Chinese stocks surged more than 7% after the government unveiled new stimulus measures.
CH 50 – Daily Chart
The price of the China 50 index surged to 12,316 on Tuesday, taking out four levels of resistance that were previously identified. The current level is the obstacle to further gains, with the May highs near 13,000 now in sight.
China unveiled its largest set of economic stimulus measures since the pandemic as it attempts to kickstart growth in the world’s second-largest economy.
The People’s Bank of China said it had cut its benchmark interest rate by 50 basis points and the amount banks must hold as cash reserves, known as reserve requirement ratios, by 20 basis points.
PBoC governor Pan Gongsheng said the measures should “support the stable growth of China’s economy” and “promote a moderate rebound in prices”.
Economists have been doubting the government’s 5% annual growth target as the economy battles deflation and weak demand. Some economists are also unsure whether the latest measures would sufficiently address China’s broader economic problems.
“This is a step in the right direction,” Julian Evans-Pritchard, head of China Economics at Capital Economics said. “But it will probably be insufficient to drive a turnaround in growth unless followed up with greater fiscal support”.
Lynn Song, chief economist for China at ING, said there was “still room for further easing in the months ahead as most global central banks are now on a rate-cut trajectory”.
The 50 basis point cut from the Federal Reserve last week and the similar cut from China is a sign that central banks are worried about the trajectory of the global economy. Asian equities were boosted by the Hang Seng by more than 3%, while a 1.51% gain also supported oil.
