China Stimulus Boosts Europe, Us Stock Indices
Global stock markets were boosted on Monday by news that the People's Bank of China has cut its bank reserve requirement by the largest amount since in the financial crisis in a bid to stimulate its economy.
Monday, April 20, 2015 - 00:00
The central bank reduced the RRR by 100 basis points to 18.5% and the move follows a 50-basis-point cut made at the beginning of February. Chinese GDP grew at 7.4% in 2014, missing the country’s official target of 7.5% and hitting its slowest rate for 24 years.
Interestingly, the cut was more warmly received in the West than in Asia. Asian stock markets finished in the red, with the Hang Seng slumping 2%, but European stock markets rose on Monday. The UK’s FTSE 100 gained 0.56% to move above the key 7000 mark, while the German DAX surged 1.5% to 11,863.
China’s latest move to ease comes in contrast to the expected outlook for the Fed, a fact that was highlighted Monday by comments made by William Dudley, the President of the New York Fed. Though Mr Dudley stuck with the overarching message of the decision being guided by incoming data, he sounded optimistic about the chances of a rate hike later this year. ‘Despite the weak performance of the first quarter, I believe that the growth prospects for the U.S. economy over the remainder of 2015 will improve,’ said Mr Dudley, who is a permanent voting member of the FOMC. ‘When, hopefully, the data support a decision to lift off later this year, it does not mean that US monetary policy will be tight.’
Mr Dudley also acknowledged that when the Fed does normalize policy it could pressure emerging markets, yet added that ‘there are good reasons to think that this adjustment will prove manageable and not be very disruptive.’
US stock indices have followed the lead of European markets and moved higher in early trading on Monday. Shortly after the opening, the Dow Jones was up 158 points or 0.89% at 17,984. The S&P 500 Index rose 0.65% to 2094.6.
The domestic economic calendar is thin at the beginning of this week, with nothing major on the horizon for Tuesday and the sole major release on Monday being the Chicago Fed’s National Activity Index (CFNAI). Hopes that the economy would bounced back in March from the weather-hit start to 2015 were dealt a further blow by the March findings of the CFNAI: the index slid to -0.42, well below expectations and showed negative readings for nearly every component, while February’s level was downwardly revised from -0.11 to -0.18. The three-month moving average, meanwhile, now stands at -0.27, indicating below-trend growth for the whole of the first quarter.
The search for a rebound will now have to move out to April, and some useful clues could come from Thursday’s release of the flash manufacturing PMI for April, probably the highlight of the economic calendar this week, which will give us a first look at how the manufacturing sector has been doing nationwide this month.
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