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For months now, the markets have eagerly awaited a major easing move from the People’s Bank of China. At even the slightest hint of a coming rate cut or even just another trimming of banks’ reserve ratios, stocks have rallied, believing that monetary-policy support would keep the world’s second-largest economy safe for a “hard landing.”
Then, at long last, Beijing delivered with a quarter-point decrease to the policy rates, while adding some interest-rate liberalization measures for an extra kick.
Over in the U.S., the move sent Wall Street higher in Thursday morning trade, with shares making gains that held until later in the session, when Fed chief Ben Bernanke failed to promise more U.S. easing for the near future.
But Chinese markets didn’t take the “good news” well — after a fleeting initial boost, Hong Kong’s Hang Seng Index and the Shanghai Composite headed south.
The answer appears to lie, at least in part, with the timing of the decision.
The PBOC, unlike the central banks in most other major economies, doesn’t set dates for its policy announcements, preferring to act whenever they deem it prudent, rather than tying themselves to a policy-meeting calendar.
Nonetheless, many market players had expected any interest-rate action to wait until this weekend, when China’s statistics bureau is due to release its monthly flood of data, including key inflation, industrial output and retail-sales metrics.
Presumably, PBOC Gov. Zhou Xiaochuan and his colleagues have an idea of what sort of picture these numbers will paint.
Combine that with the PBOC’s recent custom of waiting until weekends or holidays to make their policy announcements, and Thursday’s rate cut becomes a “surprise” move that suggests some level of emergency.
China is in liquidity trap, just like everyone else in the world. That’s according to Dong Tao of Credit Suisse
China is cutting petrol and diesel prices by nearly 6pc as the world's second-biggest economy looks to stimulate consumer demand and combat the effects of the eurozone debt crisis.
The price reduction is the second cut this year and follows Thursday's surprise announcement that interest rates were being dropped by a quarter point as Beijing battles slowing growth.
The fuel cut is the largest since late 2008, and will see the government lower the ceiling on retail prices by 530 yuan (£54) a tonne and diesel by 510 yuan, an official from a state-owned oil company said.
China's oil demand dropped to a six-month low in April and posted its first yearly decline in at least three years.
According to China's fuel pricing rules, a change is considered if a weighted moving average price of three types of international crude oils rises or falls 4pc, and the interval between two price changes is at least 22 working days. Fuel price cuts follow that formula closely, but increases are often postponed or reduced in scale to ease inflation.
The move has raised fears that industrial production and inflation data due out over the weekend will be poor.
Goldman Sach’s Leading Indicators Signal Steep Market Crash Ahead
June 8th, 2012
(HigginsBlog) – Goldman Sachs reports their Global Economic indicators show the world has reentered a contraction and a steep stock market crash lies ahead.
Goldman Sachs Global Leading Indicator (GLI) show that the global economy has entered into a contraction phase “suggest this could be a much more severe downturn” than Wall Street is currently anticipating. ...