This month we track how a faster rise in the US 10-year treasury yields is becoming a cause of worry. Meanwhile, China has announced a stimulus package and lowered key policy interest rates to push economic growth.
1. Yield signals
The US Federal Reserve delivered a sharp cut of 50 basis points in its benchmark interest rate earlier this month amid a weak job market and fears of recession. However, despite the cut, the treasury yield curve rate has risen, especially for the benchmark 10-year notes. This has led to a wide gap with the closely followed two-year note yield, leading to what’s called a “bear steepener” (when long-term yields rise faster than short-term ones).
This signals expectations of higher inflation, a bearish outlook on the stock market, and a possibility of recession. The steep rate cut itself led to conversations about an “imminent recession” triggered by tighter monetary policy.
While several economists have also rung the recession alarm bells, the rising yield suggests the Fed may have to ease the interest rates further to avoid a recession. While the Fed has signalled cuts of 150 bps by the end of 2025, the market is expecting a 200 bps cut, according to CME Group’s FedWatch.
2. Revival plan
China has unveiled a vital stimulus package to revive its economy and meet the 5% growth target for 2024. The People’s Bank of China cut the benchmark seven-day reverse repo rate from 1.7% to 1.5% and reduced mortgage rates, bringing some loans below 4%. The minimum down payment for second-home purchases was lowered from 25% to 15%.
The moves are expected to benefit around 50 million households and their combined interest burden could be reduced by 150 billion yuan. As the world’s second-largest economy grapples with falling growth, a sluggish property market and weak consumer demand, reports indicate that Beijing may issue 2 trillion yuan ($284.43 billion) in special sovereign bonds as part of additional measures in the coming weeks, and consider further rate cuts later this year.
China’s GDP growth has consistently eroded in the past decade, with the post-pandemic growth being just 3% in 2022 and 5.2% in 2023.
3. Crashing crude
Brent crude oil prices have fallen to their lowest levels since August 2021, driven by expectations of higher supplies from Libya and the Opec+ group as well as weak demand growth. As of Friday, Brent crude futures were priced at $71.89 per barrel, while US West Texas Intermediate (WTI) was at $68.57.
This decline follows an agreement among rival factions in Libya to settle their disputes over the country’s central bank, potentially restoring over 500,000 barrels per day (bpd) to the market. Additionally, Opec+ plans to reverse 180,000 bpd of output cuts in December mainly due to Saudi Arabia’s shift away from its previously desired $100 price target, further exerting downward pressure on prices.
Lower crude oil prices are significant for import-dependent nations like India, which may see inflationary pressures ease and trade and current account deficits improve. However, demand growth from China after stimulus push and supply disruptions due to conflict in West Asia could push prices higher.
4. Breaking barriers
Indonesia’s growth as a key Asian economy has been steady, maintaining over 5% growth for most of the past two decades. However, finance minister Sri Mulyani Indrawati told CNBC that the current growth was insufficient for Indonesia to transition to a high-income nation, which the World Bank currently defines as having a gross national income (GNI) per capita of $14,005 or more. Indonesia’s GNI per capita stands at $4,870 in 2023, classifying it as an upper-middle-income economy.
As part of its “Golden Vision 2045″, Indonesia seeks to build a high-wage, skilled workforce and reduce poverty by its 100th independence anniversary. Despite a change in political power, incoming President Prabowo Subianto looks to continue reforms across sectors to sustain growth and avoid the middle-income trap, which is in line with the International Monetary Fund’s call for “ambitious structural reforms” to raise the country’s potential growth.
5. Pain point
Apple’s iPhone launches often generate excitement across the world. So did the launch of the iPhone 16 series, with visuals of long queues outside stores in many countries. The iPhone 16 Pro and the iPhone 16 Pro Max are more premium phones with better screens and cameras. However, the buzz failed to impress the stock market. Shares of Apple Inc. fell nearly 3% to $216.3 on launch day (16 September) amid reports of weaker-than-expected demand for the iPhone 16 Pro models.
Pre-order data from BofA Global Research showed shorter shipping times for the iPhone 16 Pro (14 days) compared to the iPhone 15 Pro (24 days), which signalled lower demand for the latest version. Analysts also cited the delayed release of Apple’s AI feature, Apple Intelligence, as one of the reasons behind unimpressed investors. However, the decline in the stock was short-lived as it pared losses in the next few days.
Pragya Srivastava has contributed to this story.
ENDS
