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The decline in <keyword id="22920992" type="General" weightage="100" keywordseo="loan-to-deposit-ratios" source="keywords">loan-to-deposit ratios</keyword> (LDR) within the banking system has been attributed to lower <keyword id="22920578" type="General" weightage="20" keywordseo="money-creation" source="keywords">money creation</keyword> by the <keyword id="6354335" type="General" weightage="20" keywordseo="Reserve-Bank-of-India" source="Orion">Reserve Bank of India</keyword> (<keyword id="30067" type="General" weightage="20" keywordseo="RBI" source="Orion">RBI</keyword>) and higher <keyword id="20335010" type="General" weightage="20" keywordseo="profits" source="keywords">profits</keyword> accrued by banks over the past two years, according to <keyword id="2258232" type="General" weightage="20" keywordseo="Nomura-report" source="Orion">Nomura report</keyword>. One of the contributors to the decline in systemic LDR is the lower net money creation by the RBI over the fiscal year 2023-24. Cumulative net fresh money creation during this period amounted to only Rs 0.6 trillion, a contrast to approximately Rs 20 trillion created in the three fiscal years preceding it (FY20-22). This represents a drop in money supply compared to previous years. In the fiscal year 2023-24, the net money creation by the RBI was virtually neutral, recording -1 per cent in FY23 and +1 per cent in FY24, against a 20-year average of +3 per cent and a higher +4-5 per cent in the earlier three years. This moderation in money supply, a discretionary move by the RBI, has had a notable impact on the LDR, limiting the ability of banks to expand their lending relative to deposits. Another crucial factor influencing the decline in LDR is the substantial increase in <keyword id="387788" type="General" weightage="20" keywordseo="bank-profits" source="Orion">bank profits</keyword> over the last two years. In FY24, the total profit of banks was 1.8 per cent of the previous year's deposits, a rise from the average of 0.1 per cent observed between FY16-20. This increase in profitability, while indicative of strong financial performance, has led to a reduction in deposits as banks appropriate a larger portion of these profits. The relationship between bank profits and deposits is intrinsic; banks generate profits from their operations, which are ultimately derived from depositors' funds. As banks' profits rise, the balance sheet needs to be adjusted accordingly, often leading to a reduction in deposits. Consequently, higher profits can result in a diminished deposit base, further impacting the LDR. The elevated LDR, driven by these factors, should be viewed as a cyclical phenomenon rather than a systemic issue. The argument that banks are failing to mobilize deposits or that money is being diverted elsewhere is misplaced. Instead, flows into capital markets and the muted growth in currency in circulation over the past two years do not directly impact system deposits. Banks have continued to create deposits through credit expansion, and the factors leading to the higher LDR are beyond their control. The lower money creation by the RBI is a cyclical issue that is expected to correct over time, while the higher bank profits reflect a positive trend rather than a problem.

Lower money creation by RBI, substantial rise in banks profits behind decline in loan-to-deposits ratios in banks: Nomura

