China Cuts Rates to Boost Economy
Due to an economic slowdown, China is increasing their monetary-easing measures in order to improve heavy debt burdens on the government as well as companies. On Sunday, the People's Bank of China (PBOC) said that effective from Monday, they would reduce the benchmark lending and deposit rates by a percentage point. This marks the bank’s 3rd rate cut in the last 6 months. As a result of this recent move, there is a clear indication that Chinese officials are concerned regarding the severe debt in the country as a result of credit expansion over the last few years which has happened too rapidly. It is evident that China has been struggling to improve the economy in the world’s 2nd largest economy. Added to this, The Wall Street Journal had also reported that the PBOC is considering introducing a credit-easing tool which will enable local governments to restructure the hefty debts. Meanwhile, it has been noticed that from 1:20 p.m. to 2:20 p.m., Chinese stocks decline and this decline is clearly evident if we review the movement of the Shanghai Composite Index over the past 30 days. On Friday, the index declined 359 points during that hour which marked the 19th decline in 30 sessions. According to Hao Hong, a strategist at Bocom International Holdings Co. in Hong Kong, the time is significant since most large Chinese companies and institutions usually place sell orders at that time in order to accommodate for the 109% increase in Shanghai shares over the past year. In this way, portfolios are gradually being re-balanced.
As a result of positive nonfarm payroll data on Friday, U.S. stocks rallied. On the day, the Dow industrials posted its largest 1-day point gain in more than three months. With the positive NFP data which showed that the country added 223,000 jobs in April, investors have a positive sentiment that growth in employment in the country is healthy which points to a solid economy. Added to this, the unemployment rate declined to 5.4 percent in April. At the close of trading, the Dow Jones Industrial Average (DJIA) advanced 1.5%, or 267.05 points, to 18,191.11. For the week, the blue chip index finished 0.9% higher. Meanwhile, the S&P 500 index (SPX) was also on the upside rising 1.4%, or 28.09 points, to 2,116.09. The index gained 0.4 percent over the week with all 10 sectors higher on Friday. Also on the upside was the Nasdaq Composite index (COMP) which rose 1.2%, or 58 points, to 5,003.55. The tech heavy index closed the week roughly where it started.
On Friday, in currency trading, the U.S. dollar (USD) traded higher. This came after closely watched data showed that slightly fewer jobs were created in the U.S. last month while the unemployment rate declined. According to the report by the Department of Labor, 223,000 jobs were added in April. This missed expectations for an increase of 224,000. Meanwhile, the unemployment rate in the U.S. declined from 5.5% in March to 5.4% in April. The GBP/USD traded higher at 1.5394, up 0.97% while the EUR/USD traded at 1.1207, down 0.52 percent. Also, the USD/CHF traded at 0.9269, up 0.55% while the yen traded steady with the USD/JPY at 119.81. Also, the U.S. dollar index was at 94.92, up 0.20 percent.
On Monday, in early morning Asian trading, crude oil prices declined. This came in response to the recent move by the People’s Bank of China to cut rates by a quarter percentage point from 5.35% to 5.10% in order to spur growth. WTI crude oil for June delivery traded at $59.27 a barrel, down 0.20%, on the NYMEX. On Friday last week, WTI oil futures gained in response to data which showed that the number of oil rigs in the U.S. declined by 11 to 668. This marks the 22nd straight week of declines. Meanwhile, also on Friday, Brent crude oil for delivery in June traded at $65.39 a barrel, down 0.23%, or 15 cents, on the ICE Futures Exchange in London.