Business Maverick

Business Maverick

Equities fall as China loan-rate cuts underwhelm: markets wrap

Equities fall as China loan-rate cuts underwhelm: markets wrap
Victoria Park, the traditional venue for a vigil commemorating the 1989 Beijing Tiananmen Square crackdown, is empty in Hong Kong, China, 4 June 2022. (Photo: EPA-EFE/JEROME FAVRE)

Stocks declined on Tuesday as the rally in global equities lost momentum and investors fretted over China’s tepid post-pandemic recovery.

Shares fell from Hong Kong and Shanghai to Tokyo and Seoul while futures for US benchmarks also slipped after Wall Street was shut for a holiday on Monday. Australian equities bucked the trend, eking out a small gain. 

The moves pointed to further anxiety about Chinese growth and the lack of fresh stimulus from Beijing. Chinese property companies were among the biggest decliners on Tuesday after disappointment at the magnitude of cuts by banks to their lending rates, with the 10-basis points reduction to the five-year rate coming in less than some projections. 

“The market was hoping to get a 15-bps cut to the 5-year LPR for any signal of stronger support to the property market,” said Redmond Wong, strategist at Saxo Capital Markets.

The yen fluctuated after earlier weakening back to 142 versus the dollar as Japan’s loose monetary policy weighs on the currency. The yuan weakened slightly, taking declines to a third day.

The Australian dollar dropped 0.7% after minutes from the latest central bank decision — when rates were unexpectedly hiked — showed that the case to move in either direction was finely balanced.

Short-term yields on Australian government bonds changed direction and fell after the central bank minutes were released. US Treasury yields rose after a break from trading on Monday. 

Meanwhile, with the path of Federal Reserve interest rates increasingly uncertain, US traders are vacillating between the lure of the rally and concern it’s exhausted and that the market has become overbought.

“We have a very different story across the different regions as it relates to inflation, a post-Covid recovery and what that means from a monetary and fiscal perspective,” Uma Moriarity, senior analyst, investment strategy and global ESG lead for Centersquare Investment Management Inc, said in an interview with Bloomberg Television.

Looking ahead, Fed chair Jerome Powell will give his semi-annual report to Congress on Wednesday. Federal Reserve Bank of St. Louis president James Bullard and his counterparts in New York and Chicago are also among this week’s speakers.

Policymakers at the Fed kept interest rates unchanged at their latest meeting but warned of more tightening ahead. The decision last week came with forecasts for higher borrowing costs of 5.6% in 2023, implying two additional quarter-point rate hikes or one half-point increase before the end of the year.

Elsewhere in markets, gold was little changed after sliding 0.4% on Monday, while oil fell as China’s plans to support its economy were seen as insufficient to reignite demand. DM

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  • Scott Gordon says:

    The picture above tells the story .
    Tepid recovery ?
    Really ?
    Sounds a bit Chinese to me 🙂
    Apparently they view declining house sales as a sign of a market recovery ?
    Just why would the price of oil be affected by a China recovery , they buy all they can from Russia !
    What intrigues me is how the 2 biggest construction companies will be able to cover the due debt over July and August . $350 billion apparently .

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