Today's Market Focus: The People's Bank of China Cuts the Foreign Exchange Reserve Requirement Ratio


China's central bank cut the foreign exchange reserve ratio, large banks lowered existing first-home mortgage rates, and "home-based" policies expanded. U.S. personal spending rose, and the government faces another shutdown risk.

Market Review

Today's Market Focus

Key News

China's Market

1. Central Bank Lowers Foreign Exchange Deposit Reserve Requirement

The People's Bank of China announced that, to enhance the financial institutions' ability to utilize foreign exchange funds, the foreign exchange deposit reserve requirement ratio will be lowered by 2 percentage points from September 15, 2023, that is, from the current 6% to 4%. Lowering the foreign exchange deposit reserve requirement will release more foreign currency supply, affecting the supply and demand of foreign currency in the interbank foreign exchange market.

2. Several Major and Medium-sized Banks Officially Announce Lowering the Interest Rate for the First-Home Loans

Following the central bank's significant real estate policy, numerous domestic major and medium-sized banks quickly responded. ICBC, CCB, Agricultural Bank, Postal Savings Bank, China Merchants Bank, and Bank of Communications have successively announced that, in accordance with market and legal principles, they will provide convenient services through various online and offline channels and carry out the interest rate adjustment work in a lawful and compliant manner.

3. The "Recognizing House but Not Debt" Policy Further Expanded

Following Guangzhou and Shenzhen taking the lead in announcing the "recognizing house but not debt" policy, five cities including Zhongshan, Xiamen, Wuhan, Huizhou, and Dongguan have started to follow suit. The cities that implemented the "recognizing both house and debt" policy mainly include core first- and second-tier cities like Beijing, Shanghai, Shenzhen, Chengdu, severely limiting the group of homebuyers who need to buy better houses. Under the "recognizing both house and debt" condition, the down payment ratio for the second ordinary residential house in Beijing, Shanghai, Guangzhou, and Shenzhen is 80%, 70%, 70%, and 70%, respectively, which is 40% to 45% higher than the first down payment, and the interest rate difference for housing loans has reached up to 70BP.

4. Adjustment to the Standard Deductions for Three Special Individual Income Tax

A notice issued by the State Council mentions that, to further alleviate the financial burden on families for childbirth, child rearing, and elderly care, according to the relevant regulations of the "Individual Income Tax Law of the People's Republic of China," the State Council has decided to increase the standard deductions for personal income tax for childcare for infants under 3 years old, children education, and elderly care. The adjusted deduction standards have been implemented since January 1, 2023.

Overseas Markets

1. A Further Rise in US Personal Consumption Expenditures

The latest data from the US Department of Commerce show that the US PCE (Personal Consumption Expenditure) price index in July bounced back to 3.3% year-on-year from 3% in June, marking the largest year-on-year increase since June 2022. However, the core PCE price index, excluding food and energy - a closely watched inflation gauge by the Federal Reserve - rose slightly from 4.1% in June to 4.2% year-on-year. Financial institutions indicate that the latest PCE inflation and consumer spending data suggest that the struggle to reduce inflation may be slow and difficult, and the Federal Reserve may need to further tighten policy.

Focus 1

2. The US Government Faces Another Shutdown Risk

The Biden administration has officially requested Congress to provide a short-term funding solution to avoid a shutdown of the federal government on October 1, leading to intense conflict with House Republicans over spending issues. Alec Phillips, the chief US political economist at Goldman Sachs, expects that the federal government is more likely to face a "temporary shutdown" later this year as Congress may not reach a consensus on the spending bill for the next fiscal year. The last government shutdown occurred during the Trump administration from 2018 to 2019, lasting 35 days, which was the longest government shutdown in US history.

3. Russia and Opec+ Reach an Agreement to Further Cut Production

Russian Deputy Prime Minister Novak told President Putin that Russia has agreed with OPEC+ to further reduce oil exports. Russia's extension of cuts to oil exports comes as Saudi Arabia may extend its production cut plan. The vast majority of traders and analysts surveyed by the media expect Saudi Arabia's plan to cut oil production by 1 million barrels per day to extend at least until October. Saudi Arabia and Russia, being the two most important members of OPEC+, extending their production cut policies will further support the international oil prices.

4. Japan's Five Major Banks Raise Mortgage Rates

Five major Japanese banks have stated that due to the Bank of Japan's revision of its large-scale monetary easing policy, there is increased pressure to raise rates, and mortgage rates may further increase after September. This follows the Bank of Japan's decision last December to expand the long-term interest rate fluctuation range from 0.25% to 0.5%, the first time the five banks have raised rates simultaneously since January this year.

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