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: