On Monday, Chinese stocks rose as the People’s Bank cut interest rates for the second week in a row, but broader Asian markets declined due to mounting uncertainty over the Federal Reserve’s monetary policy agenda.
China’s Shanghai Shenzhen CSI 300 index surged 0.8% by 00:41 ET, while the Shanghai Composite index gained 0.6%. (04:41 GMT).
In response to weakening economic data this year, the People’s Bank of China slashed two of its benchmark interest rates for the second week in a row. The action suggests that the government would likely increase spending on economic stimulants to encourage economic growth.
This action is favorable for Chinese stocks since it frees up additional liquidity for domestic investment. Following the PBoC’s action, the yuan plummeted to a level not seen in nearly two years, which helped export-oriented shipping and commodity stocks.
COSCO Shipping Energy Transportation Co Ltd (SS:600026) was the top performer on both Chinese indexes, gaining over 10% after receiving approval to issue a 5 billion yuan ($730 million) note.
Despite mounting evidence of economic strain from Beijing’s stringent zero-COVID policy, expectations of additional stimulus support have kept Chinese markets buoyant in recent weeks.
As investors grew more concerned about the pace of Federal Reserve rate hikes this year, most other Asian bourses sank strongly on Monday.
The Australian ASX 200 plummeted 1%, while the Japanese Nikkei 225 fell 0.5%. India’s benchmark Nifty 50 index declined by 1%.
Traders are currently expecting Fed Chair Jerome Powell’s speech at the Jackson Hole Symposium later this week, when he is expected to offer additional insight on the Fed’s probable dovish lean. A week-long surge in risk assets was fueled by expectations of a dovish Federal Reserve, after data earlier this month revealed that U.S. inflation dropped modestly in July.
However, hawkish remarks from a number of Fed officials swiftly curtailed gains, leaving traders unclear about the Fed’s next move.
Expectations for the next rate hike by the Fed are nearly evenly split between 50 and 75 basis points. Increasing U.S. interest rates are dovish for Asian markets because they restrict foreign investment in the region.
