China cuts rates and stocks fall as the economy slows

TL;DR: Stocks in Asia fall over concerns that China’s rate cut is not going to be sufficient to prevent the slowing of the economy, and basic resources companies are hit the hardest.

📰 What’s moving markets?

• China cut two key benchmark lending rates for the first time in 10 years: the one-year and five-year loan prime rate was cut by 0.10%, to 3.55% and 4.20% respectively. However, some market participants believe that a cut of 0.15% would’ve sent a stronger signal of China’s commitment to support the economy. The Hang Seng index is down 1.7% today, contributing to a 2.8% loss year-to-date.

• Basic resources companies are being hit the hardest over concerns that China’s rebound from it’s zero-Covid policy will take longer than expected. The mining company Rio Tinto was down 1.6% while the steel manufacturer ArcelorMittal was down 1.4% yesterday, contributing to the c. 0.7% losses observed by the FTSE 100 and EuroStoxx 50.

• UK Mortgage Rates have increased to 6% ahead of the BoE interest rate decision on Thursday where market participants are expecting base rates to increase from 4.50% to 4.75%. The yield on the 2-year government gilt has rallied 2.9%, up to 5.13%.

• US and European futures point towards equity markets opening ~0.30% lower on Tuesday.

📊 Chart of the day

UK inflation is running hotter than it’s peers, and with the CPI data print tomorrow, it’s going to take a big surprise to convince the BoE not to raise rates by another 0.25% on Thursday.

📅 Coming up this week

Monday 19th June

• US NAHB Housing Market Index expected: 51, last: 50, actual: 55

Tuesday 20th June

• Japan Industrial Production expected: -0.4%, last: 1.1%

• Euro Zone Current Account expected: 30.1B, last: 31.2B

Wednesday 21st June

• UK Core CPI (YoY) expected: 6.7%, last: 6.8%

• UK Headline CPI (YoY) expected: 8.5%, last: 8.7%

• UK Core RPI (YoY) expected: 10.1%, last: 10.4%

• UK Headline RPI (YoY) expected: 10.2%, last: 11.4%

• Canada Retail Sales expected: 0.2%, last: -1.4%

• Brazil Interest Rate Decision expected: 13.75%, last: 13.75%

Thursday 22nd June

• UK BoE Interest Rate Decision expected: 4.75%, last: 4.50%

• US Continuing Jobless Claims expected: 1,766k, last: 1,775k

• US Jobless Claims 4-Week Avg. expected: 242.01K, last: 246.75K

• UK BoE Interest Rate Decision expected: 4.75%, last: 4.50%

• Japan Core CPI (YoY) expected: 3.1%, last: 3.4%

• Japan Headline CPI (YoY) expected: 4.1%, last: 3.5%

Friday 23rd June

• Singapore CPI expected: 5.5%, last: 5.7%

• Spain GDP (YoY) expected: 3.8%, last: 2.6%

📈 The markets at a glance