A unit of <keyword id="6437412" type="General" weightage="20" keywordseo="Qatar-Investment-Authority" source="Orion">Qatar Investment Authority</keyword>, <keyword id="119583" type="General" weightage="20" keywordseo="SBI-Mutual-Fund" source="Orion">SBI Mutual Fund</keyword>, and foreign investment funds <keyword id="6354527" type="General" weightage="20" keywordseo="Nomura" source="Orion">Nomura</keyword> and <keyword id="44473" type="General" weightage="20" keywordseo="Citigroup" source="Orion">Citigroup</keyword> were the biggest buyers of shares in <keyword id="19955648" type="General" weightage="100" keywordseo="Adani-Group" source="keywords" meta.keywordsubtype="org" meta.entityname="Adani Group" meta.hostid="267" meta.entityid="Adani Group">Adani group</keyword>'s <keyword id="22661797" type="General" weightage="20" keywordseo="power-transmission-unit" source="Orion">power transmission unit</keyword>'s USD <keyword id="22661798" type="General" weightage="20" keywordseo="1-billion-QIP" source="Orion">1 billion QIP</keyword>, according to a stock exchange filing by the company. The Rs 8,373.10 crore (USD 1 billion) qualified institutional placement (QIP) of <keyword id="19964750" type="General" weightage="20" keywordseo="Adani-Energy-Solutions" source="keywords" meta.keywordsubtype="org" meta.entityname="Adani Energy Solutions" meta.hostid="267" meta.entityid="Adani Energy Solutions">Adani Energy Solutions</keyword> Ltd (AESL), which closed last week, saw over 120 investors seek shares in the firm that is into power transmission, distribution and smart metering business. Billionaire <keyword id="22623487" type="General" weightage="20" keywordseo="Stanley-Druckenmiller" source="keywords">Stanley Druckenmiller</keyword>'s family office-led investment firms were among the companies that sought shares of AESL in the QIP. AESL in the filing said its board has approved allocation of over 8.57 crore shares to eligible qualified institutional buyers at the issue price of Rs 976 per share, reflecting a discount of Rs 51.11 (4.98 per cent) to the floor price of Rs 1,027. Giving details of allottees who got more than 5 per cent of shares, it said INQ Holdings LLC, a wholly-owned subsidiary of QIA, cornered 15 per cent of the shares sold. Two Mauritius funds of Citigroup bought 8.88 per cent of the shares sold while four SBI funds - SBI Infrastructure Fund, SBI Large &amp; Midcap Fund, SBI Long term Advantage Fund Series IV and SBI Magnum Children's Benefit Fund - together took home 7.93 per cent of the shares. Nomura Singapore Ltd ODI cornered 7.5 per cent of the shares, the filing showed. INQ had in August last year acquired nearly 2.7 per cent in Adani Green Energy Ltd - the renewable energy firm of the conglomerate run by billionaire Gautam Adani. In 2020, it had acquired a stake in Adani Electricity Mumbai Ltd, a subsidiary of AESL. The AESL QIP last week was oversubscribed six times and fetched demand of over Rs 50,000 crore against an issue size of USD 1 billion. <keyword id="22636516" type="General" weightage="20" keywordseo="Duquesne-Family-Office" source="keywords" meta.keywordsubtype="org" meta.entityname="Duquesne Family Office" meta.hostid="267" meta.entityid="Duquesne Family Office">Duquesne Family Office</keyword> and two other US-based long-only funds - Driehaus Capital Management and Jennison Associates - bought shares but AESL did not disclose the exact number of shares they bought since these were less than 5 per cent of the issue size, sources said. The QIP issue marked the debut of highly prestigious long-only investors Duquesne Family Office, Driehaus Capital Management and Jennison Associates which are known for their strong performance. These investors are known for investing only in companies with high governance and are known for staying invested for decades. The QIP was the first public equity raise by the conglomerate since a damning Hindenburg report last year wiped away billions in shareholder value. The demand generated made the AESL QIP the largest in the energy space. Duquesne was founded by billionaire Stanley Druckenmiller, who along with George Soros in 1992 broke the Bank of England by shorting the British pound, leading to its crash and earnings over a billion dollars. Adani Group has a history of introducing several long-only investors in the market. In the past years, it has brought large investors including GQG Partners and International Holding Company (IHC) besides QIA. Other major global names that participated in the QIP include Blackrock, Jupiter Asset Management, and Eastspring. Domestic mutual funds that have participated included HDFC Mutual Fund, Axis Mutual Fund, Bandhan Mutual Fund, LIC, WhiteOak, 360One among others. Insurance companies including SBI Insurance, SBI Pension and ASK Asset Management have also participated, according to sources. QIP is an instrument used by listed companies to raise funds from large institutions. The fundraise is the first after Adani group's flagship firm scrapped a Rs 20,000 crore issue in February last year, following the Hindenburg report alleging accounting fraud and stock manipulation. Though the group vehemently and repeatedly denied all allegations, listed companies of the conglomerate at one point saw over USD 150 billion of their market value being wiped out. While the group has largely recovered, a successful QIP is being seen as a powerful vote of investor confidence in the tycoon. Separately, Adani Enterprises Ltd, the flagship firm of the group, is looking to revive its first-ever public sale of bonds. It plans to raise as much as Rs 600 crore. The company has hired Trust Investment Advisors, AK Capital Services and Nuvama Wealth Management as lead managers for the issuances. The group had tapped the dollar bond market in March this year - the first time since the Hindenburg report - when its solar energy unit Adani Green Energy Ltd and associated firms got bids of about USD 2.9 billion.

