Markets mixed as upbeat US data outweigh rate concerns

HONG KONG, China - Asian markets were mixed Wednesday as investors weighed data showing the US economy remained resilient in the face of rising interest rates against the prospect of more tightening to bring inflation under control.

Wall Street popped higher Tuesday after a string of readings soothed concerns about a possible recession, while traders were also cheered by Chinese growth pledges.

However, reports that Washington could block the export of artificial intelligence chips to China weighed on sentiment.

US investors cheered news that a closely watched gauge of consumer confidence last month hit its highest level since January last year, while new home sales surged in May and orders for big-ticket manufactured items rose again.

The figures tempered fears that the world’s top economy could tip into recession because of more than a year of rate hikes, and lifted hopes the US Federal Reserve could still guide it to a so-called soft landing by also bringing inflation down to its two percent target.

Meanwhile, President Joe Biden on Tuesday said that while economists had predicted a contraction was on the way, it still had not materialized.

“It’s been coming for 11 months, well guess what? I don’t think it is going to come,” he told a fundraiser, flagging healthy jobs growth and anti-inflation measures.

But National Australia Bank’s Rodrigo Catril pointed to “the theme of ‘sectoral recessions’ playing with different lags, making the Fed job to tame inflation harder”.

He pointed to the property sector now performing well after being the first to be hit by rate hikes, while manufacturing is in recession at the same time the services sector is growing.

“Meanwhile the resilience of the labour market and consumer are feeding, not detracting from, inflationary pressures,” he added. “Overall, the data is telling us the Fed needs to keep its foot on the tightening pedal.”

In early Asian trade, investors struggled to maintain Tuesday’s momentum.

Tokyo, Sydney, Singapore, Wellington and Taipei all rose but Hong Kong, Shanghai, Wellington and Taipei dropped.

Investors are now looking forward to a meeting later Wednesday in Portugal of top central bankers including Fed boss Jerome Powell as well as the heads of the European Central Bank, the Bank of Japan and the Bank of England.

The BoJ is in focus as it stands by its ultra-loose monetary policy, even with the yen weakening on the back of expected Fed rate hikes.

The yen, which has lost almost 10 percent against the dollar this year, picked up slightly afer Japan’s top currency official Masato Kanda said authorities will respond should there be excessive foreign exchange moves.

Oil prices ticked slightly higher but made little impact on the more than two percent losses suffered Tuesday on long-running worries about demand caused by ever-rising interest rates, and as concerns ease over Russian supplies afer the weekend’s aborted uprising.

“With no visible interruption to Russian oil flows from the weekend political upheaval, prices are falling as oil markets return to focus on spot fundamentals, which have not changed,” said SPI Asset Management’s Stephen Innes. AFP

OFFICE OF THE GOVERNOR

CIRCULAR NO. 1175

Series of 2023

Subject: Reduction in Reserve Requirements

The Monetary Board, in its Resolution No. 727 dated 08 June 2023, approved the reduction in the reserve requirement (RR) ratios of deposit and deposit substitute liabilities of banks and non-bank financial institutions with quasi-banking functions (NBQBs).

Section 1. Section 251 of the Manual of Regulations for Banks (MORB) on Requiredreservesagainstdepositanddepositsubstituteliabilities , as amended by Circular No. 1154 dated 14 September 2022, is hereby further amended to read, as follows:

251 ACCOUNTS SUBJECT TO RESERVES; AMOUNTS REQUIRED

The following rules and regulations shall govern the reserves against deposit and deposit substitute liabilities.

Required reserves against deposit and deposit substitute liabilities. The rates of required reserves against deposit and deposit substitute liabilities in local currency of banks effective reserve week 30 June 2023 shall be, as follows: Reservable Liabilities UBs/KBs Digital TBs RBs/Coop Banks Banks a.

Section 2. Section 211-Q of the Manual of Regulations for Non-Bank Financial Institutions (MORNBFI) on Reserves against deposit substitutes is hereby amended to read, as follows:

211-Q RESERVES AGAINST DEPOSIT SUBSTITUTES

NBQBS shall maintain required reserves equivalent to nine and a half percent (9.5%) of peso-denominated deposit substitute liabilities as defined in Section 95 of R.A. No. 7653, as amended by R.A. No. 11211, regardless of maturities except: a. xxx; b. xxx; and c. xxx effective reserve week starting 30 June 2023.

Section 3. This Circular shall take effect on 30 June 2023 after its publication either in the Official Gazette or in a newspaper of general circulation.

FOR THE

BSP unwinds relief measure on alternative reserve requirement

By Julito G. Rada

THE Bangko Sentral ng Pilipinas said Wednesday it will begin to unwind the temporary regulatory relief measure allowing banks to utilize peso-denominated loans to micro-, small- and medium- enterprises and large enterprises impacted by the pandemic. The measure served as alternative compliance with the reserve requirements. It said in a statement the unwinding of the relief measure would coincide with the reduction in the reserve requirement ratios by June 30, 2023 to facilitate the transition, supporting the banks’ continued compliance with the RR and managing friction costs related to the policy adjustment.

“Starting 01 July 2023, universal and commercial banks shall no longer be allowed to use MSME and LE loans as alternative compliance with the RR,” it said.

Meanwhile, thrift, rural and cooperative banks will be allowed to utilize their outstanding MSME and large enterprises’ loans as of June 30, 2023 as alternative mode of compliance with the RR until such loans are fully paid, but not later than Dec.31, 2025.

“The outstanding MSME and LE loans of thrift, rural and cooperative banks that subsequently become past due or non-performing, or are extended, renewed, or restructured, shall no longer be eligible as alternative compliance with the RR,” it said.

Likewise, new MSME and large enterprises loans that are granted by banks after the expiry of the relief measure shall not be eligible as alternative compliance with the RR,” it said.

“The unwinding of the temporary relief measure will restore the use of the RR as an instrument for managing liquidity in the financial system in line with the BSP’s broader agenda of enhancing its liquidity management capabilities,” it said.