Economy in Brief

In this week's newsletter, we delve into key developments in Asia, focusing on China. Last week, China’s central bank (PBoC) announced a series of easing measures, including cuts to reserve requirements and interest rates (Chart 1). It also implemented targeted assistance for the struggling property sector, lowering mortgage rates and down payment requirements (Chart 2). Also, China’s Politburo pledged new support to bolster the economy, particularly for real estate, amidst disappointing economic data that have amplified concerns about meeting the 5% growth target for the year. Notably, these measures were announced just before China’s Golden Week holidays, starting this Tuesday. While initial market reactions have been positive (Chart 3), scepticism lingers due to the limited time remaining for these measures to impact growth.

Shifting to Australia, the central bank (RBA) maintained its policy settings in September, diverging from the easing trends seen in many G10 economies. This decision reflects ongoing inflation concerns (Chart 4), particularly from high services inflation (Chart 5). However, justifications for future easing remain, given weak domestic growth and increased mortgage burdens on households.

Finally, in Japan, the Bank of Japan (BoJ) maintained a dovish stance following July's financial market volatility, signalling continued patience regarding further tightening as inflation measures remain subdued for now (Chart 6). Additionally, in the political arena, the leadership change in Japan’s ruling Liberal Democratic Party (LDP) is worth monitoring, having prompted negative market reactions so far and with observers now focused on the upcoming general elections on October 27th.

China’s fresh easing measures In an effort to strengthen a struggling economy, China's central bank (PBoC) announced a series of easing measures last Friday 27th September, following Governor Pan's earlier remarks a few days before. The central bank specifically reduced the reserve requirement ratio (RRR) for banks by 50 bps and lowered the 7-day reverse repo rate by 20 bps (Chart 1). Pan also hinted in his Tuesday remarks that the RRR could be further decreased by an additional 25 to 50 bps, depending on market liquidity later in the year. Furthermore, he indicated that these measures could lead to a decline in the medium-term lending facility rate by about 30 bps and a decrease in the loan prime rate by 20 to 25 bps.

The U.K. distributive trades picture in September shows sales compared to a year ago moving into a positive reading of +4 in September after logging a -27 reading in August – a sharp turnaround. For wholesale trades, September continues to deteriorate with the September reading on sales compared to a year ago at -8, slightly weaker than the -7 reading in August. Other retail readings are also on an improving trend in September compared to August while for wholesale trades the evidence is of deterioration in September compared to August. These two key distributive trades sectors are not moving in tandem. And that phenomenon also holds for the look-ahead survey that samples expectations for October. Expected sales volumes in retailing in October compared to September have moved up to a +5 in October compared to -17 for September; for wholesaling, the October expectation for sales compared to a year ago is -6 compared with September's expectation of +6. Other expectations for October compared to September show improvements in retailing compared to further deterioration in wholesaling, further underscoring that these two sectors are experiencing very different trends. If there is incipient strength coming to retail, it has not percolated down to wholesaling yet.

Retailing The retail readings since September show improvement in sales compared to a year ago, orders compared to a year ago, and for sales evaluated for the time of year. The stock-sales ratio also moves up in September compared to August. The rankings for these September values show that sales compared to a year ago have a 44.4 percentile standing, orders compared to a year ago have a 24.6 percentile standing, and sales for the time of year have a 36.6 percentile standing. All of these are below the 50-percentile mark and therefore all reside below their historic medians. The stock-sales ratio has 66.2 percentile standing and is above its historic median. While showing monthly improvement, retail remains weak.

Expectations for October find sales compared to a year ago, orders compared to a year ago, and sales for ‘the time of year’ all improved compared to what had been expected in September. However, only sales compared to a year ago have a net positive reading. Again, the stock-sales ratio has a positive value that moves up to a reading of 20 in October from 18 in September. The rankings for these expectations are similar to the rankings for the currently reported counterparts of these indicators. Expected sales compared to a year ago have a 40-percentile standing, expected orders compared to a year ago have a 29.1 percentile standing, and expected sales for the time of year compared to a year ago have a 29.8 percentile standing. The expected stock-sales ratio has a very high 89.5 percentile standing. The readings are not strong, but they do show improvements in September and expected improvements for October and therefore they do represent some progress. However, the absolute readings for sales and expectations both are subpar.

Wholesaling Wholesaling shows deterioration in September compared to August for sales compared to a year ago, for orders compared to a year ago, and for sales for the time of year; the stock sales ratio moves up and has a positive reading. With all negative readings up and down the line, the stock-sales ratio would seem to be indicating an undesired increase in stocks relative to sales. The rankings for these measures are weaker than the counterpart rankings for retailing. And like the retailing rankings, the rankings for the stock-sales ratio was the highest.

Looking at expectations for October, again we see deterioration for all the metrics for wholesale sales compared to a year ago, for expected orders compared to a year ago, and for expected sales for the time of year. While they all deteriorate in October compared to September, they're roughly in line with or better than the surveyed numbers that had been reported for August. Once again, the stock-sales ratio is positive and moves up in October compared to September and once again the rankings for these expected readings are weaker than the retail sales counterpart expectations for the same measures.