SHANGHAI/SINGAPORE (Reuters) - Yield differentials between China and the United States widened to their highest 16 years on Wednesday, as investors speculated that China's central bank would ease monetary policy further after a surprise rate cut, even if it puts the yuan under pressure.

The People's Bank of China (PBOC) unexpectedly cut key policy rates for the second time in three months on Tuesday, in a fresh sign that the authorities are ramping up monetary easing efforts to boost a sputtering economic recovery. And markets widely expect the PBOC to loosen monetary policy further.

Earlier in the session, the PBOC also ramped up liquidity injection by offering the most short-term cash through seven-day reverse repos in open market operations since February. [CN/MMT]

China remains an outlier among global central banks as it has loosened monetary policy to shore up a stalling recovery whereas others, particularly the United States, have been in tightening cycles as they battle high inflation.

But the divergent monetary policy paths between the world's two largest economies widened the yield gap to 164 basis points between China's benchmark 10-year government bonds and U.S Treasuries's - the highest since February 2007.

"The significant yield gap, the largest since 2007, could be a key reason why capital remains planted in US dollars and US Treasuries for the time being," said David Chao, global market strategist at Asia Pacific at Invesco.

"More broadly, recent economic data releases in China have been disappointing, while those in the U.S. have surprised to the upside."

The widening yield gap reduced foreign appetite in China's onshore yuan bonds, with latest official data showing overseas investors' holding declined in July.

Tumbling credit growth and rising deflation risks in July warranted more monetary easing measures to arrest the slowdown, market watchers said, while default risks at some major property developers and missed payments by a private wealth manager also hurt confidence in China's financial markets.

In derivatives market, one-year interest rate swaps, a gauge that measures investor expectations of future funding costs, fell to 1.84% this week, the lowest since September 2022, suggesting some market participants are pricing in further rate reductions.

But the expectations for further monetary easing and capital outflow risks has pressure on the Chinese yuan to depreciate further. The yuan has lost about 5.5% against the dollar since the start of the year, making it one of the worst performing Asian currencies.

"The PBOC will need to do more to manage the pace of yuan depreciation," Eugenia Victorino, head of Asia strategy at SEB, said in a note.

By Lucy Craymer

WELLINGTON (Reuters) -New Zealand's central bank held the cash rate steady at 5.5% on Wednesday but slightly pushed out when it expects to start cutting the cash rate to 2025, which provided some support for the New Zealand dollar.

The decision was in line with expectations from 29 economists in a Reuters poll all forecasting the Reserve Bank of New Zealand (RBNZ) would leave the cash rate at a 14-year high for the second consecutive meeting.

"The committee agreed that the OCR (official cash rate) needs to stay at restrictive levels for the foreseeable future to ensure annual consumer price inflation returns to the 1% to 3% target range," the statement said.

It said conditional on its central economic outlook, the cash rate would need to remain at around its current level for slightly longer than was assumed in its May statement to meet its inflation and employment objectives.

The RBNZ continues to forecast the official cash rate (OCR) to peak at its current level of 5.5% with some upside risk of another hike, but now does not expect to cut until the first half of 2025, according to the monetary policy review (MPR) accompanying the rate decision.

The New Zealand dollar bounced off lows following the statement to trade up 0.2% at $0.5961, while New Zealand bank bill futures slipped as the market priced in slightly more risk of another hike.

A front-runner in withdrawing pandemic-era stimulus among its peers, the RBNZ has battled to curb inflation, lifting rates by 525 basis points since October 2021 in the most aggressive tightening since the official cash rate was introduced in 1999.

New Zealand's annual inflation has come off in recent months and is currently 6.0%, just below a three-decade high of 6.7%, with expectations it will return to the central bank's 1% to3% target by the second half of 2024.

The rate hikes have sharply slowed the economy, now in a technical recession following two quarters of negative growth.

