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Asia stocks dip as China rate cut fails to impress: markets wrap

Asia stocks dip as China rate cut fails to impress: markets wrap
Nvidia headquarters in Santa Clara, California, U.S., on Tuesday, 23 February 2021. (Photo: David Paul Morris/Bloomberg)

Asian shares fell along with US equity futures as traders shrugged off a reduction in China’s mortgage reference rate to seek fresh buying catalysts.

A gauge of the region’s equities dropped 0.3%. Mainland and Hong Kong equities slipped, while Japanese shares reversed early gains and benchmarks in Australia and South Korea also retreated. Futures for the Nasdaq 100 were lower after US markets were shut on Monday for a holiday.

The moves in Chinese equities came after domestic banks cut a key reference rate for mortgages by a record amount, a sign that the nation was ramping up support for the property sector in a bid to revive demand. A gauge of China developer stocks initially jumped, but quickly unwound the bulk of the gains to trade modestly higher.

The cut to the five-year loan prime rate was a “good gesture from the commercial banks but still now the property problem is not about the mortgage rate”, said Willer Chen, an analyst at Forsyth Barr Asia Ltd. The move may “slightly boost the property demand but I would not expect much.”

Gains in Chinese equities on Monday fell short of expectations in the first session back following the Lunar New Year holiday. A rise in trading volume for several exchange-traded funds in the country offered a clue that state-backed funds were continuing to support the market.

A gauge of global stocks was just 1.1% from its peak after the S&P 500 set a fresh record last week, while the region-wide Euro Stoxx 50 hovered near a two-decade high. Japan’s Nikkei 225 index traded within 1% of its 1989 peak.

The Thai baht fell after Prime Minister Srettha Thavisin called for an unscheduled central bank meeting to cut interest rates. The dollar strengthened against most of its G10 peers.

Treasuries yields rose as trading resumed in Asian hours after the market was shut Monday. Australian and New Zealand 10-year yields also edged higher.

In Australia, BHP Group, the world’s largest miner, reported $6.57-billion in underlying profits, less than consensus estimates, and said demand from top customer China was healthy despite weakness in housing.

In other corporate news, Capital One Financial Corp agreed to buy Discover Financial Services in a $35-billion all-stock deal that will form the largest US credit card company by loan volume.

Rate-cut adjustments

Interest rate expectations remain firmly in focus. Swaps are now pricing about 90 basis points of Federal Reserve rate cuts in 2024 — from more than 150 basis points at the start of February. In Europe, wagers have been whittled down to about 100 basis points, from 150. 

“Markets have adjusted to the idea that rate cuts would come later and probably be less important than what was originally priced,” Vincent Juvyns, global market strategist for JPMorgan Asset Management, said on Bloomberg Television. The move upward is also “really driven by decent earnings growth that we have seen during the fourth quarter,” he added.

Earnings from bellwether Nvidia Corp. Wednesday may provide new impetus for equities as investors try to gauge the strength of the global economy. The chip giant has surpassed the market value of Inc on the expectation it will be a big winner from artificial intelligence developments.

Other potential catalysts for markets this week include Fed January meeting minutes to be released on Wednesday and Eurozone inflation data due on Thursday.

Elsewhere, gold was little changed after edging higher on Monday to trade around $2,018 per ounce. West Texas Intermediate, the US oil price, edged higher against the backdrop of ongoing tensions in the Red Sea, a vital trade route


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