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Written by Selina Lee and Joyce Alves
HONG KONG/LONDON (Reuters) – European and Asian stocks fell on Tuesday after China cut interest rates less than expected and more details were awaited on Beijing’s plans to shore up its faltering economic recovery.
China cut benchmark loan prime rates (LPR) for the first time in 10 months on Tuesday, with a smaller-than-expected 10 basis point cut in the five-year LPR.
The pan-European index fell 0.13%, following declines in stock markets across Asia.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.75%. China’s CSI fell 0.17%, with the real estate index slipping 1.9%, its biggest daily drop in a month.
“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.
Analysts at BofA Global Research said in a note that “such marginal easing” is likely to help prevent a sharp slowdown in growth, but is unlikely to provide a strong impetus to reversing a growth slide in the near future.
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 action 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,” said Rodrigo Cattrell, chief forex strategist at the National Australia Bank.
Delays in further stimulus measures weighed on sentiment, as Citi, the latest in a group of major banks, cut its growth forecasts 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.
Australian shares bucked the trend, hitting a two-month high after minutes from the RBA’s latest policy meeting showed the decision to hike interest rates in June was “quite balanced”. A central banker also hinted on Tuesday that there is room for policy adjustment from the current path of interest rate hikes.
Elsewhere, British two-year government bond yields, which are more sensitive to higher interest rates, hit a new 15-year high, rising more than 5% as investors stepped up their bets on how quickly and to what extent the Bank of England will raise interest rates. .
It fell 0.8% to $71.22 a barrel and was at $76.41, reversing previous declines, to rise 0.42% on the day.