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Marketmind: COVID vs. RRR

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by Stella Qiu

SYDNEY (Reuters) – A look at Stella Qiu’s European and global markets ahead of the day ahead:

Another central bank is turning around. The Bank of Korea slowed its rate of tightening to a modest 25 basis point gain on Thursday, becoming the latest central bank to shy away from an external rate hike.

This supported the risk-oriented mood in the market, with Asian stocks mainly rising and the US dollar generally weak.

Overnight, markets cheered the prospect of a modest 50 basis point hike from the US Federal Reserve at its next policy meeting in December, ignoring warnings that interest rates are still due to rise above 5% by the middle of next year . Could

The minutes of the Fed’s policy meeting in November showed that a “substantial majority” of policymakers thought it would be “appropriate soon” to slow the pace of rate hikes.

Long-term treasuries rose. 10-year bond yields are down 79 basis points below 2-year yields, a curve reversal on a scale not seen since the 2000 dot-com crisis and a prima facie sign that investors expect deeper economic growth . coming down. in the next months.

Despite what the bond market says, economic data in the US remains sound. The Atlanta Fed’s GDPNow showed that the economy grew at an annualized rate of 4.3% year-to-date in the fourth quarter, meaning growth is accelerating, not slowing.

Elsewhere, China’s new economic stimulus – a cut in banks’ reserve requirements and a rescue package for the battered real estate sector – helped property stocks, but failed to boost the broader mainland market, which fell 0.3%. Gaya as COVID cases still dominate. investor sentiment.

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China’s COVID infections reached an all-time high with Beijing imposing the strictest regulations, which failed to stop the spread of the virus. In fact, the writer’s old community building in Beijing has been closed for at least three days, the first such closure.

Ting Lu, chief economist for China at Nomura, says a cut in the RRR is likely to bring little benefit as the biggest constraint lies in the government’s overzealous approach to tackling Covid, rather than insufficient borrowable funds.

β€œIn our view, achieving zero COVID at the earliest is key to boosting credit demand and fueling growth.”

Key developments that could impact markets on Thursday:

germany ifo business climate index

Riksbank is likely to raise rates by 75 basis points with risk aversion to 100 bps

Speakers: ECB officials including Vice President Luis de Guindos, Board Member Andrea Enria, Executive Board Isabelle Schnabel and Bank of England Dave Ramsden and Hugh Pill

(Edited by Sam Holmes)

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