Qatar Investment Authority unit, SBI funds, Citigroup biggest buyers in Adani Energy's USD 1 billion QIP

<ul class="summary-list"><li>The US economy faces a potential negative feedback loop ahead of Friday's jobs data release.</li><li>Nomura analysts compared current indicators to the 2000s dot.com crash and subsequent recession.</li></ul>The US economy is at an important moment ahead of this Friday's jobs data release, which could trigger a "vicious feedback loop" between the markets and the economy, analysts at Nomura wrote in a note published on Wednesday.This refers to a situation where negative news can drag markets lower — which in turn creates more negative news."We could be at a critical juncture: If this Friday's job report surprises by weakening further, and the equity market selloff deepens, we may not be far from triggering this vicious feedback loop," wrote Nomura research analysts Rob Subbaraman and Yiru Chen in their note titled "Market fear of recession could inadvertently cause it too."They based their assessment on a comparison with the <a target="_blank" class="" href="https://www.businessinsider.com/personal-finance/investing/biggest-stock-market-crashes-in-history">dot-com crash</a> that came before a recession in April 2001.At the time, the S&amp;P 500 and Nasdaq indexes fell by 24% and 56%, respectively, from their peaks in August 2000 to their troughs in March 2001.Meanwhile, the ISM Manufacturing Index fell and stayed below the 50 level from August 2000 until February 2002, indicating factory activities were in a contractionary mode.The unemployment rate was stable at 3.9% before jumping to 4.2% in January 2001.During the dot-com crash, the Fed started cutting interest rates in January 2001 — four months into the stock market correction, the Nomura analysts noted.Over the entire year in 2001, the Fed slashed the Fed funds rate by 475 basis points. It also warned of a negative feedback loop between the falling equity market and a weakening economy, wrote analysts.They cautioned that it could happen again — now.Like before the dot-com crash, household net worth as a percentage of disposable income has risen substantially, and the <a target="_blank" class="" href="https://markets.businessinsider.com/news/stocks/stock-market-today-nasdaq-selloff-nvidia-tech-ism-manufacturing-recession-2024-9">ISM manufacturing index</a> is in contractionary territory.Investors have been jittery since Tuesday, when the stock market saw its worst loss since a <a target="_blank" class="" href="https://www.businessinsider.com/markets-japan-rate-hike-yen-fx-carry-trade-stock-futures-2024-8">massive sell-off in early August.</a>This time, the US unemployment rate has risen sharply from <a target="_blank" class="" href="https://www.businessinsider.com/jobs-labor-market-unemployment-rate-wage-growth-january-economy-2024-2">3.7% in January</a> to <a target="_blank" class="" href="https://www.businessinsider.com/unemployment-rate-job-growth-july-labor-market-economic-data-2024-7">4.3% in July</a> — and it is this data that could spur the Fed to slash rates, the analysts added."When vicious feedback loop forms between falling asset prices and a weakening economy — via negative wealth, confidence and loan collateral effects — the Fed responds more rapidly and forcefully," the analysts wrote.

The US economy could be on the precipice of triggering a 'vicious feedback loop,' Nomura analysts say

