LONDON: Global stocks mostly fell on Tuesday as China’s smaller-than-forecast interest rate cut failed to dispel worries over its flagging powerhouse economy.

Asian stocks finished mostly lower, as did European equities. Wall Street opened lower upon returning from a long holiday weekend.

London stocks firmed on the eve of critical UK inflation data and ahead of Thursday’s expected interest rate increase from the Bank of England. World oil prices slumped and the dollar wavered against rival currencies.

‘Headwinds for global economy’

“Developments in China, where the central bank cut its reference interest rate by ten basis points, continue to point to a slower-than-predicted post-pandemic recovery in the world’s second-largest economy,” said ActivTrades analyst Ricardo Evangelista.

World oil prices slump and dollar wavers against rival currencies

“With China’s economy struggling to regain momentum, the headwinds for the global economy get stronger,” he warned.

The People’s Bank of China reduced its benchmark five-year rate by 10 basis points, less than the 15 points expected, though it did meet forecasts for a 15-point reduction in the one-year rate.

Traders were left disappointed by Beijing’s lack of action to kickstart the country’s lumbering economic recovery.

CMC Markets analyst Michael Hewson said the consensus was PBoC’s “measure won’t make much difference and is mere tinkering around the edges.” The move came after the PBoC had last week lowered two other key rates and pumped billions into financial markets.

In reaction Hong Kong stocks dropped more than one per cent, with tech firms — which are susceptible to higher borrowing costs — taking the brunt of the selling, while property companies also dropped. Shanghai was also in negative territory, but Tokyo eked out gains.

Tuesday’s retreat extended this week’s losses that were fuelled by frustration at the lack of detail from China on measures to boost the economy, which has failed to recover since painful zero-Covid measures were removed at the end of 2022.

There had been hope they would unveil help for the troubled property sector — a crucial growth driver-- as well as consumer activity and youth unemployment.

China’s decision to reduce rates contrasts with Western countries, which have been forced into a series of interest rate hikes while reducing money supply to tame rampant inflation.

Rally over ?

Wall Street stocks slid at the start of trading in a week where Federal Reserve Chairman Jerome Powell’s semi-annual appearances before lawmakers will be closely scrutinised.

“US markets have returned from their long weekend with a lower open, as doubts start to creep in about the sustainability of the current rally,” said market analyst Michael Hewson at CMC Markets.

“With Fed chair Jay Powell due to speak tomorrow, along with a whole host of Fed speakers due throughout the week, an element of profit taking appears to be kicking in,” he added.

While the run up in stock prices in recent weeks has been based on belief that the Fed is done or nearly done in raising interest rates, the rally may yet not be over, said analyst Patrick O’Hare at Briefing.com.

Published in Dawn, June 21st, 2023