Last week in the financial markets
· Tesla announced its first stock split in its history, a five-for-one split which will be taking effect on August 28th. This has already shown optimism among investors as its shares jumped by 7% after the announcement.
· Israel and the United Arab Emirates reached a historic peace deal that will normalise diplomatic relations between the Jewish state and the Gulf nation.
· Putin approves first Covid-19 vaccine, “Sputnik V”, even as trials go on.
· Global Covid-19 cases topped 21.5 million.
Driving forces for the week ahead
PBOC to the rescue
The Chinese market has had a very rocky ride in the last few months, and this is not solely because of the pandemic. Tensions between the US and China were already high due to the ongoing trade war, however, this has been escalating further given the Trump administration believes China is a big threat to America’s national security through their dominance in the technology sector with companies such as TikTok, WeChat and Huawei. As a result, China’s reputation, as well as its credibility, have been the topic of discussion.
With this in mind, authorities want to stimulate economic growth by providing stimulus to keep the Chinese slow bull market afloat – and that’s exactly what they’re doing.
The Shanghai Composite index reached its highest level since 2018, gaining 2.4% as the People’s Bank of China added 700 billion yuan ($101 billion) of one-year funding via the medium-term lending facility on Monday. This strategic move from the central bank aims to counterbalance the 400 billion yuan worth of loans due Monday and another 150 billion yuan in loans that are maturing on the 26th of August. By doing this, the PBOC can aid with providing enough funding to encourage the purchase of more government bonds.
The central bank kept the interest rates unchanged at 2.95% despite this added stimulus. The actions undertaken by the PBOC slowly hint at looser monetary policies, giving both the Chinese market and investors some hope for the country’s economic recovery.
What else we’re reading
· Russia says it is ready to provide Belarus with military support
· China and Russia ditch dollar in move towards ‘financial alliance’
· Japan sees record economic slump with recovery hinging on virus
· Turkey’s central bank is in a bind ahead of rates day
This week’s key events and data releases
Monday: US Democratic National Convention (17th-20th), JD.com earnings
Tuesday: Walmart and Home Depot earnings
Wednesday: Target and NVIDIA earnings
Thursday: US Initial/Continued Jobless Claims, ECB minutes released
Friday: UK & EU Chief Brexit Negotiators Meet