Asia shares fall as China’s modest rate cut disappoints

Hong Kong, June 20 (BNA): Stocks in Asia fell on Tuesday as investors worried that China’s latest interest rate cut would not be enough to boost confidence in the ailing economy and hoped for a larger stimulus package from Beijing.

China, in a highly anticipated move, cut its main loan prime rate (LPR) for the first time in 10 months on Tuesday, although the 10 basis point cut in the five-year LPR was less than many expected, Reuters reported.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.72%. China’s CSI was mostly flat though Hong Kong stocks and mainland real estate stocks slipped after the disappointment of the rate cut.

E-mini futures for the S&P 500 fell 0.33%. US markets were closed for a public holiday on Monday.

“I don’t think it (LPR cuts) will move the needle at all,” said Redmond Wong, Greater China market strategist at Saxo Markets. He said a 15 basis point cut would have sent a “stronger message” that could boost sentiment in China’s real estate sector.

“The (Chinese) economy is in an unstable state and it is difficult to get out of it,” macroeconomist Aidan Yao, formerly of investment firm AXA, told the Reuters Global Markets Forum after China’s rate cut.

He said that despite the accommodative policy settings, liquidity is still stuck in bank deposits and has not found its way into the economy with the demise of China’s real estate market.

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The Chinese real estate index extended its morning losses, falling 1.41%.

The interest rate cuts are the latest in a series of moves by Beijing to support a slow recovery in the world’s second-largest economy amid looming deflationary risks, property market woes and soaring youth unemployment.

The People’s Bank of China lowered the medium-term lending facility rate on Thursday last week. The market had been speculating about what China might do next to revive the recovery, but was disappointed by the lack of concrete measures from Friday’s cabinet meeting.

“It is likely that we will need to wait for the meeting of the Chinese Politburo, chaired by President Xi in early July, for any concrete announcement about a new round of stimulus,” Rodrigo Cattrell, chief forex strategist at the National Australia Bank, said in a note to clients.

Delays in further stimulus measures weighed on sentiment, as Citi, the latest in a group of major banks, cut its growth forecast for the Chinese economy on Tuesday.

Meanwhile, China and the United States failed to make any significant progress during US Secretary of State Antony Blinken’s visit to Beijing, but both sides agreed to stabilize relations to avoid sliding into conflict.

“The meeting helped improve sentiment, but the market is also aware that there is strategic competition between the US and China,” Wong said at Saxo.

Shares in Hong Kong fell 2.41% amid disappointment over the scale of interest rate cuts in China and continued concerns about Sino-US tensions.

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Japan’s Nikkei fell 0.24% on Tuesday.

Australian shares bucked the trend, hitting a seven-week high, with commodity shares leading. A central banker hinted on Tuesday that there is room for policy adjustment from the current path of interest rate hikes.

The yield on the 10-year US Treasury rose by 3.1 basis points.

US crude fell 1.28% to $70.86 a barrel, and Brent crude closed at $75.90, down 0.25% for the day.

The US dollar index rose 0.117%, with the euro slipping 0.09% to $1.0912.

Spot gold fell 0.12% to $1947.7 an ounce.


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