#Rise #sight #Europe #China #rate #cut
PARIS (Reuters) – Major European stocks are expected to rally on Friday on the back of major Asian shares following the People’s Bank of China (PBC) announcement of a sharp drop in one of its key interest rates, a new stimulus for the world’s second largest economy.
Index futures contracts suggest an increase of 0.77% for the Paris CAC 40, 1.03% for the Frankfurt Dax, 1.13% for the London FTSE 100 and 1.05% for the the Euro Stoxx 50.
The PBC cut its five-year prime lending rate, which serves as a benchmark for the Chinese mortgage market, by 15 basis points to 4.45%. It’s his biggest cut since the central bank’s interest rate system overhaul in 2019, when economists expected a cut of just five to 10 points.
“While this certainly won’t be enough to counteract all the headwinds that are holding back growth in the second quarter, it is a step in the right direction and markets are reacting, perhaps anticipating further easing,” comments Carlos Casanova. Asia Senior Economist at UBP in Hong Kong.
The news so far takes precedence over global inflation concerns, tighter monetary policies in both the US and Europe and the risk of a US recession that have dominated market sentiment in recent days.
The CAC 40 lost 1.41% during the first four sessions of the week and the European broad Stoxx 600 index lost 1.27%. Above all, the American Standard & Poor’s 500 fell 3.06% and is headed for its seventh consecutive week of decline. It is down 18% from its record closing on January 3.
Producer price figures in Germany released early this morning could revive the debate over inflation and the magnitude of the next rate hikes: at 1.4%, its rise was twice as high as expected in April and raises its growth to 33.5% in one year, a record.
ON WALL STREET
The New York Stock Exchange closed lower on Thursday but above its daily lows after a roller coaster session marked by the fall of Cisco Systems after lowering its forecast, which added to the concerns related to the inflation and rising interest rates.
The Dow Jones Industrial Average fell 0.75% to 31,253.13 points, the Standard & Poor’s lost 0.58% to 3,900.79 and the Nasdaq Composite fell 0.26% to 11,388.50.
Cisco slumped 13.7% after lowering its full-year revenue growth forecast, which it blamed on the impact of its exit from Russia and component shortages due to China’s COVID-19 containment measures.
After the close, semiconductor equipment specialist Applied Materials returned 1.7%, with its forecast for the current quarter lower than Wall Street expectations.
Index futures so far suggest a rally of around 0.6% for the Dow Jones and 1.1% for the Nasdaq.
On the Tokyo Stock Exchange, the Nikkei index closed with a rise of 1.27%, benefited by cheap purchases by investors who are betting on improving business results, thanks, among other things, to exchange effects. Therefore, it gained 1.18% for the entire week.
In China, the SSE Composite of Shanghai takes 1.3% and the CSI 300 1.68% after the decision of the People’s Bank of China, which also supports the Hang Seng of Hong Kong (+2.22%).
The dollar is up against all other majors (+0.11%), but this rally should not prevent it from posting its first negative weekly performance since early April, as it is currently just under 1.5% on the week, after a 10% jump since mid-January.
The euro fell very slightly to $1.0585 but is headed for a gain of around 1.5% for the week.
The 10-year US Treasury yield was flat at 2.8623%, but the 2-year yield rose slightly to 2.6327%.
Both had fallen on Thursday, as fears of a rapid deterioration in the economic situation in the United States had questioned in the eyes of some investors the scenario of an accelerated tightening of monetary policy by the Federal Reserve.
The decennial had thus returned to 2.772%, the lowest since the end of April, 43 basis points below its maximum last week.
In Europe, the German 10-year is up more than four basis points in early trading to 0.989%.
The risk of a marked slowdown in global growth that would curb oil demand weighs on the price of a barrel: Brent falls 0.23% to 111.78 dollars a barrel and light American crude (West Texas Intermediate, WTI) down 1.21% to $110.85.
(Written by Marc Angrand, with Andrew Galbraith in Shanghai)