<ul class="summary-list"><li>Tuesday's CPI report killed expectations for a soft-landing of the economy, Nomura strategist Charlie McElligott said.</li><li>The hot inflation reading has solidified expectations for another 75 basis point rate hike. </li></ul>Stocks saw their <a href="https://markets.businessinsider.com/news/stocks/stock-market-news-today-indexes-mixed-wholesale-inflation-ppi-august-2022-9">largest one-day fall</a> since 2020 on Tuesday, a sign that markets are starting to realize the Federal Reserve is steering the economy toward a hard landing, according to Nomura strategist Charlie McElligott. The massive sell-off was driven by Tuesday's mixed <a href="https://markets.businessinsider.com/news/stocks/inflation-report-cpi-august-gas-prices-costs-recession-fed-rates-2022-9">Consumer Price Index</a> report, which saw headline inflation cool to 8.3% in August. It's lower than July's 8.5% inflation reading – but above expectations of 8.1%.That solidified market expectations for at least a 75 basis point rate rate hike from the Fed next week. It's also signaled that inflation may be stickier and wider-reaching than previously thought, even to Wall Street's biggest bulls, McElligott said. "Data from last month … gave some credibility to the idea of a right-tail outcome, that there was a potential for a soft landing," McElligott said in an interview with <a href="https://www.youtube.com/watch?v=AxYE6Ab0ut0">Bloomberg</a> on Tuesday. "The [August CPI] effectively removes that right-tail scenario, kills that soft landing dead, and in this case, now almost increases with certainty the idea of a hard landing."He added that the Fed's nightmare scenario – a wage-price spiral and embedded inflation in the economy – could be "a very real threat," particularly given the strength of the labor market. The <a href="https://www.businessinsider.com/july-jobs-report-528000-payrolls-unemployment-rate-hiring-trends-recovery-2022-8">July jobs report</a> showed that the economy added more than double the number of new jobs than expected, which central bankers have interpreted as a sign more economic tightening is needed. Expectations of the terminal Fed Funds rate jumped up around 35 basis points after release of the August CPI, leading McElligott to believe the Fed will add at least one more hike than expected until March or April of next year. That's a more aggressive approach to taming inflation, and risks overshooting on the policy rate, which could bring the economy to a grinding halt. "Ultimately that just means [the Fed] is going to slam the brakes on the economy and increase the risk of an accident," McElligott warned.McElligott's view is among the most bearish on Wall Street. In a note on Wednesday, analysts from JP Morgan said <a href="https://markets.businessinsider.com/news/stocks/stock-market-outlook-buy-stocks-fed-nears-pivot-recession-avoided-2022-9">inflation could "resolve itself</a>," and there was a possibility the Fed would still be able to steer away from a recession.The next meeting of the Federal Open Markets Committee meeting will take place on September 21-22, where it is expected that the Fed will announce an interest rate increase of 50-75 basis points.

Markets are starting to acknowledge the Fed is on track for a hard landing, Nomura strategist says

<ul class="summary-list"><li>Several major economies are headed for a <keyword id="12460783" type="UNKNOWN" weightage="60" keywordseo="recession" source="Orion">recession</keyword> within a year, according to <keyword id="6354527" type="UNKNOWN" weightage="60" keywordseo="nomura" source="Orion">Nomura</keyword>. </li><li>The US, <keyword id="11897120" type="UNKNOWN" weightage="60" keywordseo="europe" source="Orion">Europe</keyword>, Japan and Canada are all at risk as rising <keyword id="6371181" type="UNKNOWN" weightage="60" keywordseo="interest-rates" source="Orion">interest rates</keyword> curb growth. </li></ul>A number of major economies will enter a recession within the next 12 months as tightening monetary policy and surging commodity prices choke off global growth, according to Nomura. In addition to the US, economists at the bank believe the eurozone, UK, Japan, South Korea, Australia and Canada will face contraction, according to a recent research note. The odd one out is China, they noted, as the economy picks up again after lifted COVID-19 restrictions. "Increasing signs that the world economy is entering a synchronized growth slowdown, meaning countries can no longer rely on a rebound in exports for growth, have also prompted us to forecast multiple recessions," they said.In the US, Nomura expects a shallow, but long recession that lasts five quarters, as the Federal Reserve focuses all its energy on cooling the red-hot <a href="https://www.businessinsider.com/inflation-report-cpi-may-gas-prices-federal-reserve-rate-hikes-2022-6?r=US&amp;IR=T">inflation</a> that is spreading through the economy."We expect central banks to err on the side of tightening too much than too little, in order to regain their credibility," they said. Industry experts, like Guggenheim's Scott Minerd echoed Nomura's expectations. He recently <a href="https://markets.businessinsider.com/news/stocks/fed-hellbent-inflation-stock-sell-off-panic-scott-minerd-2022-6?utm_medium=ingest&amp;utm_source=markets">warned</a> that given the Fed is "hell-bent" on fighting <keyword id="11894140" type="UNKNOWN" weightage="60" keywordseo="inflation" source="Orion">inflation</keyword>, it is unlikely to care about the current stock sell-off until panic floods the market. Fed Chair Jerome Powell dampened further optimism about the US economy, saying the central bank isn't trying to cause a recession, but <a href="https://markets.businessinsider.com/news/stocks/stock-market-news-today-jerome-powell-vows-unconditional-inflation-fight-2022-6?utm_medium=ingest&amp;utm_source=markets&amp;utm_medium=ingest&amp;utm_source=markets">a slowdown was certainly a possibility</a>. Nomura's team believe the US economy will enter recession in the final quarter of this year, as rising interest rates, high inflation, negative consumer sentiment and ongoing supply disruptions collectively drag on growth. "A muted initial inflation response will likely keep policymakers – both monetary and fiscal – on the sidelines, and we do not expect the Fed to start cutting rates until September 2023," Nomura said. "The lack of a policy response may prolong the downturn, but strong initial conditions may limit the initial pace of contraction," they added.Europe is heading towards a similar, if not deeper, recession to the US, analysts wrote, if Russia completely cuts off natural gas supply to the region. Meanwhile, Japan appears to be in line for the mildest slowdown in growth. Nomura sees mid-sized economies, including Australia, Canada and South Korea, which have had debt-fueled housing booms, as being at risk of deeper-than-forecast recessions if interest rate hikes trigger housing busts and deleveraging. China, however, stands to buck the trend as the economy recovers with easy monetary policy in place, although it is at risk of renewed lockdowns and another economic contraction if Beijing sticks to its zero-COVID strategy, Nomura said. Read more: <a href="https://www.businessinsider.com/investing-in-a-recession-how-to-profit-equities-chief-blackrock-2022-6?r=US&amp;IR=T" target="_blank" rel="noopener noreferrer">Recession-proof investing: BlackRock equities chief reveals the 3 stock market sectors investors should target and a key theme the firm is focusing on as interest rates spike</a>

