Traders in China may have a reason to cheer when markets re-open for trading on Monday. Moves last Saturday by the People’s Bank of China (PBOC) may have just provided further fuel to the rally of Chinese stocks. The PBOC announced cuts of 25 basis points to both lending and deposit rates with immediate effect. The one-year benchmark lending rate will ease to 5.35% while corresponding deposit rates will drop to 2.5%. As highlighted previously, the PBOC (versus other central banks) is privileged with having a wider array of options and a greater depth in its arsenal to fight deflationary forces in the domestic economy. Slightly surprising, however, is the determined pace with which new measures have been introduced in these past six months. The PBOC has alternated between cutting both interest rates and the bank’s RRR levels in quick succession since November.

Unnatural pace of easing

Is this ‘unnatural pace’ of easing a signal to economists that they should perhaps realign their growth expectations downwards for the Chinese economy? On Sunday past, it became clear that China’s growth is still in a mode of deceleration, when February’s PMI came in at 49.9. Although it was better than analysts’ expectations of 49.7, this reading below 50 shows that manufacturing is still contracting in China. More clues would be offered this Thursday when the NPC (National People’s Congress) meets and is scheduled to announce its growth targets for 2015. We are merely two months into 2015. Already 21 central banks around the world have eased monetary policies. The race to be a “first mover”, to cut rates, continues as bankers globally juggle to manage their bank policies against the quickening deterioration of their respective economies. Certainly, it would be interesting to be able to read Ms Yellen’s thoughts now as she ponders a US rate hike later this year!

Looking ahead

Watch for possible action this week on the A50 stock indices, such as a convincing break above the key resistance of 11,100, failing which a retest of the 10,500 recent lows. Also pairs on ‘commodity currencies’ like AUD/USD and CAD/USD. Action will also be focused on the EUR/USD as the European Central Bank commences its QE program of E60 billion this month.
IMPORTANT NOTE AND DISCLAIMERSMarket OpinionsAny opinion(s), news, research, analyses, prices, or other information contained on this website / document is provided as general market commentary and are from publicly available resources or otherwise obtained, and does not constitute investment advice nor does it seek to market, endorse, recommend or promote any investment or financial product. CMC Markets Singapore Pte Ltd. (Reg No./UEN: 200605050E) (“CMC Markets”) will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.Accuracy of InformationThe content is subject to change at any time without notice, and is provided for the sole purpose of assisting traders to make independent investment decisions. CMC Markets has taken reasonable measures to ensure the accuracy of the information, however, does not guarantee its accuracy, and will not accept liability for any loss or damage. CMC offers no financial advisory services in any of the content or vouch for the veracity of any information.DistributionThe content of this publication is not intended for distribution, or use by, any person in any country where such distribution or use would be contrary to local law or regulation. None of the services or products referred to or mentioned are available to persons residing in any country where the provision of such services or investments would be contrary to local law or regulation. It is the responsibility of the reader to ascertain the terms of and comply with any local law or regulation to which they are subject.Third PartiesCMC Markets may provide you with opportunities to link to, or otherwise use, sites and services offered through or by third-party(ies). Your use of these third-party services is subject to such terms as posted by these third-party(ies). We have no control over any third-party site or service and we are not responsible for any changes to any third-party service or for the contents thereof, including, without limitation, any links that may be contained in or accessible through such third-party service. These links are provided solely as a convenience to you. You will need to make your own independent judgment regarding your interaction with these third-party sites or services. Our inclusion of advertisements for, or links to, a third-party site or service does not constitute an endorsement of any of the representations, products or services listed therein.Important NoteEach reader/recipient agrees and acknowledges that: (a) no express undertaking is given and none can be implied as to the accuracy or completeness of this document; (b) this document does not constitute in any way a solicitation nor incentive to sell or buy any Shares, Stock Options and Contracts For Difference (CFDs) and similar and assimilated products; (c) each reader/recipient of this document acknowledges and agrees to the fact that, by its very nature, any investment in Shares, Stock Options, CFDs and similar and assimilated products is characterised by a certain degree of uncertainty; that consequently, any investment of this nature involves risks for which the reader/recipient is solely responsible and liable. It is to be noted that past performance is not necessarily indicative of future results. In this respect, past performance of a financial product do not guarantee any and are not an indication as to future performance; (d) the use and interpretation of this document require financial skill and judgement. Any utilisation whatsoever by the reader/recipient, relating to this document, as well as any decision which the reader/recipient may take regarding a possible purchase or sale of Shares, Stock Options, CFDs and similar and assimilated products, are the sole responsibility and liability of the reader/recipient who acknowledges and agrees to this as a condition precedent to and prior to any access to this document; (e) as a result of the above, all legal liability directly or indirectly arising whatsoever.