Asian shares rose on Monday as investors cheered China’s latest cut to interest rates to bolster its flagging economy and after Wall Street rallied on a robust headline reading for US employment.
China cut interest rates for the third time in six months on Sunday, and analysts predicted policymakers would relax reserve requirements and cut rates again in the coming months.
MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.3%, moving away from a one-month low touched on Friday. Japan’s Nikkei share average added 1.3%, also moving away from last week’s one-month low.
Chinese shares erased earlier losses and were solidly higher. The CSI300 index of the largest listed companies in Shanghai and Shenzhen was up 1%, while the Shanghai Composite Index was up 1.2%.
The People’s Bank of China cut its benchmark one-year lending rate by 25 basis points to 5.1% from Monday and its benchmark deposit rate by the same amount to 2.25%.
“The timing of the rate cut is well within expectations while the depth of the cut is smaller than many had expected,” said Zhang Chen, analyst at Shanghai-based hedge fund manger Hongyi Investment.
The easing followed Chinese inflation figures on Saturday that added to concerns about deflationary pressures.
On Friday, all three major US stock indexes posted gains of over 1%, after US Labour Department data showed nonfarm payrolls increased 223,000 last month, while the unemployment rate dropped to a near seven-year low of 5.4%.
The April jobs figures were seen to put the Fed on track for a rate increase as early as September, a Reuters poll found.
But US short-term interest-rate futures implied traders don’t expect a Fed rate hike until December at the earliest, based on CME FedWatch, as some people focused on the fact that the previous month’s figures were revised to show a gain of 85,000 jobs instead of the 126,000 previously reported.
“Although April data alone does not guarantee that there won’t be a US rate hike sooner than expected in the coming months, there is a sense of relief for now,” said Hiroyuki Nakai, chief strategist at Tokai Tokyo Research Centre.
The mixed report helped lift US Treasury yields. The yield on the benchmark 10-year note US10YT=RR stood at 2.138% in Asian trade, compared to its US close of 2.150% on Friday.
The higher yields gave some support to the dollar, which began the week in its recent ranges. The dollar index, which tracks the US unit against a basket of six major rivals, added 0.3% to 95.108. The dollar was nearly flat on the day against the yen at 119.87 JPY=, while the euro sagged about 0.4% to $ 1.1155 EUR=.
The euro was under pressure after German Chancellor Angela Merkel’s conservatives suffered an election defeat. The Eurosceptic Alternative for Germany (AfD) party was set to win seats in a fifth regional parliament on Sunday in an election in the city-state of Bremen.
Ongoing concerns about Greece’s financial woes as well as disappointing German trade data also undermined the euro.
Later on Monday, the Eurogroup of euro zone finance ministers will meet, and Greece’s government was hopeful that they will note progress on Athens’ talks with lenders. The ministers have ruled out unlocking aid for Greece at the meeting, saying that too many issues with the debt-laden country remain unresolved.
The pound GBP=D4 edged down about 0.2% to $ 1.5420, after it notched a 10-week high of $ 1.5523 on Friday against the greenback, after a surprise election victory by Conservatives.
Bank of England keeps rates steady before inflation update
London (Reuters): The Bank of England kept interest rates steady at a record-low 0.5% on Monday, judging that the outlook for prices and wages is still too weak for it to raise the cost of borrowing despite solid growth prospects.
The bank issued no statement but Governor Mark Carney will explain more on Wednesday, when he presents a quarterly update to the central bank’s forecasts for growth and inflation.
Most economists do not expect the BoE to raise interest rates - which have been unchanged for more than six years - until early 2016, and none of those polled by Reuters last week expected the BoE to raise rates this month.
The US Federal Reserve is expected to start raising rates this year, followed by the BoE, while the European Central Bank is further behind as it is in the early stages of a major stimulus program to revive the euro zone economy.