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China holds rates as markets digest tariff and AI risks

China’s central bank kept its key lending rates unchanged on Tuesday while allowing the yuan to strengthen gradually, highlighting policymakers’ balancing act between supporting a slowing economy and maintaining currency stability. Global equity markets nevertheless started the week on a weaker footing, with US and European indices closing lower on Monday as investors reacted nervously to renewed uncertainty over US tariff policy and fresh concerns about the disruptive potential of artificial intelligence for corporate profits. In Asia, stocks were more resilient on Tuesday, with mainland Chinese markets reopening after the Lunar New Year break in positive territory and South Korea’s benchmark hitting a record high. Gold prices fell on Tuesday, with spot prices slipping 1.1% to USD 5170 per ounce, as investors locked in profits after a 2.5% jump in the previous session and the US dollar edged higher. Oil prices climbed, with Brent crude and US crude benchmarks at their highest levels since late July and early August, respectively, driven largely by mounting geopolitical risks as markets brace for a third round of US-Iran nuclear talks in Geneva on Thursday.

  • Date
  • Author Shane Strowmatt, Senior Investment Writer
  • Reading time 5 minutes

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China’s central bank left its one-year and five-year loan prime rates unchanged at 3% and 3.5% on Tuesday, maintaining benchmark lending costs for a tenth consecutive month despite a loss of economic momentum. The decision comes as the economy slows, with growth easing to 4.5% year on year in the final quarter of last year and retail sales expanding by just 0.9% in December, a three-year low, amid deflationary pressures, a protracted property slump and weak labour market conditions. Policymakers are increasingly focusing on stimulating services consumption, including elderly care, leisure and tourism, to offset subdued demand for goods. At the same time, the People’s Bank of China has allowed the yuan to appreciate gradually, even as a stronger currency risks further pressure on exports already challenged by US tariffs and global competition.

Asia stocks rise despite tech pressure

Most Asian equity markets advanced on Tuesday as Chinese indices reopened with solid gains after the nine-day Lunar New Year break, helped by strength in export-oriented sectors and optimism over potentially lower US trade tariffs on the region. China’s Shanghai Shenzhen CSI 300 and Shanghai Composite climbed 1.3% and 1.1%, respectively. Hong Kong’s Hang Seng index underperformed, dropping 2.1% as large technology and pharmaceutical stocks fell on concerns that rapid artificial intelligence developments - including new tools from Anthropic - could disrupt traditional software and IT services. South Korea’s KOSPI gained 2%, hitting a record high on chipmaker gains linked to expected AI-driven demand ahead of Nvidia’s earnings on Wednesday, while Australia’s S&P/ASX 200 was little changed and India’s Nifty 50 was 0.9% lower.

US stocks fall on AI and tariff worries

US equities posted sharp losses on Monday as renewed concerns over the earnings impact of artificial intelligence and ongoing uncertainty around US tariffs dampened risk appetite. The Dow Jones Industrial Average dropped 1.7% to 48,804.06 points, its lowest level in three weeks, while the S&P 500 fell 1% to 6,837.75 points and the technology-heavy Nasdaq 100 declined 1.2% to 24,708.94 points. Investor sentiment was hit by confusion over future trade rules between the US and the EU after a court ruling removed the legal basis for many of US President Donald Trump’s existing tariffs, even as Washington considers new duties of about 15% on many EU imports and the European Parliament has frozen a negotiated tariff agreement. Financial stocks came under particular pressure following a report from Citrini Research highlighting AI-related risks and doubts over the payoff from heavy AI investment, while several IT and cybersecurity names slumped on competitive fears linked to a new Anthropic safety tool.

German business sentiment edges higher

German business confidence improved in February, with the ifo Business Climate Index rising to 88.6 points from 87.6 points in January, signalling the first signs of recovery in the economy according to data released on Monday. Companies reported a better assessment of their current situation and slightly more optimistic expectations, with manufacturing seeing stronger views on current conditions and an improved order situation despite somewhat weaker expectations. Germany’s DAX underperformed other regional indices on Monday, falling 1.1% as the Euro Stoxx 50 slipped 0.2%.

Swiss producer prices decline again

Swiss producer and import prices weakened in January, with the overall index slipping by 0.2% from December to 99.8 points, according to data published by the Federal Statistical Office on Monday. The price level for all domestic and imported products was 2.2% lower than in January last year, driven mainly by cheaper petroleum products and pharmaceutical preparations. The Swiss Market Index finished Monday marginally lower.

Corporate and economic calendar

Corporate news in focus: Quarterly figures from Home Depot.

Economic data in focus: US ADP National Employment Report (14:15), Conference Board Consumer Confidence Index (16:00), Richmond Fed Manufacturing Index (16:00) and European Central Bank President Christine Lagarde speaks (18:45).

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Editor: Alessandro Fezzi
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