Chinese Stocks, Bonds Cautiously Firmer After Rate Cuts

China stocks closed modestly higher on Monday after the central bank cut interest rates for the sixth time since November to spur the cooling economy, but gains were capped by profit-taking, in particular in smaller, more speculative shares.

Japan’s Nikkei Stock Average slipped 0.2%, South Korea’s Kospi was down 0.3% and…

The benchmark Shanghai Composite Index edged up 0.5 percent to end at 3,429.58 points. It reduced the one-year benchmark deposit rate by 25 basis points to 1.50 per cent.

The surprise move by China lifted risk assets that had been already boosted by Thursday’s message from the European Central Bank that it stood ready to enhance quantitative easing and cut interest rates to even deeper negative levels.

“The market was slightly buoyed by the central bank’s rate cut”.

Of the bonds issued, 7.7 trillion yuan (US$1.21 trillion) worth were issued through the inter-bank bond market, up 122.5% year on year, according to the People’s Bank of China (PBOC). Premier Li Keqiang highlighted a minimum growth estimate for China in the coming five years that could indicate the leadership’s readiness to accept the weakest period of expansion since the economy was opened up three decades ago.

Also unfavorable for the dollar versus the yen were reported remarks by Koichi Hamada, an economic policy adviser to Japanese Prime Minister Shinzo Abe, who said he sees no need for the Bank of Japan to take additional monetary easing steps this week, according to an official of a Japanese bank.

“So pressure for the onshore market to weaken exists”.

Supporting the yuan has drained China’s foreign exchange reserves, although cutting bank reserve requirements – and maintaining trade surpluses – help offset any impact on markets. The large-cap CSI 300 edged up 0.2 per cent to 3,533.31.