Feb 20 2024: Asian equities remained subdued on Tuesday, failing to maintain recent highs, even after China announced a larger-than-expected interest rate cut. The move failed to energize investors who were hoping for more substantial stimulus measures.
China’s decision to lower its five-year loan prime rate by 25 basis points to 3.95% exceeded economists’ forecasts of cuts ranging from five to 15 basis points. However, the Shanghai Composite and blue-chip stocks declined in early trading, dampening market sentiment.
OCBC foreign exchange strategist Christopher Wong noted the significance of the rate cut but questioned its ability to sustain momentum, emphasizing the market’s anticipation of additional fiscal support measures, particularly targeting consumption.
Despite the rate cut, the yuan remained stable at 7.1972 per dollar. Meanwhile, Japan’s Nikkei opened flat, staying below its 1989 record high.
MSCI’s broadest index of Asia-Pacific shares outside Japan edged down 0.1%, retreating from its January peak reached on Monday. South Korean shares experienced a 1% decline.
In the U.S., Treasury yields saw a slight increase as trading resumed following Monday’s holiday. S&P 500 futures were down 0.2%.
Globally, markets have recalibrated expectations for U.S. rate cuts after recent high readings on producer and consumer prices. Economic indicators, though limited this week, are expected to guide market movements.
Bob Savage, head of markets strategy and insights at BNY Mellon, highlighted the shift in Fed rate cut expectations, underscoring the importance of upcoming data releases such as consumer credit, consumer sentiment, and jobs reports.
Currency markets saw modest movements, with the dollar strengthening and surpassing 150 Japanese yen. The New Zealand dollar stabilized at $0.6138, while the Australian dollar dipped slightly to $0.6529, despite indications from meeting minutes that the central bank may not have completed rate hikes.
In corporate news, Capital One announced plans to acquire Discover Financial Services in a $35.3 billion all-stock transaction. ANZ Bank shares fell 3.5%, while Suncorp shares rose nearly 6% following ANZ’s acquisition of Suncorp’s banking business. However, casino operator Star Entertainment shares plummeted over 20% after a second regulatory investigation into its Sydney casino was announced. BHP’s half-year profits remained flat, resulting in a slight slip in shares.
Looking ahead, investors are closely monitoring Nvidia’s earnings report on Wednesday for potential market impact. In commodity markets, Brent crude futures dipped slightly to $83.45 a barrel, gold held steady at $2,018 an ounce, while iron ore prices declined in Singapore following soft commodity trends.