Wednesday, April 15, 2020

Asian markets trade modestly lower as China cuts an important rate to a record low

New York/Hong Kong (CNN Business)Asian markets traded modestly lower Wednesday. Meanwhile, China cut an important interest rate to a record low — an expected measure that indicates how the country is trying to help banks and borrowers weather the ongoing economic turmoil wrought by the coronavirus pandemic.


Japan’s Nikkei 225 (N225) dropped 0.5%, while China’s Shanghai Composite (SHCOMP) slumped 0.3%. Australia’s S&P/ASX 200 lost 0.6%. Hong Kong’s Hang Seng (HSI) opened higher, but erased its small gains and was last down 0.5%.

South Korean markets were closed Wednesday as the country holds elections.

Wednesday’s retreat, while muted, marks a reversal from the optimism that carried markets higher a day earlier, when trade data suggested that China’s economy is performing better than expected as the country recovers from coronavirus.

Even so, China still has to find ways to protect its economy. The People’s Bank of China on Wednesday cut the one-year rate at which it lends to banks through its medium-term lending facility from 3.15% to 2.95%. While the cut was steeper than other recent reductions to that rate, it was widely anticipated. It’s also a sign that the PBOC will next week cut its Loan Prime Rate, which was introduced last year to gradually replace the central bank’s existing fixed benchmark lending rate and make it easier for companies to borrow money.

“With external headwinds mounting and domestic demand struggling to fully recover from the Covid-19 outbreak even as most firms have resumed operations, the PBOC appears to be ramping up the pace of monetary easing,” wrote Julian Evans-Pritchard, senior China economist for Capital Economics, in a research note following the announcement.

China is scheduled to report first quarter GDP on Friday, which will offer a look at how badly the economy has been damaged by the coronavirus so far. Analysts widely expect the country to report its first economic contraction in decades.

Hope for a quick recovery is “dimming” in China, Nomura analysts wrote in a Wednesday note.

New bank loans in China jumped to $404 billion in March, well above market expectations and roughly three times as much as was reported in February, according to recent central bank data.

“In our view, markets might still be too optimistic about the recovery in China, and we do not think the increase in credit growth in March means there will be a quick growth recovery,” they said.

US stock futures, meanwhile, were lower during Asian trading hours. Dow (INDU) futures were last down 140 points, or about 0.6%. S&P 500 (SPX) futures were down 0.6% and Nasdaq (COMP) futures were down 0.5%.

Those declines followed a positive day on Wall Street.

“Conflicting information continues to pile up in financial markets, making a confusing picture for investors and the rest of the world trying to make sense of it,” wrote Jeffrey Halley, senior market analyst for Asia Pacific at Oanda, in a Wednesday note.

On Tuesday, the Dow closed 559 points higher, or 2.4%. The S&P 500 finished up 3.1% and the Nasdaq Composite finished up 4%, its longest winning streak since early February.

But Halley noted that the coronavirus is still weighing heavily on Wall Street. JPMorgan Chase (JPM), for example, set aside a stunning $6.8 billion worth of reserves to insulate itself from loan defaults, contributing to a 69% profit drop in the first quarter. Bank of America (BAC), Goldman Sachs (GS), UnitedHealth (UNH), and Citigroup (C) are scheduled to report earnings on Wednesday.

“In fairness, they appear to be front-loading the bad news, which is an eminently sensible strategy, sure to be followed by the rest of the sector,” Halley wrote of JPMorgan and Wells Fargo, which also noted a $3.1 billion reserve build to protect against bad loans. “That said, both emphasised that dark times are coming for the US and global economies.”

Eyes will turn Wednesday to the United States again, which is set to release retail sales data for March.

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Asian markets trade modestly lower as China cuts an important rate to a record low
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