SEOUL (Reuters) - South Korea will expand financing support for exporting companies by around 50% more this year, the financial regulator said on Wednesday, to bolster exports amid persistently weak demand.

The Financial Services Commission (FSC) said it would provide a total of 23 trillion won ($17.2 billion) worth of financial support for exporters through public and private banks from September, along with other measures to ease difficulty in trade financing.

It comes on top of 41 trillion won worth of financial support already provided through policy funds so far this year, the FSC said in a statement.

Specific measures include expanded credit and lower borrowing costs for companies entering new markets, bidding for overseas project orders, and making investment in major industries such as semiconductor, rechargeable battery, biopharmaceuticals and nuclear energy.

The measures are aimed at supporting a recovery in exports as well as improvement in mid- and long-term competitiveness of exporting companies, the FSC said, citing difficult conditions they are facing from weakened supply chains and intensified competition for advanced technologies to high interest rates.

South Korea's July exports fell for the 10th straight month and at the steepest pace in more than three years, raising concerns that the downturn may drag on longer than expected amid weak demand.

South Korea's economic growth sped up in the second quarter, after narrowly averting a recession in the first, but it was due largely to an improvement in net trade as imports fell more than exports, while consumer and business spending weakened.

($1 = 1,336.4600 won)

By Laurie Chen and Albee Zhang

(Reuters) -China suspended publication of its youth jobless data on Tuesday, saying it needed to review the methodology behind the closely watched benchmark, which has hit record highs in one of many warning signs for the world's second-largest economy.

The decision announced shortly after the release of weaker-than-expected factory and retail sales data sparked rare backlash on social media amid growing frustration about employment prospects in the country.

It also marks the latest move by Chinese authorities to restrict access to key data and information, a trend that is unnerving overseas investors.

Fu Linghui, a spokesman for the National Bureau of Statistics (NBS), said the release of data would be suspended while authorities look to "optimise" collection methods.

"In recent years, the number of university students has continued to expand," Fu said. "The main responsibility of current students is studying. Society has different views on whether students looking for jobs before graduation should be included in labour force surveys and statistics."

This issue, as well as the definition of the age range currently set at 16-24, "needs further research," Fu said.

In recent months, China has restricted foreign users' access to some corporate registries and academic journals, and cracked down on due diligence firms operating in the country, a vital source of information on China for overseas businesses.

"The declining availability of macro data may further weaken global investors' confidence in China," said Ting Lu, chief China economist at Nomura, adding that youth unemployment was expected to have risen in July.

At the height of its COVID-19 outbreak late last year, China abruptly changed the way it classified deaths from the disease, a move that fueled criticism abroad and at home.

Tuesday's move has also been met with scepticism at home as young Chinese face their toughest summer job-hunting season.

The most recent NBS data on youth unemployment, published last month, showed the jobless rate jumping to a record high of 21.3% in June.

Some 47% of graduates returned home within six months of graduation in 2022, up from 43% in 2018, state-run China News Service reported last week, citing a private-sector survey.

"If you close your eyes then it doesn't exist," one user wrote on microblogging site Weibo (NASDAQ:WB), where a hashtag related to NBS' decision received over 10 million views.

"There is a saying called 'burying your head in the sand'," wrote another user.

The Russian rouble fell past the psychologically key 100 per U.S. dollar on Monday.

President Vladimir Putin's economic advisor said Russia was interested in a strong rouble and that loose monetary policy was the main reason behind the currency's weakening.

COMMENTS:

PIOTR MATYS, SENIOR FX ANALYST, IN TOUCH CAPITAL MARKETS, POLAND.

"The rouble remains under the selling pressure in the current global environment dominated by concerns about China, which is Russia's most important trading partner."

"The sharp fall in Russia's current account surplus leaves the rouble more vulnerable to global sentiment. The CBR (Russian central bank) may have to raise interest rates further to cool down domestic demand and slow down imports to stabilize the rouble."

A look at the day ahead in European and global markets from Wayne Cole.

