European and Asian equities rose on Thursday after Chinese authorities cut key lending rates to safeguard the nation’s economy from the spread of coronavirus.
The Stoxx Europe 600 index added 0.2 per cent and the UK’s FTSE 100 added 0.3 per cent.
Hong Kong’s Hang Seng index rallied by more than 3 per cent in response to China lowering its one and five year loan prime rates, in a move that analysts said would boost mortgage lending and create easier financial conditions for smaller businesses.
In Tokyo, the Nikkei 225 share index ended the session 1.1 per cent higher.
“We expect these rate cuts to provide a boost to [China’s] GDP as at least SMEs’ borrowing costs are lowered,” ING chief greater China economist Iris Pang said in a note to clients.
But the move “should be interpreted as offsetting the negative impact from Covid,” Pang added, instead of encouraging analysts to upgrade their economic growth forecasts for China.
China’s economy grew at its slowest pace in a year and a half in the final quarter of 2021, partly due to a strict policy to eliminate all coronavirus cases that has prompted authorities to lock down some big cities and raised concerns for the health of its export industry.
Futures markets implied Wall Street equities would open higher, with contracts on the S&P 500 rising 0.5 per cent and those on the technology-heavy Nasdaq 100 gaining 0.7 per cent.
US markets swung on Wednesday, with the Nasdaq Composite closing in correction territory, as investors fretted about the impact of the Federal Reserve rapidly winding down a massive emergency stimulus programme after improvements in the US economy and surging inflation.
In debt markets, Treasuries continued to fall in price as traders sold the fixed income paying securities ahead of the Fed’s monthly meeting next week.
The yield on the 10-year Treasury, which moves inversely to its price and underpins global borrowing costs and equity valuations, added 0.02 percentage points to 1.85 per cent. The two-year yield, which tracks monetary policy expectations, rose by the same amount to 1.05 per cent.
Futures markets have priced in around four rate rises by the Fed this year, with its main funds rate exceeding 1 per cent by December, after the US central bank tethered borrowing costs close to zero since March 2020.
The Bank of England is also widely expected to raise rates by a quarter point at its meeting in two weeks. On Wednesday, data showed UK inflation hit a 30-year high of 5.4 per cent in December because of a broad increase in the costs of goods and services.
Sterling rose 0.2 per cent against the dollar, buying $1.363, and was steady against the euro, purchasing €1.199. The dollar index, which measures the UK currency against six others, was down by just under 0.2 per cent.
Brent crude, the oil benchmark, fell 0.6 per cent to $87.87 a barrel but remained close to its highest level since 2014.
