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China’s Rate Cuts Not as Aggressive as Expected

Miguel A. Rodriguez
Miguel A. Rodriguez
21 June 2023

As markets wait for Powell’s testimony today to receive some signs about the future of the monetary policy, US bond yields traded higher, the S&P500 index fell for three days in a row, and oil fell more than 2%. China’s rate cuts, which were less than expected, caused the Hang Sen index to fall.  

In an effort to accelerate the post-pandemic recovery in the second-largest economy in the world, the People's Bank of China reduced its major credit benchmarks on Tuesday. This is the most recent indication that the country's officials are concerned that the recovery is losing momentum. Its economy is deteriorating, but it has only decreased interest rates by 10 basis points, disappointing the domestic market, which had anticipated a somewhat more aggressive move. This is also having an impact on the risk mood around the world.

Another reason why investors in China have been waiting for greater determination from the Central Bank to stimulate the economy is concerns about the country's real estate market.

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Due to the People's Bank of China's modest interest rate reduction, the Chinese Hang Sen index declined and lost little over 2% of its value during the session.

After the American holiday, the European and North American indexes opened the day slightly lower. The Wall Street indices were also under pressure from recent remarks by officials from the Federal Reserve (Fed), who have maintained their hawkish tone.

As a result of the Fed’s expected future interest rate increases, US bond rates are currently trading at their highest levels in the past month.

Investors will be eagerly watching today's appearance of Fed President Powell before the North American Congress in case it provides any information about the central bank's upcoming monetary policy moves.

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After hitting a resistance level at 4,500, the S&P 500 index started to decline for three straight days. This decline was prompted by expectations of future interest rate hikes as well as technical factors, such as the daily chart's extreme overbought levels.

Oil, a commodity whose performance is heavily reliant on Chinese demand, dropped more than 2% on the day and traded below $70 a barrel as the central bank slightly let the market down by not taking a more aggressive stance to boost the economy. 

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Sources: Bloomberg, Reuters 






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.