Expect a 'procession of recessions' across many of the world's major economies within the next year, Nomura says

<ul class="summary-list"><li>The US will fall into a mild but lengthy <keyword id="12460783" type="UNKNOWN" weightage="60" keywordseo="recession" source="Orion">recession</keyword> as the Fed hikes <keyword id="6371181" type="UNKNOWN" weightage="60" keywordseo="interest-rates" source="Orion">interest rates</keyword>, Nomura has said.</li><li>The bank's economists said the <keyword id="11893570" type="UNKNOWN" weightage="60" keywordseo="economy" source="Orion">economy</keyword> would grow 1.8% this year before shrinking 1% in 2023.</li></ul>The Federal Reserve's interest-rate hikes will push the US into a mild but lengthy recession this year that will cause the economy to shrink in 2023, the investment bank Nomura said Monday.Nomura said US gross domestic product would start to contract in the fourth quarter of this year, followed by six more quarters of negative growth.It said US <keyword id="11921644" type="UNKNOWN" weightage="60" keywordseo="gdp" source="Orion">GDP</keyword> would grow just 1.8% in 2022 before shrinking 1% in 2023. The bank expects unemployment to jump from the current rate of 3.6% to above 5% by the end of 2023 and to nearly 6% in 2024.The Fed <a href="https://www.businessinsider.com/fed-rate-hike-june-fomc-decision-interest-rates-inflation-surging-2022-6">hiked interest rates</a> by 75 basis points, or 0.75 percentage points, last week in the biggest increase since 1994. Less than a week before, data showed inflation came in at <a href="https://www.businessinsider.com/inflation-report-cpi-may-gas-prices-federal-reserve-rate-hikes-2022-6">8.6% year on year</a> in May, the highest reading in 41 years.The Nomura economists Aichi Amemiya and Robert Dent said in a note Monday that the persistence of inflation meant the Fed would have to raise interest rates more than previously expected, which spells trouble for growth.The bank's analysts said the Fed would raise rates to about 3.4% by the end of the year and push them to a peak of between 3.5% to 3.75% in 2023 before cutting them as growth slows. The Fed's <a href="https://www.federalreserve.gov/monetarypolicy/openmarket.htm">target range</a> stands at 1.5% to 1.75%."With rapidly slowing growth momentum and a Fed committed to restoring price stability, we believe a mild recession starting in Q4 2022 is now more likely than not," the analysts said.Nomura said the recession would be mild because consumers built up a large amount of savings earlier in the coronavirus pandemic, which should provide a cushion.But the bank's analysts expect the downturn to last longer than previous episodes of weakness because high inflation means more central-bank or government stimulus is unlikely.Amemiya and Dent said the economy was already slowing down, with retail sales falling in May. They said Google searches for "recession" <a href="https://markets.businessinsider.com/news/stocks/recession-biden-inflation-economy-americans-googling-interest-rates-2022-6">had recently risen dramatically</a>.The economists added that the Fed's interest-rate hikes — through their effect on bond yields and mortgage costs — had already <a href="https://markets.businessinsider.com/news/bonds/us-house-prices-mba-mortgage-applications-falling-meltdown-interest-rates-2022-6">hit the housing market</a>, a key part of the US economy.Recessions in the US are adjudicated by the National Bureau of Economic Research. It <a href="https://www.nber.org/research/business-cycle-dating">defines</a> them as a period when activity declines significantly across the economy that lasts more than a few months.

