S&P 500 Retreats as Risk Sentiment Remains Subdued

The main event for today was the People’s Bank of China (PBoC) PBoC MLF decision, which has left the S&P 500 and other stock indices down. They conducted its Medium-term Lending Facility operation, aiming to maintain the 1-year MLF rate at 2.50%. This action aligns with the central bank’s previous efforts to ensure ample liquidity in the banking system.

S&P 500 H4 Chart – MAs Continue to Keep the Uptrend Going

Notably, the PBoC has refrained from adjusting shorter-term funding rates since August last year, demonstrating a consistent approach to monetary policy. In a surprising move last month, the PBoC maintained the 1-year Loan Prime Rate (LPR) at 3.45% while reducing the 5-year LPR by 25 basis points to 3.95%. This targeted action was intended to support the struggling property sector, which has faced challenges since 2020.

People’s Bank of China MLF Rate

• Medium-term Lending Facility (MLF) left at 2.5%, as expected
• Injects cash via MLF for the 16th month in a row
• Adds CNY 387bn vs. the 500bn yuan maturing
• MLF rate sets the scene for the monthly Loan Prime Rate (LPR) setting, due on the 20th.
• Current LPR rates are:
• 3.45% for the one year
• 3.95% for the five year
• Thus a net drain in MLFs. This is the first time since November 2022 that the PBoC has not net-injected funds via MLF.

The People’s Bank of China (PBoC) has maintained the 1-year Medium-term Lending Facility (MLF) interest rate at 2.5%, in line with expectations. This decision marks the 16th consecutive month that the central bank has injected liquidity through MLF operations. However, the amount injected this time, at CNY 387 billion, is less than the CNY 500 billion maturing.

This move suggests a net drain in MLF liquidity for the first time since November 2022. The MLF rate typically sets the stage for the monthly Loan Prime Rate (LPR) setting, scheduled for the 20th of the month. Currently, the LPR rates stand at 3.45% for the one-year period and 3.95% for the five-year period. The PBoC’s decision not to inject net funds via MLF may signal a shift in its monetary policy stance, potentially impacting future lending rates and liquidity conditions in the Chinese financial system.

The latest Chinese Credit Data for February 2024

• M2 money supply increased by 8.7% year-on-year, slightly below the expected growth of 8.8%. This growth rate remained unchanged from the previous period.
• New yuan loans amounted to ¥1.45 trillion, significantly lower than the previous figure of ¥4.92 trillion.