This week, the Peoples Bank of China (PBoC) announced monetary measures to shore up its growth. These measures were as follows:

 

• Reserve requirement ratio (RRR) cut by 0.5%.
• Seven day reverse repo rate cut by 0.2%.
• Guiding banks to lower interest rates on outstanding home mortgages by 0.5%.
• Payment ratios for second homes lowered from 25% to 15%.

 

 

Meanwhile here in North America, the US began a new easing cycle by starting to cut interest rates. There is no doubt that the monetary policy has shifted to stimulus, the only question is how far it will go. If the central banks around the world all hit us with monetary stimulus, history tells us that asset prices have only one option – to go up! This does not necessarily mean that the stock market will go up, it just means that real tangible assets will likely go up, at least based on history.

 

Combine that with the falling US dollar, and asset prices look even better (Gold has made four new all-time highs in 2024 already). The chart below demonstrates how correlated the US dollar is to the 2-year nominal yield. If the US continues to cut rates, then the US dollar will likely continue to fall and commodities and tangible assets will likely continue to rise.

I have also included a report from our CIBC Economics team entitled “Revisionist history”.

 

As always, if you have any questions, please feel free to give us a call at any time.

 

Have a great weekend.

 

Milan