The US will tip into a long recession this year as the Fed hikes interest rates hard, investment bank Nomura says

<ul class="summary-list"><li>Chinese authorities are making moves to restore confidence in its battered stock markets.</li><li>However, the upcoming company earnings season may present ugly headwinds for the markets.</li></ul>China authorities have started pulling out moves to shore up confidence in the country's floundering market — but things may not get much better soon.That's because there's another potential headwind ahead: company earnings, which may not be pretty amid China's struggling economy that grew 5.2% last year. While the economic growth was better than the <a href="https://www.reuters.com/world/china/chinas-economy-slows-sharply-q4-2022-growth-one-worst-record-2023-01-17/#:~:text=For%202022%2C%20GDP%20expanded%203.0,Revolution%20that%20wrecked%20the%20economy." target="_blank" rel="noopener">3% it posted in 2022,</a> it's still one of China's worst showings since 1990.More than a year after it started lifting COVID-19 restrictions, China's economy is still trying to stage a convincing recovery. It's facing significant headwinds from a <a href="https://www.businessinsider.com/china-real-estate-property-market-speculation-debt-crackdown-xi-jinping-2023-8?utm_medium=ingest&amp;utm_source=markets" target="_blank" rel="noopener">property crisis,</a> <a href="https://www.businessinsider.com/china-economy-deflation-us-inflation-cpi-fed-rate-cuts-yuan-2023-12?utm_medium=ingest&amp;utm_source=markets" rel="">deflationary pressure,</a> and a <a href="https://www.reuters.com/world/china/chinas-population-drops-2nd-year-raises-long-term-growth-concerns-2024-01-17/" target="_blank" rel="noopener nofollow">demographic crisis.</a>This means companies that are due to post their 2023 annual results or earnings for the last quarter of the year will be "another miss" for the markets, Morgan Stanley strategists Laura Wang and Catherine Chen wrote in a research note this week, per <a href="https://www.bloomberg.com/news/articles/2024-01-24/china-earnings-to-deepen-woes-of-worst-performing-stock-market" target="_blank" rel="noopener">Bloomberg.</a> "Major downward earnings estimates revisions are likely, which will cap valuation re-rating opportunities," they added.Broadly, the earnings outlook for Chinese companies doesn't look great.Analysts' earnings estimates for companies represented by the MSCI China Index members have fallen nearly 1% since the start of 2024, according to data compiled by Bloomberg. This is in contrast to a 0.2% rise in earnings estimates for companies in the S&amp;P 500, which tracks 500 of the largest companies listed on US stock exchanges.Ugly corporate results could undermine Beijing's efforts to prop up investor confidence in China's stock markets, which have bled over <a href="https://markets.businessinsider.com/news/stocks/china-markets-mainland-hong-kong-stocks-losses-economy-woes-2024-1">$6 trillion in market value</a> from 2021.Yesterday, <a href="https://www.reuters.com/world/china/china-will-cut-banks-reserve-ratio-next-month-bolster-economic-recovery-2024-01-24/" target="_blank" rel="noopener">China's central bank</a> slashed its requirement for the amount of cash banks need to hold in their reserves. This is expected to inject about $140 billion into the banking system.The move showed the central bank is becoming more concerned about the ongoing economic slowdown and poor market sentiment, Nomura economists wrote in a note on Wednesday.Separately, China's securities regulator implicitly instructed some hedge fund managers to restrict short selling, <a href="https://www.reuters.com/world/china/china-regulators-ask-funds-restrict-short-selling-stock-index-futures-sources-2024-01-24/" target="_blank" rel="noopener nofollow">Reuters</a> reported on Wednesday, citing unnamed sources.On Tuesday, Bloomberg reported that Beijing is considering a <a href="https://www.bloomberg.com/news/articles/2024-01-23/china-mulls-stock-market-rescue-package-backed-by-278-billion?srnd=premium-asia" target="_blank" rel="nofollow noopener">2 trillion Chinese yuan, or $282 billion, package</a> to stabilize the market.<a href="https://www.gov.cn/yaowen/liebiao/202401/content_6927581.htm" target="_blank" rel="noopener nofollow">Premier Li Qiang</a> has also instructed authorities to take more "forceful and effective" measures to stabilize the markets and investor confidence, according to an official statement on Monday. There were no further details.News that Beijing is trying to boost the investor confidence gave some upside to China's battered markets.Hong Kong's Hang Seng Index was up 2% at 3:01 p.m. local time. The index is 4.8% lower so far this year and nearly 30% lower than this time last year.The CSI 300 — which tracks 300 Shanghai and Shenzhen-listed stocks with the largest market capitalizations — was also 2% higher after falling 2.7% this year to date. The index is 20% lower than this time last year.

