Week in Review: China Cuts Benchmark Lending Rates

Renewed fears of the global economic impact caused by the coronavirus outbreak was central to markets this week. Apple announced that it would be lowering its revenue guidance on lower demand for its products in China amid temporary retail store closures, which added to worries about the fallout from a slowdown in China’s economic growth. Positively, China responded by cutting its benchmark lending rates.

The People’s Bank of China (PBoC) reduced its benchmark loan prime rate (LPR) on Thursday, to lower borrowing costs and ease financial strains on companies. It cut its one-year loan prime rate from 4.15% to 4.05%, and the five-year rate from 4.80% to 4.75%. This follows a cut to the medium-term lending rate that was made on Monday as policymakers sought to ease the drag to the businesses from the coronavirus outbreak that has severely disrupted activity.

Minutes of the U.S. Fed’s January monetary policy meeting showed that policymakers were cautiously optimistic about their ability to hold interest rates steady this year as they stated that the U.S. economy seemed stronger in late January than they had expected. However, they expressed concerns about the threat of the coronavirus outbreak in China.

Japan’s economy shrank by a surprising 6.3% in the 4^th quarter for 2019 (Q-on-Q Annaulised) compared to estimates of a 3.7% contraction. This comes after the government raised its consumption tax (a broad value-added tax imposed on most of their purchases) from 8% to 10% on October 1^st, 2019.

In the UK, Prime Minister Johnson has ruled out extending the Brexit transition period beyond Dec 31, even if no trade deal is in place. The Government is preparing to unveil a large fiscal stimulus next month to bolster growth.  Meanwhile, unemployment fell to the lowest rate in four decades (3.8%).

For the week, global equity markets were softer. In the U.S., the Dow Jones (-1.38%), S&P 500 (-1.25%) and Nasdaq (-1.59%) Indices were all weaker. Similarly, the Euro Stoxx 50 (-1.06%), FTSE 100 (-0.07%) and Nikkei 225 (-1.27%) were all negative with the  Shanghai Composite Index (+4.20%) being the outlier.

Market Moves of the Week

Ratings agency Moody’s has cut its 2020 growth forecast for South Africa to 0.7% from a September forecast of 1.5%, saying the economy remains stuck in low gear due to lackluster domestic private-sector demand. It also attributed the revised forecast to “the detrimental impact of widespread power outages on the manufacturing and mining activity”.

Inflation increased to 4.5% in January, on a YoY basis, higher than market expectations for an increase of 4.4%.

U.S. Secretary of State Michael Pompeo said South Africa’s plan to expropriate private property without compensation would be “disastrous” for its economy.

The JSE All Share Index ended down 0.91%, with industrials (-1.88%) and financials (-3.51%) softer against a stronger performance from resource shares (+2.37%).

Chart of the Week

In this week’s chart, we look at various developed market regions economic dependence on China. If you want a haven from China, then, it is certainly not the euro. And it is probably the dollar. This chart from John Velis of Bank of New York Mellon Corp. shows that even though the U.S. has been the international aggressor in taking on China’s trade power, it stands to lose the least from that economy’s current difficulties. It is the obvious haven.

For assistance or more information, contact your Carrick Wealth Specialist directly or alternatively contact us at

wealthmanagement@carrick-wealth.com.

_{The information contained herein as well as the individual companies and/or securities mentioned should not be construed as investment advice, a recommendation to buy or sell, or an indication of trading intent on behalf of Carrick or any financial product. This communication is intended to be used for information purposes only by its designated recipients and is not an offer, recommendation or solicitation to transact. While it is based on information freely available to the public and from sources believed to be credible and reliable, Carrick Wealth makes no representation that it is accurate or complete or that any returns indicated will be achieved. Carrick Wealth is a registered South African financial services provider specialising in South African and international financial planning and integrated wealth management solutions. The Carrick corporate group is also licensed in Zimbabwe and Malawi, and holds three global licences in Mauritius.}