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Stocks Lifted By China Rate Cut, Aussie Steady Ahead Of RBA

Published 03/02/2015, 04:14 AM
Updated 03/09/2019, 08:30 AM

Asian equities open the week higher after the surprised rate cut by China's central bank over the weekend. Nonetheless, impact on the currency markets was muted. The People's Bank of China lowered the benchmark one-year loan rate by 0.25% to 5.35%. The one-year deposit rate was also cut by 0.25% to 2.50%. A central bank official noted that the two main reasons for the cut are deflationary risks and slowdown in property markets. The cut was also a follow up to last November's rate cut, which was first in two years, and measures of lowering the bank reserve ratio. Some analysts noted that these were signs that Chinese officials are in urgency to adapt measures to prevent further slowdown in growth. And, the officials could see even meeting a 7% growth this year as a challenge.

The Australia dollar received little support from the news over China. There are speculations that RBA could have another rate cut again tomorrow due to subdued inflation, in particular wages, and weak capital expenditure. Interest rate futures are pricing in more than 50% chance of a cut by 25bps to new historical low of 2.00%. However, some analysts also noted that there have been no communications regarding the possibility of cut from RBA, and the central bank would wait-and -see first. The uncertainty is keeping AUD/USD is range.

Euro opened the week lower against dollar as markets are awaiting ECB meeting later this week. Investors have their eyes on the details of the EUR 1T government bond-buying program, which will begin this month. ECB will also discuss the situation regarding Greece. However, some noted that the main focus would indeed be on the updated economic projections and that could at least set the near term direction in Euro.

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On the data front, New Zealand terms of trade dropped -1.9% qoq in Q4, better than expectation of -2.3% qoq. Australia TD securities inflation expectation was 0.0% mom flat in February. Japan capital spending rose 2.8% in Q4 versus expectation of 3.9%, PMI manufacturing was revised slightly to 51.6 in February. China HSBC manufacturing PMI was revised higher to 50.7 in February. UK PMI manufacturing will be a main focus and is expected to rise to 53.4 in February. Eurozone CPI is expected to drop -0.5% yoy in February. Both data would trigger volatility in EUR/GBP. From US session, ISM manufacturing and US personal income and spending are the main focuses.

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