Central Bankers Cave To Market Pressure

It’s getting harder and harder for bankers to buck the market.

Back in September 2014 ECB President Mario Draghi declared “now we are the lower bound” for interest rates and this month Benoit Coeure said that expectations of the ECB were “just too high”. Also, due to pressure from traders for more action,Draghi signaled last week that more stimulus might be coming in December,including a potential cut to the ECB’s already negative deposit rate.

“Things have changed,” he told reporters when asked why rate cuts were back on the agenda.

Markets celebrated their victory, propelling global stocks higher. Equities got a further lift at the end of the week, when the People’s Bank of China cut its benchmark rate for a sixth time in a year.

“Central banks are playing catch up with what the market has known for some time - that global growth is slowing,” said Jason Daw, head of Asia currency strategy at Societe Generale SA in Singapore.

The apparent lesson for investors: Those central banks that have room will keep stimulating and can be prodded to do so. Policy makers are willing to act rather than be later accused of doing too little or giving credence to the mounting arguments that the power of stimulus is waning and that their credibility is at risk.

“While inflation is this low at a global level, central banks will step on the gasagain and elevate asset prices for the foreseeable future,” Deutsche Bank AGstrategist Jim Reid said in a note to clients on Monday. “This leaves huge gap risk lower for financial markets, but that’s more of a problem for when central banks are unable or unwilling to act.”

China Decreases Key Interest Rate By 0.25 Percentage Points

China decreased its one-year interest rate by 0.25 percentage points to 4.35%.

Following this decision commodities and European shares rose, particularly in the mining sector.

The Chinese central bank cut the ratio of Chinese currency that it expects its banks to hold.

China hopes that looser monetary policy, in the shape of cheaper money, will help it hit its growth target of 7% for 2015.

The changes will come into effect on Saturday.

The decision from the People's Bank of China suggests a concern that the slowdown in growth might be becoming too abrupt.

Official figures published earlier this week told a different story. They suggested a very moderate weakening in the third quarter of the year. But Beijing's data are widely regarded as unreliable.

Lower interest rates tend to stimulate borrowing by consumers and businesses and so could contain the slowdown, but there is a risk the move could lead to a build up of debt - and some economists say China is in danger of having a financial crisis.

In London, shares in the benchmark FTSE 100 index rose 1.3%, led by miners Glencore and Fresnillo, which added 7% and 4% respectively. The Dax in Frankfurt rose 3.0%.

Brent crude was up 0.8% to $48.46 per barrel.

China's economy has grow at an average annual rate of 10% for the past three decades, but has been cooling in the past few years.

Last year it grew by 7.4%, which is extraordinary by Western standards, but a definite slowdown for China.

There is little doubt that its economy is slowing to a more sustainable rate of growth,with the question being whether that transition can be made smoothly.

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