Key events
Shares in precious metals producer Fresnillo have jumped 4% in early trading, tracking the gold price higher.
That puts Fresnillo on the top of the FTSE 100 leaderboard.
News of China’s rate cuts are helping the mining sector too, with Antofagasta (+1.9%) and Glencore (+1.4%) among the risers.
Gold hits new record high
Gold is continuing to rally, and has hit a new alltime high early this morning.
The spot price of gold is up 0.4%, or around $10 per ounce, to $2,732.73 per ounce, meaning it has now risen by over 32% during 2024.
Analysts say the conflict in the Middle East, and uncertainty over the US presidential election, are pushing investors into safe haven assets such as gold.
Expectations of further interest rate cuts from major central banks are also supporting the price of gold (which doesn’t pay a yield to investors).
Ricardo Evangelista, senior analyst at ActivTrades, explains that several factors are pushing up the gold price, including the possibility that Donald Trump wins next month’s presidential election:
“Geopolitical instability, sluggish economic growth in key regions, a shift in central bank policies towards lower interest rates, and most recently, uncertainty surrounding the U.S. presidential election have all contributed.”
“Rumours that Donald Trump may be on the verge of winning the election have further fuelled demand for gold, driving it to historical highs. Faced with the possibility of a second term for the Republican candidate, markets are turning to gold, the ultimate safe-haven asset.”
Over in German, wholesale inflation has fallen by more than expected.
German industrial producers lowered the prices of their products by 0.5% during September, meaning they were 1.4% lower than a year ago.
The main reason for the drop in the PPI rate was a decline in energy prices. They were 6.6% cheaper in September 2024 than in September 2023, including 14.4% drop in prices of mineral oil products.
Falling producer prices should feed though to consumer prices in the shops, and could give the European Central Bank confidence to cut interest rates again in December.
Saudi Aramco CEO: We’re bullish on China
The head of oil giant Saudi Aramco has declared that his company is fairly bullish on China and oil demand, especially following Beijing’s stimulus package.
Speaking on the sidelines of the Singapore International Energy Week conference, Aramco CEO Amin Nasser said:
“We see more demand for jet fuel and naphtha especially for crude-to-chemical projects.”
Prices of iron ore futures have risen, partly thanks to today’s lending rate cuts in China.
The most-traded January iron ore contract on China’s Dalian Commodity Exchange gained 1.5% to trad at 770 yuan (£83) per metric tonne.
Introduction: China cuts lending rates in latest growth push
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Banks in China have cut borrowing costs in the latest attempt to stimuluate growth across the Chinese economy.
The People’s Bank of China (PBoC) has announced today that its two benchmark lending rates are being cut, by a quarter of one percent.
China’s one-year loan prime rate – a reference for loans to businesses and consumers – has fallen to 3.1% from 3.35%.
The five-year LPR – the benchmark for mortgages – has been cut from 3.85% to 3.6%.
The LPR rates are set by a group of China’s major banks, and today’s reductions show they are passing on last month’s interest rate cut from the PBOC.
Becky Liu, head of China macro strategy at Standard Chartered says:
“The larger cuts confirm the PBOC’s stance of easing monetary policy more quickly, and echo the Politburo’s statement of cutting rates more forcefully.”
🚨 China reduced its one-year loan prime rate from 3.35% to 3.10% and the five-year LPR from 3.85% to 3.60%, following the central bank’s late September interest rate cuts, aiming to revive economic growth and stabilize the housing market. pic.twitter.com/8oKsFM9zKW
— BigBreakingWire (@BigBreakingWire) October 21, 2024
Some stocks rallied after the cuts were announced, with the Shenzhen SE Composite index gaining around 1.4% today.
China Stocks Extend Gains as PBOC Cuts LPR
The Shanghai Composite rose 0.2% to around 3,270 while the Shenzhen Component jumped 1.3% to 10,490 on Monday, extending gains from the previous session after the People’s Ban…
More here: https://t.co/NQnnRvWDqr pic.twitter.com/4nbD6Zlw7d
— TRADING ECONOMICS (@tEconomics) October 21, 2024
Stephen Innes, managing partner at SPI Asset Management, says:
Sure, the rate cut wasn’t a shocker, but the market is banking on the idea that the combined impact of all these recent measures could at least stem the economic bleeding.
However, the reality seems to be that the Chinese Communist Party is desperately trying to harness the wealth effect from local equities to keep morale high. It’s a classic case of “hope floats” until the actual economic recovery kicks in—whenever that might be. Just look at Friday when Xi Jinping sent PBoC Governor Pan Gongsheng to pump some life into the markets with a pep talk, and guess what? It worked.
Mainland and Hong Kong-listed stocks surged, the kind of response Beijing was banking on.
It’s the latest in a flurry of attempt to stimulate the world’s second-largest economy, after growth slowed to an 18-month low last week. Last month, China announced wide-ranging measures including interest rate cuts and more liquidity for the banking system.
Beijing is attempting a difficult balancing act – trying to revive growth while also implementing structural reforms, and managing financial stability risk.
China’s property sector remains in a slump, with sales down sharply this year despite efforts to boost sentiment.
And while cutting lending rates may provide some help, it will be difficult unless Chinese consumers feel confident enough to borrow – at a time where consumer confidence is near an all-time low….
The agenda
