HONG KONG: Asian markets rallied on Monday (Nov 24) after China’s surprise move last week to cut interest rates for the first time in more than two years as its leaders try to strengthen growth.
The euro struggled following a sell-off on Friday in response to comments from the head of the European Central Bank hinting at further stimulus measures to fight off deflation.
Shanghai rose 1.85 percent, or 46.09 points, to end at 2,532.88 while Hong Kong closed up 1.95 percent, or 456.02 points, at 23,893.14. Sydney added 1.08 percent, or 57.5 points, to 5,361.8 and Seoul ended 0.70 percent higher, tacking on 13.70 points to 1,978.54. Tokyo was closed for a public holiday.
China’s central bank on Friday evening announced it would slash its one-year rate for deposits by 25 basis points to 2.75 percent, and its one-year lending rate by 40 basis points to 5.6 percent, both effective Saturday.
The move – the first cut since July 2012 – followed a series of disappointing data from the world’s number two economy, a key driver of global growth. Last week banking giant HSBC said its index of manufacturing activity in China showed the sector had stagnated in November, while other data on trade and industrial output have also highlighted weakness.
“This provides confidence that growth won’t fall below seven percent,” said Shane Oliver, head of investment strategy and chief economist at AMP Capital Investors. “Some of the rally this year has been a removal of cheap valuations. The next leg of the rally will probably come from confidence that growth is not going to collapse,” Oliver told Dow Jones Newswires.
US shares rallied on the news. The Dow climbed 0.51 percent and the S&P 500 gained 0.52 percent – both ending at new record highs – while the Nasdaq added 0.24 percent.
Also providing buying support was a suggestion from ECB head Mario Draghi that he is ready for further stimulus to boost the flagging eurozone economy. He told a banking congress on Friday the ECB “will use all means available to us, within our mandate, to return inflation towards our objective – and without any undue delay”.
Among the measures being considered are the large-scale purchase of government bonds – known as quantitative easing – similar to that undertaken by the Bank of Japan and recently wound down by the US Federal Reserve. The bank is struggling to fend off deflation in the currency bloc with inflation currently at just 0.4 percent, well below the ECB target of 2.0 percent.
Draghi’s comments hit the euro, which fell to 145.91 yen and US$1.2405 late Friday from 147.81 yen and US$1.2553 beforehand. In Asian trade on Monday it was sitting at 146.12 yen and US$1.2396. The US dollar bought 117.84 yen, against 117.63 yen on Friday.
In oil markets US benchmark West Texas Intermediate for January delivery was up five cents at US$76.56 a barrel in afternoon trade, and Brent crude for January eased one cent to US$80.35. Gold was at US$1,196.61 an ounce, compared with US$1,196.81 late Friday.