Asian Markets in the Red Despite Interest Rate Cuts in China

On Asian markets on Tuesday, stock prices fell below the highest levels in the last month and a half, as even the larger-than-expected interest rate cuts in China did not cheer investors, who were hoping for stronger stimuli for the deflationary economy.

The MSCI Asia-Pacific stock index was down 0.1 percent around 6:00 AM, retreating from the highest level since January reached on Monday. The Japanese Nikkei was down 0.2 percent at the same time, while the South Korean Kospi fell by 1.22 percent.

China cut its key interest rate on five-year loans by 25 basis points to 3.95 percent on Tuesday, which was above economists’ expectations of a 15 basis point cut. However, the interest rate cut, the first in the last eight months and at the highest rate since its introduction in 2019, did not significantly impact the performance of Chinese stock markets – the Hong Kong stock exchange index was down 0.11 percent this morning, while the Shanghai stock exchange index strengthened, but only by 0.04 percent.

– “This is a significant interest rate cut, which shows that monetary policymakers are serious. However, it remains to be seen if this is enough to maintain momentum. Markets still want to see fiscal measures specifically supporting consumption,” says OCBC strategist Christopher Wong.

In the rest of the global markets, investors are focused on the Fed and its future monetary moves, especially in light of recent indicators pointing to rising inflation, which leaves room for the U.S. central bank to keep interest rates high for a longer period.

– “Markets expected that interest rates in the U.S. would be cut six times this year, but now they are pricing in only three cuts,” notes Bob Savage, a strategist at BNY Mellon.

On the foreign exchange markets, currency changes were modest, with the U.S. dollar rising 0.3 percent against the Japanese yen, standing at 150.4 yen.

At the same time, the dollar strengthened by a slight 0.11 percent against the euro, which is trading at 1.0768 dollars this morning. In such conditions, the dollar index, which measures the performance of the U.S. dollar against six major world currencies, strengthened by a slight 0.17 percent to 104.38 points.