It was a session of waiting around for the US inflation data due later on Wednesday until news dropped from China that the State Council is considering a proposal to have local governments across the country buy millions of unsold homes in an effort to further aid the very troubled property market. The unsold homes are a huge overhanging glut on the market, and are what might thought of as ‘toxic assets’, ripe for a relief program. The plan is said to be still in the early stages.

For FX the news meant a bid for the Australian dollar, a ‘China-proxy’ trade, as well as for the yuan. Forex gained more widely against the USD also.

Earlier in the session we had quite a bit of news flow, none of which was very impactful.

Kansas City Federal Reserve Bank President Jeffrey Schmid spoke, affirming the current Federal Reserve stance of holding rates higher for longer due to ‘more work’ needing to be done on inflation. Loretta Mester, president and CEO of Federal Reserve Bank Cleveland branch, was reported in a Wall Street Journal interview with similar comments, saying it is appropriate for the Fed to hold rates steady as it awaits evidence that price pressures are easing further.

The People’s Bank of China left its key policy rate, the Medium-term Lending Facility (MLF), unchanged when rolling over maturing medium-term loans, in line with market expectations. The rate was kept at 2.5%, with 125 billion yuan in one-year MLF loans to replace the 125bn expiring this month. On Monday the Bank will set Loan Prime Rate (LPR) rates. An unchanged MLF rate is strongly suggestive of unchanged LPR rates, though this is not always the case (see the MLF post linked above for more on this).

From Australia were Q1 2024 wage growth data. These were a touch below expectations, and the previous quarter, and the first drop since the worst of the pandemic.

USD/JPY was subdued today. It maintained a small range only. We were spared the usual ineffective rhetoric from Japanese officials.

Offshore yuan gained on the China distressed asset (unsold homes!) buy back plan:

usdcnh china buy unsold homes 15 May 2024 2