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China could lower interest rates even more

Miguel A. Rodriguez
Miguel A. Rodriguez
22 August 2023

US bond yields reached their highest levels since the 2008 financial crisis as the People's Bank of China (the country's central bank) lowered prime lending rates by ten basis point, showing a clear example of how the economies of the US and China have diverged.

What's going on in China?

The Chinese central bank is forced to lower interest rates to stimulate the economy, though the rate at which they are doing so is lower than what the market deems necessary. The debt and real estate crises in the Asian giant have gotten worse in recent months, the Evergrande company has declared bankruptcy in the United States, and the Chinese debt and real estate crisis has gotten worse.

Estimates of China's GDP growth are declining, and some experts already predict that the Asian nation will experience prolonged periods of subpar development.


The US economy is holding strong

The situation in the US, however, is the opposite: the economy is strong and continues to grow despite the Fed's vigorous tightening of monetary policy and persistently high inflation. The Wall Street Journal reported yesterday that the period of historically low interest rates has likely come to an end and that market interest rates (bond yields) must therefore shift upward. And for a few days, that has been the case.

The Jackson Hole central bankers meeting on Friday is anticipated to reinforce the Federal Reserve's shift towards aggressive policy. The stock markets may suffer as a result of this circumstance. The major North American indices have been falling steadily over the whole month of August.

USA30_Daily Chart_22.08.2023.png

USA30 Daily Chart, 22.08.2023.


Gold price considers the interest rates

The markets continue to exhibit signs of fragility even as earnings from one of the major North American technology companies, Nvidia Inc., are expected to be released on Next Thursday. After a brief reprieve on Friday, the Dowjones30 Index was back on a down day.

High market interest rates continue to put pressure on gold, which is technically breaching important support levels near $1890. From a technical standpoint, it descends to the $1850 region below current levels.

Sources: Bloomberg, Reuters

Key Takeaways

  • US bonds have reached their highest yield rate since 2008.
  • China is lowering interest rates in a bid to speed up the economy.
  • US economy is still growing, despite persistent inflation and high interest rates.
  • Gold price continues to be pressure by the Fed's aggressive rates.

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Miguel A. Rodriguez
Miguel A. Rodriguez

Miguel worked for major financial institutions such as Banco Santander, and Banco Central-Hispano. He is a published author of currency trading books.