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China cuts key rate as investors look for impulses

European stocks took a break to start the week as investors sifted through slow newsflow for impulses with US markets closed on Monday. Asian markets were mixed on Tuesday after investors were left unimpressed by China’s latest attempt to prop up markets - a cut to a key lending rate used for mortgages.

Shane Strowmatt, LGT
Tempo di lettura
5 minuto
© Shutterstock

China's central bank left its one-year loan prime rate, which is the standard for many household and corporate loans, unchanged at 3.45% on Tuesday. The five-year loan rate, which is relevant for home loans, was cut by 25 basis points to 3.95%, a larger drop than expected by markets and the first move in the five-year rate since June. On Sunday, the central bank kept its medium-term lending facility rate at 2.5%. The cut to the five-year loan rate was interpreted by some investors as too little, too late as the reopening of the Chinese economy last year was generally regarded as very weak and pressure has persisted in the real estate market. A long series of measures by Beijing such as a cut to banks’ reserve ratio and changes to taxes and securities regulation have already largely failed to prop up markets and Tuesday’s move was unlikely to have a major impact.

In the Asia-Pacific region, Chinese stocks bucked the trend slightly and were trading a bit higher late in the session. Hong Kong's Hang Seng Index gained 0.2%, while the Shanghai Composite was up 0.4%. In Tokyo, the Nikkei 225 lost 0.1% but remained closed to all-time highs and South Korea’s Kospi was down 0.8% at close. In Australia, the S&P/ASX 200 lost 0.8%, dragged down by its largest constituent, BHP, which lost 1.1%. The world’s largest mining group posted a huge slump in year-on-year half-year net income mostly due to lower nickel prices.

Most European markets saw little movement on Monday as impulses were missing due to US markets being closed for the President’s Day holiday. The Stoxx 50 traded marginally lower on Monday, France’s CAC 40 finished the day flat, Germany’s DAX fell 0.2% and Switzerland’s SMI gained 0.8%.

On Tuesday, there is little in the way of macroeconomic data to move equity markets, but further company earnings could provide impulses. Walmart - a retail behemoth whose quarterly results often give insight into consumer spending trends - reports on Tuesday. Nvidia, one of the so-called “Magnificent 7” US tech giants, reports on Wednesday after large swings in stocks in the semiconductor space in recent weeks. Nvidia’s stock is up almost 50% since the start of the year.

In Europe, the Bundesbank said Germany is likely experiencing another recession. The monthly report of Germany’s central bank noted that weak domestic demand due to high inflation as well as weak external demand from major trading partners such as China are negatively impacting Europe’s largest economy. Additionally, Germany’s energy-intensive industries such as chemicals and manufacturing are suffering under high energy prices, which shot up after the outbreak of the war in Ukraine. Germany’s gross domestic product (GDP) shrank by 0.3% over the full year of 2023. It fell by 0.3% in the fourth quarter after stagnating in the third quarter. If Germany’s economy shrinks again the first quarter of 2024, it would be considered a technical recession, which is usually defined as two quarters of economic contraction in a row.

Corporate news in focus: Air Liquide, Home Depot, Medtronic and Walmart with Q4 earnings.

Economic data in focus: Switzerland exports and imports, euro area current account and Canada consumer prices.


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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.