the cost of illegal actions, strictly punishing illegal share reductions, strengthening the protection of the rights and interests of small and medium investors, and instilling a sense of awe towards regulations among major shareholders, directors, and senior officers of listed companies are part of the foundation for solidifying the rule of law in the capital market.

Overseas Markets

1. Fed's "Number Three" Says Whether to Raise Interest Rates Again Is Open

John Williams, the President of the Federal Reserve Bank of New York and a permanent voting member of the FOMC, stated that the current interest rate policy is in a restrictive state, which is "a very good place to be." Whether the interest rate policy is already effectively restrictive is an open question, and Fed monetary policy is not constrained by U.S. debt issues.

2. New Evidence of Cooling in the U.S. Labor Market

Due to the cooling of the once red-hot hourly labour market, Walmart, the private company employing the largest number of people in the US, changed its wage structure for hourly workers in mid-July, paying some new employees less than three months ago. This method of reducing wages paid to new employees indicates that employers are seeking to cut labor costs.

3. The Risk of Default in the United States is Higher than in Spain

Due to factors such as a stronger dollar, a sluggish global economy, and a downgrade by Fitch in early August, the price of U.S. sovereign debt five-year Euro CDS has risen to 49 basis points, its highest level since May. This makes the cost of insurance for this product higher than that of Spain and close to Greece, and its growth rate is faster than that of other North American countries such as Canada. Credit default swaps (CDS), regarded as "smart money," indicate that the risk of bankruptcy in the U.S. is even higher than in financially weaker European countries like Spain.

4. ECB Official Says Market May Underestimate the Possibility of a September Rate Hike

Klaas Knot, a member of the Governing Council of the European Central Bank and the President of the Dutch Central Bank, mentioned that although economic slowdown in the eurozone would certainly suppress demand, the latest inflation forecast would not directly significantly differ from the June forecast, suggesting investors might be underestimating the ECB's likelihood of raising interest rates this month. Central bank officials from Germany, Belgium, the Netherlands, Austria, and Latvia all expressed support for continuing to raise interest rates.

Today's Focus

Today, investors need to focus on Japan's second quarter seasonally adjusted real GDP, Germany's August CPI, changes in employment numbers and unemployment rate in Canada for August. Furthermore, speeches by Dallas Fed President Logan and San Francisco Fed President Daly also warrant investor attention.

Economic Data

Risk Warning and Disclaimer

The market carries risks, and investment should be cautious. This article does not constitute personal investment advice and has not taken into account individual users' specific investment goals, financial situations, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their particular circumstances. Investing based on this is at one's own responsibility.

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