It's been a nervy start to the week in Asia as concerns about China's debt-laden property sector take a toll on stocks and the yuan, which hit its lowest in a month despite a strong fix from the PBOC.

Chinese blue chips lost 1.1%, on top of a 3.4% decline last week. Shares of Country Garden slid more than 12% to all-time lows after the real estate company suspended trading in 11 of its onshore bonds.

Data on bank lending and credit on Friday were just the latest dire reading, though all the chatter about deflation is a bit premature. One month of negative consumer prices is not really deflation, which is defined as a sustained fall in the price level across an economy.

Core inflation actually doubled to 0.8% y/y and the drop in consumer prices was largely driven by year-ago volatility in pork prices. While pork is important in China, it's hardly the entire economy.

Still, western analysts argue Chinese consumers need to save less and spend more to get the economy moving, and Beijing seems to be taking an almost moral view on consumption, like it's a sin. That puts the focus on retail sales on Tuesday where a rise of 4.7% is forecast, though a wide range of estimates from +2.8% to +10.8% suggests a surprise is possible.

The same goes for U.S. retail sales on Tuesday where the median is for a 0.4% increase, but BofA is tipping 0.7% based on credit and debit spending in the month. A strong result would presumably be positive for corporate earnings but also challenge the market's sanguine view on the Fed, where futures are pricing a 70% chance the tightening cycle is over.

That would not be welcome news to Treasuries, which are being forced to cheapen to maintain demand as the government borrows large to fund its $1.6 trillion budget deficit.

Yields on 10-year notes crept up to 4.18% on Monday and within spitting distance of the 2023 top of 4.206%, a break of which would be bearish for a test of last year's 4.337% high.

With the Bank of Japan keeping JGB yields around 0.62%, the widening spread lifted the dollar to a fresh 2023 peak of 145.22 yen on Monday. Anything above 145.00 risks Japanese intervention, but bulls have their eyes on the top from last October at 151.94.

The dollar is also flying on the Aussie and kiwi and a range of emerging Asian currencies, which are being dumped as proxies for China risk.

Key developments that could influence markets on Monday:

- German wholesale prices for July feature in an otherwise empty diary

(By Wayne Cole; Editing by Jacqueline Wong)

By Clare Jim

HONG KONG (Reuters) -Chinese property giant Country Garden's shares plunged to fresh record low on Monday, while its offshore bonds were also pressured after its onshore paper was suspended from trading as its debt problems deepened.

Markets remain jittery as the trouble in China's largest private property developer could have a chilling effect on homebuyers and financial institutions, further dampening the prospect of a near-term recovery in the sector and the broader economy.

A core pillar of China's economy, the real estate sector has already seen plunging sales, tight liquidity and a series of developer defaults since late 2021.

Shares of Country Garden shed more than 15% to HK$0.83 in morning trading, dragging down the Hang Seng Mainland Properties Index which dropped 4.6%. The stock has lost nearly 50% so far this month.

Country Garden's offshore bonds also eased, with a few trading at the lower end of 6 cents on the dollar. Its January 2031 bond traded at 6.071 cents as at 0228 GMT, according to data by Duration Finance.

In separate filings during the weekend, the firm said it would suspend trading in 11 of its onshore bonds from Monday, and their resumption of trading would be determined at a later date.

The move followed reports on Friday that the company was heading for a debt restructuring, after it missed payments of two dollar bond coupons due on Aug. 6 totalling $22.5 million.

Once considered a more financially sound developer, Country Garden's woes added to spillover concerns across a property market already grappling with weak buyer demand.

State-owned China Jinmao said in a filing on Sunday it expected to post a 80% decline in net profit in the first half of this year, due to a drop in gross profit margin in some projects and decrease in land development revenue. Its Hong Kong-listed shares slumped over 7% on Monday.

By Daniel Leussink

TOKYO (Reuters) - Japanese automakers are getting much-needed cover from an old standby, as the weaker yen helps prop up profits amid declining sales in China and the increasingly tough shift to electric vehicles.