Beijing is making moves to restore confidence in its battered stock markets, but there might be another big problem just ahead

<ul><li>The British pound is set to trade below the US dollar by the end of November, according to a note from Nomura.</li><li>The firm said it has high conviction the pound will continue to trend lower following the UK's tax cuts.</li><li>"This is a fundamental balance of payments crisis, with politicians hoping it will eventually just calm down. Hope is not a strategy," Nomura said.</li></ul>The <a href="https://markets.businessinsider.com/currencies/gbp-usd?utm_medium=ingest&amp;utm_source=markets">British pound</a> has been in free-fall over the past week following the UK's decision to implement wide-ranging tax cuts and other fiscal stimulus measures at a time when inflation is still running hot.The <a href="https://markets.businessinsider.com/news/currencies/currencies-dollar-british-pound-record-low-liz-truss-kwasi-kwarteng-2022-9">pound fell to a record low against the US dollar</a> over the weekend, and strategists at Nomura expect the downtrend to continue into early next-year.In a Monday note, Nomura said it expects the pound to reach parity with the dollar by the end of November, and for it to fall to 0.975 relative to the <a href="https://markets.businessinsider.com/index/us-dollar-index">dollar</a> by the end of the year. Additionally, the firm said it expects the pound to hit 0.95 relative to the dollar in the first-quarter of next year."This is a fundamental balance of payments crisis, with politicians hoping it will eventually just calm down. Hope is not a strategy, and markets are reflecting that," Nomura said. Specifically, the UK's current account deficit has widened to over 8% of GDP in the first quarter, and it likely hovered around that level through the second-quarter as well."This is far worse than in 1974 (the UK was bailed out by the IMF in 1976) or in 1989, when the current account deficit-to-GDP ratio reached troughs of around 4-5%," Nomura explained. In fact, the firm said that the UK's current account deficit could be even wider than 8% given the moves in energy markets since June."That is the biggest current account deficit in modern history for the UK, and unlike in 2020, the Bank of England is not conducting quantitative easing to soak up the majority of the fresh issuance. It is therefore not helpful the government added to expected issuance last week," Nomura said.There is a road to recovery for the pound, according to Nomura, and it's based on three potential catalysts:1. <a href="https://markets.businessinsider.com/news/bonds/dollar-vs-pound-bank-of-england-tories-rate-hike-budget-2022-9">A surprise rate hike</a> from the Bank of England.2. Conservative lawmakers force a government U-turn on its fiscal stimulus plans.3. A further recovery in medium-term global economic growth expectations.Still, those three potential catalysts don't guarantee a swift recovery in the pound, according to the note. Emergency rate hikes amid lower growth expectations and a potential recession won't help the pound in the short-term, and there's no indication the UK government will force a reversal of its recent fiscal stimulus policy."Short [the] British pound and short gilts is a very consensus trade but that doesn't mean it is not the right one to hold from here. None of the above risks to holding pound British pound shorts change the medium-term message from the UK's collapsing terms of trade," Nomura said.

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