PBoC Makes Record LPR Reduction

Chinese stocks are surging higher today after the PBoC slashed its 5yr LPR rate to 3.95%. The .25% reduction marks the first LPR cut since June and the largest reduction since the bank introduced the rate in 2019, larger than the .15% cut the market was looking for. Lowering of the rate reduces mortgage rates for property buyers and marks the latest in a string of efforts aimed at spurring demand in the beleaguered property sector.

Continued Economic Support Efforts

The move is somewhat surprising given that the PBoC held its medium-term rate steady over the weekend. There has been plenty of chatter regarding the potential for fresh China stimulus in the wake of the recent $3 billion stock market package announced. Additionally, the PBOC recently added around 1 trillion CNY into the banking system by reducing its RRR by 0.5% and cutting rates on re-lending funds, intended to boost lending growth.

Bullish Risks

Today’s move shows that the country remains locked in a battle to drive activity higher, particularly within the struggling property sector. Given this backdrop, Chinese stocks look likely to continue to push higher for now, offering opportunities on the long side. Additionally, the prospect of further stimulus increases this bullish outlook.

Technical Views

Shanghai Composite

The rally in the SHCOMP has seen the market breaking out above the bear channel from last year’s highs. Price is now testing key resistance at the 2928.8391 level and with momentum studies bullish, the focus is on a break higher here and a continuation towards the 3043.1853 level next. 

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