The yuan slid to the weakest level since November and China’s sovereign bonds rallied after the central bank unexpectedly cut a key interest rate in an effort to boost its ailing economy.
(Bloomberg) — The yuan slid to the weakest level since November and China’s sovereign bonds rallied after the central bank unexpectedly cut a key interest rate in an effort to boost its ailing economy.
The Chinese currency slipped as much as 0.5% after policymakers lowered the rate on one-year loans — known as the medium-term lending facility — by 15 basis points to 2.5%. Only one of 15 economists surveyed by Bloomberg had predicted the move. The People’s Bank of China also trimmed its seven-day reverse repurchase rate by 10 basis points. Ten-year bond yields fell to the lowest since 2020 while the yuan has since pared some of its losses.
China’s benchmark share index slipped for a third day, while equity gauges for Japan and Australia both gained. Treasuries were little changed in Asia after 10-year yields had climbed to the highest since November in US trading. The Australian dollar weakened after wage data missed estimates.
China’s MLF rate cut “is a positive but I suspect the support to the market from this will be subdued and short-lived,” said Redmond Wong, a market strategist at Saxo Capital Markets HK Ltd. “Investors now are worried about credit events, not just from the ailing property sector, and once again also on the shadow banking system and rightly expect that the authorities will not bail them out.”
A raft of July economic data published after the rate decision added to signs China’s recovery is faltering. Industrial production and retail sales both expanded less than economists forecasts, while the urban jobless rate rose to 5.3% from 5.2% in June.
Tension has been building in China’s financial markets as red flags pop up throughout the economy, but particularly in the troubled property sector. Sentiment has been soured by debt concerns at Country Garden Holdings Co., once the nation’s largest developer by sales, missed payments by one of the nation’s largest private wealth managers, and heavy losses at China-focused hedge funds.
In US trading Monday, tech stocks had their best day in two weeks amid the prospect of a soft landing for the economy. The Nasdaq 100 rose 1.2% with gains led by AI-favorite Nvidia Corp. and other technology giants. Still, smaller stocks were under pressure, with the Russell 2000 touching the lowest in a month.
The focus later this week will be on minutes of the Fed’s July policy meeting as traders seek clues on the central bank’s next move. Investors who’d bet on a pivot to easier policy this year are having to adjust their bets as officials signal they will keep interest rates higher for longer.
In emerging markets, Argentina’s already-distressed debt slumped Monday after a populist who vowed to burn down the central bank won surprisingly strong support in a primary vote. Its under siege government submitted to a 18% currency devaluation.
Elsewhere, oil rose and gold held near its lowest close since March as traders pared expectations for Fed rate cuts next year and beyond.
- Hawaiian Electric Industries Inc. plunged by a record 34% on concern that its power lines may be linked to the deadly Maui wildfires
- US Steel Corp. surged 37% after the company got a rival $7.8 billion takeover offer from Esmark Inc. following peer Cleveland-Cliffs Inc.’s unsolicited bid
- Tesla Inc. slipped 1.2%, triggering a selloff for other producers of electric vehicles, after it rolled out a new round of price cuts in China
Key events this week:
- Japan industrial production, Tuesday
- UK jobless claims, unemployment, Tuesday
- US retail sales, empire manufacturing, business inventories, cross-border investment, Tuesday
- Reserve Bank of Australia policy minutes, Tuesday
- Federal Reserve Bank of Minneapolis President Neel Kashkari speaks, Tuesday
- China property prices, Wednesday
- Eurozone industrial production, GDP, Wednesday
- UK CPI, Wednesday
- US FOMC minutes, housing starts, industrial production, Wednesday
- US initial jobless claims, US Conference Board leading index, Thursday
- Eurozone CPI, Friday
Some of the main moves in markets:
- S&P 500 futures rose 0.2% as of 12:38 p.m. Tokyo time. The S&P 500 rose 0.6%
- Nasdaq 100 futures rose 0.3%. The Nasdaq 100 rose 1.2%
- Japan’s Topix rose 0.6%
- Australia’s S&P/ASX 200 rose 0.5%
- Hong Kong’s Hang Seng fell 1%
- The Shanghai Composite fell 0.3%
- Euro Stoxx 50 futures rose 0.4%
- The Bloomberg Dollar Spot Index was little changed
- The euro rose 0.1% to $1.0917
- The Japanese yen was little changed at 145.48 per dollar
- The offshore yuan fell 0.2% to 7.2943 per dollar
- The Australian dollar rose 0.4% to $0.6510
- Bitcoin was little changed at $29,349.74
- Ether was little changed at $1,841.83
- The yield on 10-year Treasuries was little changed at 4.20%
- Japan’s 10-year yield was unchanged at 0.615%
- Australia’s 10-year yield advanced six basis points to 4.25%
- West Texas Intermediate crude was little changed
- Spot gold was little changed
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Jason Scott.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.