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LGT Navigator: Monetary easing in China provides positive impetus for equity markets

December 7, 2021

Stock markets in Asia rose on Tuesday, after Wall Street had already recorded solid gains at the beginning of the week. On the one hand, fears regarding the coronavirus variant Omicron subsided somewhat and on the other hand, China's central bank provided positive stock market sentiment with an easing of its monetary policy to boost economic growth.

Monetary easing in China provides positive impetus for equity markets

The Dow Jones Industrial gained +1.87% to 35'227.03 points on Monday, so much of the previous losses have now been recovered. The broad S&P 500 closed +1.17% higher at 4'591.67 points. Thus, the standard stocks did better than the technology stocks. On the Nasdaq, the indices gained less yesterday after the sell-off on Friday by about +0.8%. Asia's stock markets followed the positive guidance from overseas and were supported by the monetary easing of the Chinese central bank.

Chinese central bank wants to boost lending and loosens monetary policy

China's central bank eased its monetary policy on Monday. It announced that it would lower interest rates on the reserves that banks must hold as a safety buffer. Accordingly, the reserve requirement ratio is to be reduced by 0.5 percentage points to 11.5% as of Dec. 15, the People's Bank of China (PBoC) announced in Beijing. This is expected to free up liquidity of around CNY 1.2 trillion (about EUR 170 billion), giving financial institutions more room to lend. Premier Li Keqiang had already held out the prospect of a corresponding easing last week. Analysts see the move as a reaction to the economic weakness that the world's second-largest economy is currently experiencing. In addition to the corona pandemic, the difficulties in the domestic real estate sector are also causing uncertainty.

Indeed, worries about a collapse of the heavily indebted Chinese real estate group Evergrande flared up again at the start of the week. On Monday, the company's shares slumped by around -20% and traded at a record low after it again warned of an imminent default. Evergrande said it may not be able to raise enough funds to service USD 82.5 million in debt due immediately. The central bank tried to allay fears that the problems could escalate. Evergrande's difficulties are individual and the contagion risk controllable, the PBoC said.

Gloomier economic sentiment in the euro area

Economic sentiment in the euro area deteriorated in December. The Sentix economic indicator fell by 4.8 points to 13.5, according to the Sentix consultancy. This is the lowest level since April. Analysts had expected an even sharper decline to 12.5 points. In particular, the renewed stricter measures to curb the Corona pandemic caused uncertainty among survey participants.

German industry reports slump in orders

German industry landed significantly fewer orders than expected in October. Orders fell by -6.9% compared with September, the Federal Statistical Office reported on Monday. Analysts had expected a decline of only -0.3%. Year-on-year, orders shrank by -1.0%, the first decline in more than a year. While domestic orders rose within the month, large orders from countries outside the eurozone declined (-18.1%). Overall, industrial order books are still well filled. However, production is faltering due to bottlenecks in raw materials and materials such as microchips. This is also likely to dampen economic growth for the current year, expects the German government, which has revised its forecast slightly downward.

Economic Indicators December 7

MEZ Country Indicator Last period
07:45 CH Unemployment rate (November) +2.7%
08:00 GE Industrial production (October, m/m) -1.1%
11:00 GE ZEW economic expectations (December) 31.7
11:00 EZ Gross domestic product (Q3, q/q) +2.2%
11:00 EZ ZEW economic expectations (December) 25.9

 

Earnings Calender December 7

Country Company Period
SZ ABB Capital Markets Day

 

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Editor: Alessandro Fezzi, +41 44 250 78 59, E-Mail: lgt.navigator@lgt.com
Source: LGT Bank (Switzerland) Ltd.

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