The people’s Bank of China cut interest rates as scheduled! Gold short – term decline hit 1605, the market is still bullish?

There were 349 new cases of coronary pneumonia in hubei on February 19, the first time the number of new cases in the province has dropped to triple digits since January 29, according to the latest data from the hubei health and fitness commission on Thursday. At the same time, Asian stocks rose on hopes of more stimulus from China, risk sentiment recovered significantly, spot gold fell short of the 1610 mark and the dollar held firm as the day continued to track the pneumonia outbreak. The market’s focus on a series of economic data from Europe and the United States could trigger a wave of activity.

First time in 22 days! New diagnoses in hubei have dropped to triple digits

According to the latest bulletin of hubei provincial health and fitness commission, from 0 to 24 o ‘clock on February 19, 2020, there were 349 new cases of newly diagnosed coronary pneumonia, 108 new cases of death, and 1209 new cases of discharge. By 24:00 on February 19, 2020, a total of 62,031 cases of new coronary pneumonia had been reported in hubei province, 10,337 cases had been cured and discharged from hospital, and 2,029 cases had died. At present, 43745 cases are still being treated in hospital, including 9128 severe cases and 2050 critical cases, all of which are receiving isolation treatment in designated medical institutions.

It is worth noting that between 0 and 24:00 on February 19, 349 new cases of coronary pneumonia were confirmed in hubei, which was the first time since January 29 that the number of new cases in hubei was less than 1000. In addition, the number of new confirmed cases in hubei province fell for the fourth consecutive day. In the past, there were 1,933 cases (16 days), 1,807 cases (17 days) and 1,693 cases (18 days).

China’s central bank cut interest rates on schedule

The apparent drop in the number of new confirmed cases in hubei province comes amid growing investor confidence and hopes for more stimulus from China.

The people’s bank of China just announced on Thursday that the one-year lending market quoted rate (LPR) was 4.05%, up from 4.15%. The market quoted rate (LPR) for loans over five years was 4.75 per cent, up from 4.8 per cent.

On Sunday, the central bank conducted 200 billion yuan of MLF operations and 100 billion yuan of seven-day reverse repurchase operations, and cut the interest rate on MLF by 10 basis points to 3.15%, down from 3.25% previously. This is the second recent cut in interest rates that has policy implications. The central bank cut the seven-day and 14-day reverse repurchase rates by 10 basis points on February 3.

The fall in LPR had been widely expected and China was widely expected to cut its benchmark lending rate on Thursday in an effort to further reduce the impact of business shutdowns and travel restrictions on the world’s second-largest economy.

Previously, guosheng securities pointed out that “interest rate cut” in line with expectations, mainly because of the epidemic to stabilize growth and reduce costs of the need and urgency to increase. Looking forward, steady growth has become the most important goal of monetary policy. There is little doubt about further easing. Will increase credit, and targeted support is the focus; Steady growth requires more fiscal tightening, and monetary and fiscal policy are expected to work in tandem, with more “one-two punch” measures. At the end of interest rate cut, the LPR cut on 20th should be the final decision. It is expected that the interest rates of MLF and LPR will be lowered again in the future. The LPR is expected to be lowered 30-40bp for the whole year. A cut in the benchmark deposit rate is also possible, but would require more boldness from the central bank. RRR cuts remain an option.

Huatai securities macro li chao team also said that the interest rate cut MLF is the overall policy rate curve downward, the purpose is to guide the LPR quotation decline, LPR quotation is expected to drop 10 basis points on the 20th.

Wen bin, chief researcher of China minsheng bank, previously pointed out that at present, the financial market is full of liquidity, the money market and bond market interest rates are falling, the use of MLF to replace part of the maturity of reverse repurchase, on the one hand, can lengthen the maturity of funds, stabilize market expectations; On the other hand, the interest rate was cut to open up space for the LPR interest rate to fall. It is expected that the new LPR interest rate will be quoted on February 20, and the one-year and 5-year interest rates will be lowered by 10 basis points to 4.05% and 4.7% respectively.

