Asian equities fall despite China’s rate cut

Asian shares declined from their highest levels in 1-1/2 months on Tuesday, as investors were unimpressed by China’s record rate cut, Reuters reported.

Meanwhile, futures in the U.S. and Europe fell due to diminishing prospects of early rate cuts in those regions.

China reduced its five-year loan prime rate (LPR) by 25 basis points to 3.95 per cent, surpassing economists’ predictions of cuts ranging from five to 15 basis points. However, the one-year rate remained unchanged at 3.45 per cent.

The Shanghai Composite was flat, while blue chips declined by 0.3 per cent.

Elsewhere, Japan’s Nikkei retraced from its flirtation with the index’s 1989 high, ending 0.3 per cent lower. MSCI’s index of Asia shares excluding Japan slipped by 0.1 per cent, while South Korean shares fell by 1 per cent.

The yuan initially reached its lowest point in three months during early trade but stabilised at 7.1981 in the Asian afternoon.

The Australian dollar, often considered a proxy for China’s economic performance, experienced minimal movement, while iron ore futures, which are influenced by Chinese construction demand, dropped by three per cent.

David Chao, global market strategist at Invesco, noted, “This is the most significant rate cut to the 5-year LPR that we have witnessed.” Nonetheless, Chao observed that keeping one-year rates steady implies that Beijing is still exercising selectivity in its policy approach and has not fully shifted to broad-based easing.

Outside China, global markets experienced some discomfort as traders significantly reduced their bets on U.S. rate cuts due to high readings on producer and consumer prices.

As cash trade resumed following the U.S. holiday on Monday, U.S. Treasury yields inched up. S&P 500 futures and European futures both declined by 0.3 per cent.

Last week, ten-year U.S. Treasury yields rose by 10 basis points and increased by one basis point in Asia to 4.30 per cent. Meanwhile, two-year yields remained steady at 4.65 per cent.