Asian markets down slightly as China cuts significant rate to record level

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Japan Nikkei 225 ((N225) 0.5%, while China Shanghai composite ((SHCOMP) down 0.3%. Australia’s S & P / ASX 200 lost 0.6%. Hong Kong’s Hang seng ((HSI) opened higher, but cleared its small gains and was down 0.5%.

South Korean markets were closed on Wednesday while the country held elections.

Wednesday’s retreat, albeit moderate, marks a reversal of optimism that drove markets up a day earlier when trade data suggested the Chinese economy was performing better than expected as the country recovered coronavirus.

Despite this, China has yet to find ways to protect its economy. The People’s Bank of China lowered the one-year rate from 3.15% to 2.95% on Wednesday, which it lends to banks via its medium-term credit facility. Although the decline was more pronounced than other recent reductions in this rate, it was widely anticipated. It is also a sign that the PBOC will cut its prime lending rate next week, which was introduced last year to gradually replace the central bank’s current fixed benchmark rate and to facilitate borrowing money for businesses.

“As external headwinds increase and domestic demand is struggling to fully recover from the Covid-19 epidemic even as most companies have resumed operations, the PBOC appears to be accelerating the pace of monetary easing” wrote Julian Evans-Pritchard, senior Chinese economist for Capital Economics, in a research note following the announcement.

China is expected to release its first quarter GDP on Friday, which will show how badly the economy has been damaged by the coronavirus so far. Analysts have high expectations that the country will report its first economic contraction in decades.

Hope for a rapid recovery is “glooming” in China, Nomura analysts wrote in a note on Wednesday.

New bank loans in China jumped to $ 404 billion in March, well above market expectations and about three times more than in February, according to recent data from the central bank.

“In our view, the markets may still be too optimistic about the recovery in China, and we do not believe that the increase in credit growth in March means that there will be a rapid recovery in growth,” said they stated.

American equity futures, meanwhile, fell during trading hours in Asia. Dow ((UNDUE) futures contracts were down 140 points, or about 0.6%. S&P 500 ((SPX) futures fell 0.6% and Nasdaq ((COMP) futures fell 0.5%.

These declines followed a positive day on Wall Street.

“Conflicting information continues to accumulate in the financial markets, creating a confused image for investors and the rest of the world trying to make sense of it,” wrote Jeffrey Halley, senior market analyst for Asia-Pacific in Oanda, in a note from Wednesday.

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On Tuesday, the Dow Jones closed up 559 points, or 2.4%. The S&P 500 finished up 3.1% and the Nasdaq Composite finished up 4%, its longest winning streak since early February.

But Halley noted that the coronavirus still hangs heavily on Wall Street. JPMorgan Chase ((JPM), for example, set aside $ 6.8 billion in reserves to protect against defaults, contributing to a 69% drop in first quarter profits. Bank of America ((BAC), Goldman sachs ((GS), UnitedHealth ((A H), and Citigroup ((VS) are expected to publish their results on Wednesday.

“In all honesty, they seem to be at the forefront of the bad news, which is an eminently sensible strategy, which will certainly be followed by the rest of the industry,” wrote Halley of JPMorgan and Wells Fargo, who also noted a constitution of reserves of 3.1 billion dollars. to protect against bad debts. “Having said that, the two said that dark times are coming for the United States and the global economies. “

Eyes will again turn to the United States on Wednesday, which is expected to release retail sales data for March.

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