Hong Kong stocks hit 3-week high as China signals rate cuts with liquidity injection amid bets on Fed rate pause
- Market gained upside momentum after China’s central bank injected more liquidity into the system, a signal of imminent rate cuts for Goldman Sachs
- Odds on Fed rate-pause increased to more than 82 per cent from 70 per cent on Monday before a report suggesting cooling US inflation
The Hang Seng Index added 0.6 per cent to 19,521.42 at the close of Tuesday trading to reach the highest level since May 22. The Tech Index rallied 2.4 per cent, while the Shanghai Composite Index added 0.2 per cent.
Mainland property developer Longfor Group gained 3.7 per cent to HK$19.46, while Country Garden increased 4.8 per cent to HK$1.76. Hong Kong builder New World Development jumped 1.2 per cent to HK$20.30.
‘Wider easing’ to follow after China cuts key policy rate to support economy
“This cut could help improve sentiment and reduce investors’ concerns on the lack of policy responses to weakening economic growth,” Goldman Sachs analysts led by Maggie Wei wrote in a report. “The reduction in interest rates could set the stage for additional fiscal policy and property policy easing in the next few months, should growth remain disappointing.”
The US investment bank expects the PBOC to cut the one-year medium-term lending facility on June 15 and loan-prime rate on June 20th, each by 10 basis points. It pushed back a forecast for a 25 basis points cut in the reserve-requirement ratio RRR cut to the third quarter, instead of June.
Local stocks earlier struggled to sustain an upturn this month as China took its time to respond to speculations it will stimulate home sales. Other parts of the economy are stumbling, with recent reports showing manufacturing contracted last month while exports shrank.
Elsewhere, traders gained more confident the Federal Reserve will pause its policy tightening drive this week. Fed fund futures showed more than 82 per cent chance of status quo, up from 70 per cent a day earlier, according to data compiled by CME Group, before a policy review on Wednesday.
The odds have risen with US inflation seen cooling again. Prices likely rose 4.1 per cent in May from a year earlier, according to consensus among economists tracked by Bloomberg. Prices rose at an annual pace of 4.9 per cent in April and 5 per cent in March.
Major Asian markets rallied. The Nikkei 225 in Japan jumped 1.8 per cent to surpass 33,000 level for the first time in 33 years. The Kospi in South Korea increased 0.3 per cent, while the S&P/ASX 200 in Australia gained 0.2 per cent