Central bank to cut reserve requirement by 1%

Central bank to cut reserve requirement by 1%

Central bank to cut reserve requirement by 1%

Friday's US non-farm payrolls showed job creation slowed in September, likely from Hurricane Florence's impact on restaurant and retail payrolls, but the Labor Department report also showed a rise in wages that could keep the Federal Reserve on track for more interest rate hikes. Xie Yaxuan, chief economist at China Merchants Securities said in a note that the timing of the announcement was a deliberate move by Beijing "to offset the shock from declines in global stock and bond markets to the domestic economy".

Major equity indexes in Europe fell more than 1.0 percent, also pulled down by technology shares, and gold prices inched up as some investors sought refuge in the metal.

The central bank is trying to make the yuan more market-oriented and flexible but has intervened when the currency threatened to slide too far.

"One should not underestimate the central bank's resolve", he said.

A neutral monetary policy means the central bank is neither trying to slow nor stimulate the economy.

The worldwide rate, which is not governed by the central bank, also slipped to 321 basis points to an 18 month low of 6.9135.

It is the fourth time this year the People's Bank of China has cut the reserve ratio, "though this cut was bigger and broader than previous ones" reports the New York Times.

A weeklong holiday for Chinese markets meant investors had an entire five days of news and data to digest in just one session, including an escalation of the trade war between China and the US. It is important for Beijing to manage those risks for longer term growth, she said, adding that "the focus is now on growth".

The Chinese economic growth slackened somewhat to 6.7% in the second quarter year-on-year, still above the government's full-year target of approximately 6.5%.

Zhang Yi, chief economist at Zhonghai Shengrong Capital Management, said the cut suggested the central bank was anxious about the impact of "external shocks" to markets such as the one delivered last week by US Vice President Mike Pence's criticism of Beijing. Experts had expected the sell-off to spill over to the Shanghai and Shenzhen stock markets when they re-open on Monday.

The RRR cut would not create depreciation pressure on the yuan, the PBOC said, adding it would keep the foreign exchange markets stable.

The FTSE China A50 Index of large caps, which includes stocks that overseas investors are more likely to own, sank nearly 5 per cent in its biggest selloff since January 2016. "There is so much headwinds towards it now and I think it's right to prepare for the worst and expect the best", Gareth Nicholson, head of fixed income at Bank of Singapore, told CNBC's "The Rundown" on Monday.

China is signaling that it is anxious about its economy.

As the stock with the second-biggest weighting on the index, PetroChina was back in favour among traders because of optimism that its earnings will get a boost from rising crude oil prices that are trading near a four-year high in NY.

"He can worry about the debt problems three, four, five years down the line", Nicholson said.

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