Bulls Applaud PBOC’s Cautious Policy, Market Mood Soars, DXY Dims

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  • Asian stocks rebounded strongly amid the PBOC’s cautious monetary policy.
  • The PBOC cut its five-year LPR by 15 basis points while the one-year LPR remained unchanged.
  • Oil prices are softer due to runaway demand concerns.

Markets in the Asian domain are rising strongly as the risk impulse loses its appeal and global equities are supported by market participants. Asian stocks jumped sharply in their first trades after the People’s Bank of China preferred to stick to its prudent monetary policy. The PBOC cut the Loan Prime Rate (LPR) by 15 basis points (bps) over five years. The five-year LPR now stands at 4.45% versus 4.60% recorded last month. While the one-year LPR remained unchanged at 3.75%.

At press time, Japan Nikkie225 jumped 1.16%, China A50 jumped 1.80%, Hang Seng gained 1.96% while India’s Nifty50 outperformed adding 2.16 %.

The situation of mounting inflationary pressures in China prompted a conservative monetary policy. Thanks to higher oil prices, China’s annual consumer price index (CPI) in April rose to 2.1%, significantly above the forecast of 1.8% and the previous impression of 1.5%. As growing demand concerns amid the resurgence of Covid-19 demanded fiscal stimulus. Given all the catalysts, the PBOC preferred to take the buck and kept a dovish tone on key rates.

Meanwhile, the US Dollar Index (DXY) failed to hold above the round level support at 103.00. At the start of trade, the DXY was advancing higher after a super bearish Thursday. On the oil front, oil prices fell sharply in early Tokyo amid growing demand fears due to recession fears in Europe and growing Covid-19 fears in China, and a shortage cash in the United States.

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