China surprised the market by lowering its five-year loan prime rate, the benchmark for most mortgages, by 25 basis points to 3.95% while keeping its one-year rate unchanged at 3.45%. This was the first cut in the five-year rate since June 2023 and was larger than expected by economists. The move aimed to revive the depressing property market landscape, which suffered from Beijing’s debt clampdown on developers in 2020. The central bank also injected 1 trillion yuan ($139.8 billion) in long-term capital by cutting the reserve ratio requirements for banks and encouraging lending to high-quality real estate firms. The rate cut was seen as a positive sign of the health of the banking sector and the government’s support for the housing market, but the sustainability of easing credits still remains a question.
EQUITY
While Wall Street was on holiday, Asian stock markets sank despite a surprise rate cut by China's central bank. Goldman Sachs turned bullish on equities due to signs of a global manufacturing recovery, and they downgraded credit to reflect stronger upside and attractive risks to reward, albeit a high valuation. Looking ahead, Nvidia earnings and further economic data will be key to gauging the sustainability of the recent "risk-on" rally.
GOLD
Gold prices are holding strong above $2000 an ounce. Investors now awaited minutes from the Federal Reserve's last meeting for clues on the timing of potential rate cuts, a key driver of bullion prices. Though hotter inflation data pushed back rate cut expectations to June, the minutes hold the potential to sway market sentiment and influence gold's near-term direction, as they did with softer initial jobless claims that help gold re-enter key areas.
OIL
Brent crude prices are aiming for January's high as Middle East violent escalation raised supply fears. Damage to Russia’s refinery following Ukrainian drone attacks adds to the slowing supply. A British cargo vessel in the Red Sea is forced to evacuate its crew after a Houthi attack. Markets are now awaiting China's demand direction after a week-long Lunar New Year break.
CURRENCY
The dollar inched higher on Tuesday after four straight losing sessions. Asian currencies, in contrast, dipped lower, with the yuan edging down despite a rate cut by China's central bank. Meanwhile, the Japanese yen hovers at the symbolic 150 level against the dollar as the economy enters a recession and bets against the currency are on the rise. All eyes are on FOMC Minutes to provide clues as to where the policy is going.
