Central bank to cut reserve requirement by 1%

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Yesterday, the People's Bank of China (PBOC) announced a 100-basis-point cut to banks' reserve requirement ratio, stepping up efforts to support the economy and calm market worries. "The narrowing interest rate differentials between China and the United States will exert more downward pressure on the RMB", wrote Nathan Chow, strategist at DBS Group Research.

On Monday, the yuan sank to a 22-month low of 6.93 to the dollar, making one yuan worth about 14.4 cents.

The three core stock indexes on the mainland, the Shanghai Composite, Shenzhen Component and Growth Enterprise Market benchmarks declined 3.72 percent, 4.05 percent and 4.09 percent.

The move signals China's economy "is really not doing well", Chen Shouhong, founder of the investment information platform Gelonghui, wrote on WeChat, a Chinese social media service.

"We've been expecting for some time now the USA market to start delivering volatility".

It also raised the stakes for US inflation figures due later on Thursday as a high outcome would only stoke speculation of more aggressive rate hikes from the Federal Reserve. And on Friday, Chinese technology stocks listed in Hong Kong, including Lenovo and ZTE Corp, slumped on a Bloomberg report that the systems of multiple USA companies had been compromised by malicious computer chips inserted by Chinese spies.

The yuan's drop has drawn concern from the U.S. Treasury Department.

The offshore yuan was also weaker at 6.9050 per dollar.

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China's attempts to increase policy support come at a time of rising external pressure due to the trade war, and as higher USA interest rates weigh on China's currency and constrain Beijing's ability to loosen policy to support growth.

But Nicholson noted that if the trade situation deteriorates further, China will have a number of levers to save its economy because President Xi Jinping has "political capital".

However, Stephen Innes, head of Asia-Pacific trading at OANDA, said: "It's not too much of a stretch to assume markets should expect more policy easing measures and increased infrastructure spending".

Investors are also keeping an eye on Brazil after right-wing Congressman Jair Bolsonaro won almost half the votes in Brazil's first-round presidential election on Sunday, marking a major shift to the right in Latin America's largest nation fueled by voters' anger at corruption. The offshore yuan was trading 0.01 percent firmer than the onshore spot at 6.8697 per dollar.

The FTSE China A50 Index of large caps, which includes stocks that overseas investors are more likely to own, sank nearly 5 per cent in its biggest selloff since January 2016.

Australian shares were down 1 percent.

Brent crude fell 76 cents to $82.33 a barrel, while USA crude dropped 68 cents to $72.49. Brent crude fell 0.75 percent to $83.58 per barrel.

The CSI300 financial sector sub-index was 0.25 per cent higher, the consumer staples sector added 1.26 per cent, the real estate index lost 0.56 per cent and the healthcare sub-index gained 0.22 per cent.