China's Sentiment Stimulus

Mobius Intel Brief:

The People’s Bank of China unveiled a series of stimulus measures Tuesday to combat stagnating growth and the country’s longest deflationary streak in over two decades (five quarters).

The PBoC’s announcement was reportedly arranged within the last 48 hours, closely trailing last week’s 50 bps Fed rate cut.

• The Fed’s ‘larger than expected’ cut enabled Tuesday’s PBoC stimulus, narrowing US-China rate differentials from a peak of 380 bps to 350 bps after the PBoC’s decision — the lowest since June 2023.

The PBoC announced two forthcoming changes to monetary policy:

• A 20 bps cut to China’s key policy rate — the 7-day reverse repo rate — to 150 bps.

• A 50 bps cut to banks’ reserve requirement ratio (RRR), bringing the RRR to 6% for medium-sized banks and 8% for large banks. (+$142B in new lending)

Additional policies to support China’s embattled property sector include:

• A 50 bps cut to outstanding mortgage rates,

• A 10% cut to the minimum down payment for second-time homebuyers to 15%,

• Allowing commercial banks to tap 100% of the RMB 300B relending facility to finance purchases of completed but unsold housing from developers (from 60%)

The PBoC unveiled two measures to support equity markets:

• A RMB 500B swap facility for brokers and funds

• A RMB 300B refinancing facility for listed companies’ and shareholders buybacks and share purchases.

Questionable Impact on Near-Term Demand

None of today’s policies directly target new infrastructure spending, instead adding incentives for buyers to soak up excess supply.

• Whether the stimulus brings enough buyers into the market to spur construction-driven commodity demand remains questionable.

• Home sales contracted further in August, falling nearly 27% Y/Y. Official estimates showed the country had more than 4.11 billion square feet of unsold new homes in July.

The renminbi, industrial metals, and crude gained after today’s PBoC announcement.

• The renminbi surged to a 16-month high against the dollar, bringing its total gains since the end of July to over 3.3%.

• Singapore TSI Iron Ore 62% closed 5.9% higher, adding 1.7% after hours

Bonus Brief: Norway’s Unplanned Gas Outages

Four unplanned field and processing plant outages compounded pipeline gas disruptions during Norway’s planned seasonal maintenance. Unplanned outages reduced flows to European markets by another 3.3 Bcf/d since Monday.

See today’s Norwegian pipeline gas flows to Europe

WWMD: What Would Mobius Do?

Mobius was founded in 2002 by a cadre of risk management and commodity trading experts. We monitor real-time global market data 24/7/365 to deliver exclusive strategy and analytics to our energy, metals, and agriculture clients.

This commentary contains our views and opinions and is based on information from sources we believe are reliable. This commentary is for informational purposes, should not be considered investment advice, and is not intended as an offer or solicitation with respect to the purchase and sale of commodity interests or to serve as the basis for one to decide to execute derivatives or other transactions. This commentary is exclusively intended for Mobius clients and is not considered promotional material.