SHANGHAI – Asian stocks jumped in early trade on Friday after China cut a key debt benchmark to support a slowing economy, but global equities remain a gauge for its longest weekly losing streak on record amid investor concerns over slower growth.
China cut its five-year loan prime rate (LPR) by 15 basis points on Friday morning, a sharp cut from expectations as authorities sought to ease the economic downturn, even though it kept the one-year LPR unchanged. The five-year rate affects the value of the mortgage.
A majority of respondents to the Reuters poll expected a 5-basis-point reduction in both rates.
The broader MSCI index of Asia-Pacific shares outside of Japan was based on initial gains after a sharp cut and ended at 1.4%.
Chinese blue-chips were up 1.1% in early trade, and Hong Kong’s Hang Seng index jumped more than 2%, while Australian shares rose 1.3%. In Tokyo, the Nikkei stock index rose 1%.
“While this may not be enough to reverse the growth headwinds in the second quarter, the (cut) forms a step in the right direction so that markets may respond to the expectation of a strong easing in the future,” said Carlos Casanova, senior Asia economist at Union Bankair Privilege in Hong Kong. .
Despite gains in Asian stocks, MSCI’s All-Country World Price Index has remained in the red for the seventh week in a row, the longest stretch of its kind since its inception in 2001. This will be the longest with back-test data extending to January 1988. .
Concerns over the impact of a broken supply chain on inflation and growth have prompted investors to dump shares, with Cisco Systems Inc falling to an 18-month low on Thursday after warning of continued material shortages, citing the impact of China’s coveted lockdown.
On Friday, China’s financial center announced three new COVID-19 cases outside the Shanghai Quarantine area, throwing a wrench in hopes of getting out of the city’s harsh, week-long lockdown.
“The focus of (Chinese) officials has been on facilitation policies to mitigate the effects of Covid suppression. The problem is that such facilitation policies will have no real impact unless the Covid suppression policy is strictly enforced,” said Christopher Wood, Jefferies’ global head of equities.
Asia gained after a late rally on Wall Street, with the Dow Jones Industrial Average down 0.75%, the S&P 500 down 0.58% and the Nasdaq Composite down 0.26%.
Reflecting the shift in risk appetite in equities, U.S. government bond yields have been higher since China cut LPR.
The US 10-year yield rose to 2.8677% from 2.855% last Thursday, while the two-year yield rose to 2.6364% compared to the US close of 2.611%.
In the currency market, the dollar index was up 0.08% at 102.99 as the safe-haven yen slipped against the dollar. The greenback eventually rose 0.23% against the Japanese currency and the euro was down 0.14% at 0 1.0571.
The Chinese yuan weakened a quarter of a percent to 7 6.726, and the more freely traded offshore yuan weakened above 7 6.74 per dollar.
Oil prices were lower due to concerns over economic growth through crude parade losses after China’s LPR announcement. Brent crude was last down 0.37% at 1 111.63 a barrel and US West Texas Intermediate crude was down 0.19% at $ 112 a barrel.
Spot gold was lower, down 0.2% at 3 1838 an ounce.
(Reporting by Andrew Galbraith; Editing by Lincoln Fist)