Asian markets rebound after China cut interest rates

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Asian markets rebound after China cut interest rates

FILE PHOTO -- An investor stands in front of electronic board showing stock information at the brokerage house in Shanghai.

After China cut a key lending benchmark to support a slowing economy, Asian shares jumped in early trade on Friday, but a gauge of global equity held its longest weekly losing streak on record, despite investor worries about sluggish growth.

On Friday morning, China cut its five-year loan prime rate LPR by 15 basis points, a sharper cut than originally expected, as authorities try to cushion an economic slowdown, though it left the one-year LPR unchanged. There is a five-year rate that affects the pricing of mortgages.

Most respondents to a Reuters poll had expected a 5 basis-point cut to both rates.

After the cut, the broadest index of Asia-Pacific shares outside Japan quickly built on early gains, and was last up 1.4%.

Chinese blue-chips were 1.1% higher in early trade and Hong Kong's Hang Seng index jumped more than 2%, while Australian shares rose 1.3%. The Nikkei stock index gained 1% in Tokyo.

Carlos Casanova, senior Asia economist at the Union Bancaire Privee in Hong Kong said the cut is a move in the right direction, as it doesn't suffice to reverse growth headwinds in Q 2, so markets might be reacting to expectations of a stronger easing going forward.

The longest stretch since its inception in 2001 was the MSCI's All-Country World Price Index, headed for its seventh week in the red despite gains in Asian shares. It would be the longest, with back-tested data extending to January 1988.

Concerns over the impact of battered supply chains on inflation and growth have prompted investors to dump shares, with Cisco Systems Inc on Thursday falling to an 18 month low after it warned of persistent component shortages, citing the impact of China's COVID lockdowns.

Three new COVID 19 cases outside of quarantined areas were announced on Friday by China's financial hub of Shanghai, throwing a wrench in the city's hopes for an exit from its strict, weeks-long lockdown.

The focus of Chinese officials has been to come up with easing policies to mitigate the impact of COVID suppression. The problem is that such easing policies won't have any real impact as long as the COVID suppression policy is tightly enforced, said Christopher Wood, global head of equity at Jefferies.

The Dow Jones Industrial Average fell 0.75%, the S&P was lower and the Nasdaq Composite fell by 0.26% in Asia after a late rally on Wall Street petered out.

Following China's LPR cut, the U.S. government bond yields went up, as well as the shift in risk appetite in equities.

The U.S. 10 year yield was last at 2.8677%, up from a close of 2.855% on Thursday, while the two-year yield climbed to 2.6364% compared to a U.S. close of 2.611%.

The dollar index was 0.08% higher at 102.99 in currency markets, as the safe-haven yen fell against the dollar. The dollar was up 0.23% against the Japanese currency, and the euro was 0.14% lower at $1.0571.

The onshore yuan of China fell by a quarter of a percent to 6.726 per dollar, and the more freely traded offshore yuan weakened past 6.74 per dollar.

Oil prices fell as crude pared losses after China announced its LPR announcement, despite concerns over economic growth. Brent crude was down by 0.37% to $111.63 per barrel, and U.S. West Texas Intermediate crude was 0.19% lower at $112 per barrel.