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Stocks lower as China’s rate cuts considered too little

Stock markets in Asia were trading lower on Tuesday after China's central bank cut two key lending rates in an effort to bolster the economy. The largely anticipated moves were seen as not enough given what many investors consider to be lackluster economic performance by the world’s second-largest economy so far this year. Traders are also looking ahead to testimony by US Federal Reserve Chairman Powell and interest rate decisions by the Bank of England and Swiss National Bank later in the week.

Shane Strowmatt, LGT
Tempo di lettura
5 minuto
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China's central bank cut its one-year loan prime rate by 10 basis points to 3.55% while also lowering its five-year loan prime rate by the same amount to 4.20%. The move was interpreted by some investors as too little, too late as the reopening of the Chinese economy this year following a strict zero Covid policy has failed to impress. Hong Kong's Hang Seng Index was trading down 1.4% on Tuesday. In mainland China, the Shanghai Composite was 0.3% lower. In Japan, the Nikkei 225 was down around 0.2%. South Korea’s Kopsi also lost about 0.2%.

US investors are looking ahead to Wednesday and Thursday when Fed Chair Jerome Powell is due to testify in Congress. Last week, the US central bank left interest rates unchanged after ten consecutive hikes but signalled rates may move up another half of a percentage point by the end of the year.

Chipmaker Intel announced further investments in Europe on Monday, after saying it would invest in a factory in Poland at the end of last week. The company will invest more than 33 billion US dollars in two facilities in Germany and will received 10 billion US dollars in German subsidies in return. Intel shares were not trading on Monday as stock markets in New York were closed for a federal holiday (Juneteenth).

In Europe, European Central Bank (ECB) Executive Board member Isabel Schnabel said in a speech Monday that the ECB should prefer doing too much, rather than too little in the fight against inflation. There are risks that inflation expectations get out of hand if inflation spends too long above the central bank’s 2% target, she said. Last week, the ECB raised interest rates to the highest in more than two decades and said another hike in July is likely. Inflation in the euro area is still over 6%. European stocks traded mostly lower to start the week, with the Euro Stoxx 50 lost 0.74% and Germany’s DAX closing the week’s first session 0.96% lower.

The Stoxx Europe 600 Construction and Materials Index was down 2.45% Monday after concerns that the UK may be facing a potential mortgage crisis amid rising rates. The Bank of England is due to announce an interest rate decision on Thursday alongside the Swiss National Bank (SNB).

Corporate news in focus: FedEx Q4 figures, General Motors and Dell hold their annual general meeting.

Economic data in focus: Swiss trade balance (08:00 CET), German Producer Price Index (08:00), US building permits (14:30).

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