China's agenda in global markets

Chinese banks have made a record-breaking cut in the mortgage reference rate. As expectations for the Fed’s interest rate cut start date are postponed, investors continue to pour money into money market funds. Despite Chinese banks lowering the mortgage reference rate, declines are having an impact on stock indices in the country. An index tracking construction companies’ stocks in China initially rose, but quickly gave back its gains. Japan’s Nikkei 225 index, which started the day with an increase, also turned negative. According to Willer Chen of Forsyth Barr Asia Ltd., who assessed why the impact on the market was limited, the problems in China’s real estate sector are not only related to mortgage rates, although the latest cut is positive. US markets, which were closed for a public holiday on Monday, are also starting to trade again. US futures are trading with slight losses. The Bloomberg Dollar Index rose slightly to 1,245, while the US 10-year bond yield increased by 1 basis point to 4.2929 percent. After the recent attack in the Red Sea, Brent crude oil, which gained value, retreated slightly and is at $83.42 per barrel. Step to increase housing demand from Chinese banks In China, where the government is trying to support the housing sector by stimulating demand, banks have made a record-breaking reduction in the reference interest rate for mortgage loans. According to the statement by the People's Bank of China (PBOC), the 5-year basic loan prime rate (LPR) was reduced by banks by 25 basis points to 3.95 percent. This was the first reduction since June and the largest since the rate was implemented in 2019. The housing crisis in China has been a major drag on the world's second-largest economy in the past few years and has made sustainable growth targets difficult. Xing Zhaopeng, senior China strategist at Australia and New Zealand Banking Group Co. Ltd., said the decision would be effective in reducing the current mortgage burden for households. Xing Zhaopeng assessed that the step came late because economic hardship has already spread and further interest rate cuts will be needed this year. Banks left the one-year key lending rate at 3.45 percent. About half of economists surveyed by Bloomberg had predicted a cut to that rate as well. The People's Bank of China kept the one-year medium-term lending rate at 2.5 percent on Sunday, in line with expectations, and injected a limited 1 billion yuan cash into the markets. The PBOC is pursuing a more moderate easing policy in an effort to protect the yuan.