PBOC cuts rates

The People’s Bank of China (PBOC) cut its benchmark seven-day reverse repurchase rate by 10bps to 1.4% this morning, from 1.5% previously, as it looks to give some support to an economy that is coming under pressure from US tariffs. Other rates will drop in line with the benchmark. In addition, the reserve requirement ratio for banks has been slashed by 50bps, taking the average down to 6.2%. According to Governor Pan Gongsheng, this will release CNY 1tn worth of liquidity into the system. China and the US have also announced that the two countries will hold their first trade talks following the tariffs introduced by US President Trump this year. US Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer will travel to Switzerland for discussions with Chinese Vice Premier He Lifeng. In other trade discussions, the UK and India have signed a trade deal, cutting tariffs on alcoholic beverages, vehicles, and other goods.

Bahrain recorded real GDP growth of 3.4% y/y in Q4 2024, up from 2.9% the previous quarter. This marked the fastest quarterly growth print since Q4 2023 and puts full-year 2024 growth at 2.6%, with non-oil growth of 3.8%, offsetting a 4.0% decline in oil GDP. The non-oil sector accounted for 86% of GDP last year with information & communication the fastest-growing sector at 12.3%, followed by a 9.5% expansion in the professional, scientific & technical activities sector, 5.9% growth in accommodation & food services and 4.9% growth in transport & storage. Meanwhile FDI expanded by 5.7% last year to hit BHD 17.3bn (USD 45.9bn).

Net reserves in Egypt ticked up to USD 48.1bn in April, up from USD 47.8bn in March. This marked a new record high.

Today’s Economic Data and Events

10:00 Germany factory orders, % m/m, March. Forecast: 1.3%

22:00 US FOMC rate decision. Forecast: 4.5% (upper bound)

Fixed Income

• There were surprisingly large moves in USTs on the day prior to the FOMC meeting, with strong demand at an auction for 10yr notes prompting a rally across the curve. Yields on both the 2yr and the 10yr fell by 5bps, to 3.7827% and 42946% respectively.
• The FOMC is expected to hold rates unchanged tonight, leaving the upper bound of the Fed funds rate at 4.50%.

FX

• The dollar index sold off for the third day running yesterday, dropping 0.6% against its basket of peers, though it is picking up today on positive noises around trade discussions with China.
• CAD gained 0.3% against the dollar to 1.3778 yesterday as PM Mark Carney’s discussion with President Trump was seen positively, with the Loonie touching the strongest level since October.
• EUR gained 0.5% to 1.1370 after Friedrich Merz was elected Chancellor on the second attempt. JPY strengthened 0.9% to 142.45.

Equities

• US equity markets sold off yesterday. The S&P 500, the NASDAQ, and the Dow Jones closed down 0.8%, 0.9%, and 1.0% respectively. It was a similar story in Europe where the FTSE 100 closed flat but the other benchmark indices ended the day lower, with both the CAC and the DAX down 0.4%.
• Locally, the DFM added 0.2% while the ADX gained 0.6%. In Saudi Arabia, the Tadawul closed 0.1% higher.

Commodities

• Oil prices saw robust gains yesterday. Brent futures closed up 3.2% at USD 62.2/b while WTI added 3.4% to USD 59.1/b. They have received a further boost this morning from positive news around US/China trade talks, with both benchmarks heading higher in early trading.
• China reportedly cut its imports of US oil imports in March as tensions between the two countries started to rise, dropping from 149,000 b/d in February.
• The API reported a fall in US inventories of 4.4mn bbl last week.