Toyota, Honda and Nissan (OTC:NSANY) recently reported earnings that topped analyst estimates by 6% to 21% in the three months through June, and all cited the currency as a factor.

"If the yen stays low, they clearly benefit but it doesn't offset any other concerns," said Satoru Aoyama, senior director at Fitch Ratings Japan.

"They are struggling in the Chinese market," he said. "They just don't have an immediate solution" for their problems there, he added.

Nissan late last month upgraded its full-year operating profit forecast, raising it by 30 billion yen ($208 million) to 550 billion yen. About 20 billion yen of that came from the currency, CFO Stephen Ma told a briefing.

A weak yen has traditionally lifted profits for Japan's big exporters, although it is no longer as large a boon for automakers that have increased their overseas manufacturing in recent years.

Automakers' shares are quick to react to swings in the yen, although the companies themselves tend to stick to conservative forecasts for the currency.

For instance, Toyota has stuck to its forecast for an average exchange rate of 125 to the dollar this business year, a level not seen since April 2022, about a month after the U.S. Federal Reserve started raising interest rates. The yen was at 144 on Thursday.

At smaller Subaru (OTC:FUJHY), a move of one yen against the dollar has a 20 billion yen impact on operating profit, CFO Katsuyuki Mizuma said earlier this month.

On Wednesday, a Honda official said its April-June operating profit came in tens of billions of yen higher than expected, with the weak yen accounting for about half of that.

"The yen wasn't only weak against the dollar, but also against other currencies, including in Asia and Europe, so that comes through as a profit," the official said.

CHINA STRUGGLE

The yen's cushion couldn't come at a better time for Japanese automakers, which are struggling in China. The world's largest auto market is increasingly being dominated by home-grown players.

Nissan's China sales to retail customers slumped 46% during the quarter and those of Honda were down 5%.

Sales of Toyota, including of its Lexus luxury brand, rose over the period. For the first half of the calendar year, they declined almost 3%.

Japanese automakers have also been slow to pivot to the growing global market for electric vehicles with competitive offerings.

It is unclear how long the weak yen will last. Japan's central bank recently tweaked its cap on bond yields, sparking expectations it could eventually exit the ultra-loose policy that has weighed on the currency.

Influential former finance ministry official Eisuke Sakakibara told Reuters the yen could strengthen to 130 by the end of the year.

Subaru has kept its forecast at 128 yen, CFO Mizuma said, citing the difficulty in predicting the currency.

"We're really closely watching exchange rates," he said.

($1 = 144.2400 yen)

Investing.com -- Wednesday’s minutes of the Federal Reserve’s July meeting will be closely watched as investors look for guidance on the near-term path of interest rates. Retail sales data and retail earnings will give insights into the health of consumer spending while data out of China is expected to underline concerns over the faltering recovery in the world’s number two economy. Here’s what you need to know to start your week.

Fed minutes

Before markets start turning their attention to the Fed’s annual get together in Jackson Hole, Wyoming at the end of the month, investors will be focusing on Wednesday’s minutes from the central bank’s July policy meeting.

The Fed raised rates by 25 basis points last month and left the door open to another hike in September. The minutes will help investors gauge the appetite for further rate increases, although markets are betting on a pause in September.

Data last week showed that while U.S. consumer and producer prices increased moderately in July the overall trend indicated that inflationary pressures are easing.

The U.S. central bank has increased interest rates by 5.25 percentage points since March 2022 to bring inflation back down to its 2% goal.

U.S. economic data

The U.S. is to release July retail sales data on Tuesday which is expected to show a pickup in demand at the start of the third quarter after a smaller-than-expected increase in June.

Other data is expected to indicate that the manufacturing sector is still struggling - the Empire State manufacturing index is expected to fall into negative territory, while the Philly Fed manufacturing index is expected to remain in negative territory.

