Daily Agenda: China Central Bank Unable to Prop up Markets

PBOC liquidity measures fail to stanch equity market sell-offs; Deutsche Bank sets aside billions for legal costs; Brazil’s central bank leaves rates unchanged.

The People’s Bank of China today announced that this week it has deployed a net 315 billion yuan ($47.88 billion) in fresh liquidity measures spread across the reverse repo markets. This brings the tally for total liquidity measures implemented in 2016 by China’s central bank to more than $150 billion. While holding money market and short term lending rates lower, the actions have done little for stock investors: the Shanghai Composite Index declined by more than 3 percent in trading today. Volatility in both mainland equity markets and renminbi valuations in Hong Kong year-to-date despite massive interventions have cast significant doubt over how much Beijing is capable of influencing markets.

Settlements cost Deutsche Bank billions in dollars. Yesterday Deutsche Bank, home of the largest investment banking franchise in Europe, announced that it expects to book a loss of more than $2 billion for the final quarter of 2015 as it grapples with legal and settlement costs relating to regulatory charges. The write-down comes at a time when bank revenues have already been reduced on the back of weaker investment bank segment performance. Full-year 2015 losses by the bank are expected to top $7 billion. Shares of Deutsche Bank declined by more than 5 percent in trading in Germany after the announcement.

Brazil’s central bank stays the course. The monetary policy committee of Brazil’s central bank voted yesterday to leave the benchmark Selic lending rate unchanged despite increasing political pressure to ease. The “b” in BRICS began the year mired deeply in recession and with an ongoing political scandal that has shaken the nation’s political system to its core.

U.S. jobless claims rise again. Weekly initial unemployment benefit claims data released today by the Department of Labor rose by 10,000 to 293,000 from a revised downward 283,000 last week. Continuing claims declined by 56,000 for the week. Despite recent increases in new job seekers consensus economist estimates for January employment outlook figures call for headline unemployment to remain unchanged.
ECB makes no changes. The monthly monetary policy statement from the European Central Bank issued in Frankfurt this morning included no change in interest rates of asset purchase facilities. During the accompanying press conference ECB president Mario Draghi outlined the need for rates to remain at historic lows as both regional and global growth prospects are weighted down by deflationary forces.
Airline earnings miss. Fourth-quarter earnings announced today by United Continental Holdings was significantly weaker than anticipated with net earnings per share of $2.54 versus consensus forecasts for $2.56. Revenue for the carrier declined by 3 percent versus the same three month period in 2014 as a strong demand and geopolitical concerns impacted profitability for international flights.