ASX gets bounce from China rate cut
A sharp rebound in miners end the Australian sharemarket losing streak after The People's Bank of China surprised investors late on Friday with a rate cut.
The S&P/ASX 200 index jumped 1.3 per cent in morning trade but slipped to close up 57.5 points, or 1.08 per cent, at 5361.8 as iron ore and steel futures reflected a muted response to the China's move towards interest rate "flexibility" and attempts to liberalise financial markets.
The PBOC cut its benchmark lending rate by 40 points to 5.6 per cent and its benchmark deposit rate by 25 points to 2.75 per cent, while also allowing banks to offer deposit rates up to 20 per cent higher than the benchmark in order to attract scarce funding.
"Lower interest rates will assist with the servicing burden of highly-indebted firms and local government entities," Westpac economist Huw Mckay said.
"As the loan stock turns over quite quickly in China (i.e. maturities tend to be quite short), the refinancing process will quickly pass the cut through to existing borrowers. Put another way, lower interest rates can accelerate the deleveraging task."
Spot iron ore dropped one per cent to $US70.30 a tonne on Friday, while Dalian iron ore futures jumped 1.3 per cent in early trade but faded to trade 0.8 per cent up at the close of the ASX.
National Australia Bank currency strategist Raiko Shareef said the PBOC considered the growth rate to be running "in a reasonable range" and that its policy action "does not signal that the direction of the policy has changed".
"Nonetheless, this will stoke market speculation that continued deterioration in economic data will invite further policy easing," he said.
The Australian dollar jumped US0.6¢ to US86.80¢ while government 10-year yields slipped 2.3 points to 3.241 per cent.
The Shanghai composite index was up 1.8 per cent at the close of the ASX.
Japanese markets were closed for a holiday.
On Friday equity markets sentiment was also boosted by European Central Bank president Mario Draghi who promised to "do what we must to raise inflation and inflation expectations as fast as possible".
More to come…