Yue kai securities fixed income researcher zhong linnan believes, on the one hand, the current fund interest rate is low, the banking system is relatively abundant liquidity; On the other hand, after the outbreak is initially controlled, the demand for institutional liquidity reserves decreases, and the resumption of work will further drive the return of cash. Li’s team believes the central bank’s “tightening” is intended to keep short-term interest rates at a neutral low and prevent significant arbitrage in the interbank market.

On February 7, pan gongsheng, deputy governor of the people’s bank of China and director of the state administration of foreign exchange, said at a press conference of the state council’s joint prevention and control mechanism for pneumonia caused by the new coronavirus infection that the market expects that the next bid rate of MLF and the LPR announced on February 20 will have a greater probability to decline. LPR is produced on the 20th day of every month, and the adjustment has strong directivity and guidance.

Rare occurrence: the dollar, U.S. stocks, and gold all rise at the same time

U.S. stocks rose overnight as optimism that China will do more to boost its economy eased concerns about the economic impact of the new coronavirus outbreak, and risk sentiment returned sharply.

By the close, the dow was up 0.4%; The s&p 500 closed up 0.47%; The nasdaq closed up 0.87 percent. The s&p 500 and nasdaq both hit record closing highs.

“Investors seem to be breathing a sigh of relief that the worst is over,” said Paul Nolte, portfolio manager at Kingsview Investment Management in Chicago. Investors feel emboldened by the support of central Banks.”

Kristina Hooper, the chief global market strategist at Invesco, said: “there seems to be a lot of talk about the new coronavirus and its potential impact on earnings. On Wednesday, investors are likely to take a more thoughtful view of the market, recognizing policy support [and] some good news from infection rates.”

The dollar climbed to a near three-year high against a basket of other currencies on Wednesday on the back of stronger risk appetite, with the dollar index hitting a high of 99.73.

Analysts noted that the dollar gained support from strong U.S. data and the minutes of the federal reserve’s last policy meeting.

The minutes of Wednesday’s Fed meeting showed policymakers were cautiously optimistic about keeping interest rates steady this year, even as they acknowledged the new risks posed by the outbreak of the new coronavirus.

Upbeat data also boosted the dollar, showing U.S. housing starts fell less than expected in January and building permits rose to a nearly 13-year high, indicating continued strength in the housing market. Separate data showed us producer prices for final demand jumped 0.5 percent in January, the biggest jump since October 2018.

The dollar’s strength was accompanied by heavy losses for non-us currencies: the safe-haven yen fell to a nine-month low, the euro briefly hit a three-year low at 1.0781 and the pound fell below 1.30.

Chris Weston, head of research at Pepperstone, a Melbourne brokerage, said: “the market is trying to adapt to the outbreak, trying very hard to interpret its impact, and that is driving money to the us. America is still the general of the bunch, the best place to be in the relative gloom. As a destination for money, the United States is still the light at the end of the tunnel.”

While the dollar and U.S. stocks continued to rally, overnight spot gold remained firm, rising above the 1610 mark overnight, though it fell back sharply in early Asian trading on Thursday as risk sentiment continued to rally and is now below the 1610 mark. It hit as low as around $1,605.

“Gold is above $1,600 and we’ve moved through that very quickly,” said Bob Haberkorn, senior market strategist at RJO Futures. He added that questions about the extent of the impact of the outbreak provided sufficient support for gold prices.

Peter Boockvar, chief investment officer at Bleakley Advisory Group in New York, said gold remained strong despite a strong dollar, driven by low-interest rates. “Continue to be bullish on gold.”

Todd Horwitz, the analyst at Bubba Trading in New York, said gold’s breakout was shaky and would likely fall back before settling again.

However, Horwitz said gold prices would rise again after that. “High volume and price action suggest a pullback is very close, but the overall pattern remains bullish.”

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