China incentives agenda in global markets

Global markets are following the incentives coming from China. Another topic on the agenda was the Fed's move regarding the emergency lending program. The Fed recently increased the interest rate of the emergency lending program, which has attracted great interest from banks due to its low cost. The effects of the expected incentive steps in China are being felt on Asian stock markets. China said that the required reserve ratio for banks will be lowered within two weeks and signaled that more support measures will be taken. According to the statement made by the People's Bank of China, the required reserve ratio will be lowered by 0.5 percentage points on February 5 in order to provide the market with 139 billion dollars of long-term liquidity. The Hong Kong Hang Seng and China CSI 300 are up due to the news. Japan's Nikkei 225 is flat. US futures indexes are also not changing much. The dollar strengthened against all major G-10 currencies and US bond yields were flat after 30-year bond yields rose to their highest level this year yesterday following a weak auction. The Fed has raised the interest rate on its emergency lending program The US Federal Reserve has decided to raise the interest rate on loans provided to banks under its emergency lending program, which was launched last year. The decision was made after banks, who wanted to evaluate the attractive costs, increased demand in recent weeks. Senior officials had signaled earlier this month that the Fed would not extend the Bank Term Funding Program (BTFP), which was announced during the regional banking crisis in order to reduce stress in the financial system, beyond its March 11 deadline. The Fed announced last night in a statement that, effective immediately, the borrowing rate would be “no lower” than the borrowing rate on reserve balances in effect on the day the loan was made. This rate on reserve balances, which usually moves in line with the Fed’s benchmark federal funds rate target, is currently at 5.4 percent. The interest rate on the emergency lending program, which is tied to market rates, is at 4.88 percent. Market rates have recently declined in response to expectations of Fed rate cuts. The Economist described the program last week as a “free money machine for banks.”