Investment markets and key developments over the past week
- Shares were mixed over the last week with US shares up 1.2% and European shares up 4% helped by a combination of good US economic data, a rate cut in China which came after Asian markets closed and a strong signal from ECB President Mario Draghi that its quantitative easing program will be expanded. Chinese shares also rose but by just 0.3%, while Japanese shares fell 0.8% and Australian shares fell 2.8% dragged lower partly on the back of further falls in the iron ore price. Bond yields mostly fell but some commodities got a late boost by the Chinese rate cut. The $US continued to rise and despite a late boost the $A ended down for the week.
- At last China cuts rates. It’s been apparent for some time from the combination of very low inflation, slowing investment and the threat to growth from the property slump that Chinese interest rate settings are too high. While targeted easing has helped, the People’s Bank of China (PBOC) has finally realised that it’s not enough and so it has cut its benchmark interest rates with the 12 month lending rate being cut by 0.4% taking it to 5.6% and the 12 month deposit rate being cut by 0.25% taking it to 2.75%. This will lower the rates at which banks lend most of which are at or above the benchmark lending rate. The move may be modest but it sends a signal that the PBOC is determined to support growth and also likely signals more cuts ahead as there is rarely just one rate move on its own. Quite clearly the PBOC now wants a lower interest rate structure in China and it will get its way. As such the move is positive for the Chinese growth outlook and for Chinese shares. Chinese shares rallied 4.5% one month after the last rate cut in 2012 and were up 16% six months later.
Please click here to read the full article: Weekly Report ~ 21 November 2014