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In a widely expected move, China cuts banks’ required reserve ratio, Turkey’s Erdogan claims election victory amid protests and a roundup of OPEC. Here are some of the things people in markets are talking about today.
China’s Reserve Cut
China’s central bank will cut the amount of cash some lenders must hold as reserves, unlocking about 700 billion yuan ($108 billion) of liquidity, as it seeks to control leverage and support smaller companies. The required reserve ratio for some banks will drop by 0.5 percentage point, effective July 5, the People’s Bank of China said on its website Sunday. The aim is to support small and micro enterprises, and to further promote the debt-to-equity swap program, according to the central bank. The cut will apply to major state-run commercial banks, joint-stock commercial lenders, postal banks, city commercial lenders, rural banks and foreign banks. Such a reduction had been widely expected, especially after China’s cabinet said on Wednesday that it would use monetary policy tools, including cutting reserve ratios for some banks, to boost credit supply to smaller companies.
Recep Tayyip Erdogan, modern Turkey’s longest-serving ruler, claimed a mandate to govern with sweeping new powers after an election victory that left his opponents alleging fraud. Erdogan had 53 percent of the presidential vote to 31 percent for his closest challenger, Muharrem Ince of the secular Republican People’s Party or CHP, with 98 percent of ballots counted, the government news agency Anadolu said. Erdogan, who has governed since 2003, has presided over an economic boom that has threatened to turn into a bust in recent months. The currency plunged and capital fled as Erdogan fought with his own central bank, insisting against economic orthodoxy that interest rates need to be lowered.
A fairly light week for economic data in Asia, with Indonesia trade and Singapore CPI on the docket. New Zealand’s central bank cash rate decision on Thursday will be among highlights. New Zealand trade data and China industrial profits are also due. Further afield, European Union leaders gather in Brussels with migration, Brexit and U.S. President Donald Trump’s tariffs topping the agenda.
Emerging Markets Set Tone
Emerging markets remain in the spotlight this week, with the lira getting a nice bounce as Erdogan claimed victory in Turkey's election. That's the most pronounced market move in early Asian trading on Monday, with stocks signaling small gains in Hong Kong and Australia. The euro nudged up 0.1 percent. All eyes will be on Chinese assets on the back of the RRR cut for some banks in a widely telegraphed move that may come as a relief to some who fear the worst from U.S. tariffs and an economy that's already under pressure. The S&P 500 Index climbed on Friday, with energy shares surging as as OPEC’s plans to boost output less than some investors had anticipated sent oil on a tear.
Saudi Arabia promised to act decisively to keep oil prices under control, signaling a real supply boost approaching 1 million barrels a day is on the way to global markets. By winning an OPEC deal that allows for higher production, Saudi Arabia and Russia got what they wanted, cementing the hold of the world’s two biggest oil exporters. Iran said it doesn’t believe buyers of its oil will get waivers from the U.S. government that would allow them to continue purchasing cargoes after President Trump’s renewal of sanctions. Iranian Oil Minister Bijan Namdar Zanganeh said Total SA and Royal Dutch Shell Plc have already stopped buying its crude. The more significant longer-term development that may come out of last week’s Organization of Petroleum Exporting Countries’ meeting is moves to make Russia’s role in managing global supply permanent. Russia isn’t a member of OPEC, but for the last two years has led a group of countries outside the group lending support to the cartel, creating a coalition of 24 producers that’s been dubbed OPEC+.
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