Data on the housing sector is expected to be more positive with reports on building permits and housing starts on Wednesday expected to show signs of stabilization.

The U.S. is also to release the weekly report on initial jobless claims on Thursday which is expected to tick lower after a larger than expected increase last week.

Retail earnings

Second-quarter earnings season is winding down with S&P 500 results presenting a mixed picture - companies are beating analysts' profit expectations at the highest rate in nearly two years even as revenue beats dropped to the lowest since early 2020.

The largest U.S. retailers are set to report their results this week, which will give investors an important insight into the health of consumer spending, a major driver of the U.S. economy.

Home Depot (NYSE:HD) is due to report ahead of the open on Tuesday, Target (NYSE:TGT) will deliver results on before Wednesday’s market open, followed a day later by Walmart (NYSE:WMT). Other major retailers such as Macy’s (NYSE:M) Nordstrom (NYSE:JWN), Kohl’s (NYSE:KSS) and Lowe’s (NYSE:LOW) will report in the coming weeks.

Investors will be focusing on what retailers have to say about how inflation is affecting margins as higher prices erode households’ spending power.

Chinese data

China’s post-COVID economic recovery has faltered in recent months after a strong first quarter, weighed down by weak demand at home and abroad.

Beijing is to release data on retail sales, industrial production and fixed asset investment on Tuesday, which are expected to point to only modest gains.

Data last week showed that China's consumer prices posted their first annual decline in more than two years in July, adding to pressure on policymakers to do more to shore up the economy.

Authorities have pledged to roll out measures to support the economy, though details have been scant, disappointing investors.

Oil price gains

Oil prices rose on Friday after the International Energy Agency forecast record global demand and tightening supplies, pushing prices higher for the seventh consecutive week, the longest streak of gains since 2022.

Demand touched an all-time high of 103 million barrels per day in June and could rise to a fresh peak this month, the IEA predicted.

Meanwhile, output cuts from Saudi Arabia and Russia set the stage for a sharp decline in inventories over the rest of 2023, which IEA said could drive oil prices even higher.

Supply cuts and an improving economic outlook have created more optimism among oil investors, OANDA analyst Craig Erlam told Reuters. However, he noted signs momentum was wearing thin after a sustained rally.

--Reuters contributed to this report

SYDNEY (Reuters) - The head of Australia's central bank on Friday said policy was in the "calibration stage" as the worst was over for inflation, though some further policy tightening might be needed depending on incoming data and evolving risks.

Appearing before lawmakers, outgoing Reserve Bank of Australia (RBA) Governor Philip Lowe said the recent data are consistent with the economy continuing to travel along the "narrow path" to a soft landing in which inflation eases without unemployment rising dramatically.

Inflation, which peaked late last year at over a three decade high of 7.8%, trended down to 6% last quarter and is projected to return to the RBA's target band of 2-3% in late 2025.

After a substantial increase of 400 basis points in interest rates since May last year, Lowe said policymakers were in the "calibration stage", as rates are already restrictive and working to establish a balance between supply and demand.

"Looking forward, it is possible that some further tightening of monetary policy will be required to ensure that inflation returns to target within a reasonable time frame," Lowe said, reiterating earlier comments.

"Whether or not this is the case will depend upon the data and the Board's evolving assessment of the outlook and risks."

This is Lowe's (NYSE:LOW) last such appearance given the government chose not to reappoint him when his first term ends in mid-September, instead elevating Deputy Governor Michele Bullock.

Lowe acknowledged it has been a difficult year for Australians.

"But the worst is over and we're getting to a place now to return to inflation back to target and a stronger labour market than we had before the pandemic," said Lowe.

The RBA's aggressive rate hikes have pushed up the cash rate to a decade-high of 4.1%, though it did pause in July and August to assess whether inflation was heading lower as desired.

Financial markets and analysts are split on whether there might be one more rate rise later this year..

Lowe added that rates would have to be 100 basis points above current levels to get inflation down to target in 2024.