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China and the API bring temporary price relief

Published Wednesday, August 26th, 2015

The US economy is resilient. This is the impression we had yesterday after we had learnt that US June home prices went up, US July new home sales were also positive and the Conference Board saw US consumers’ confidence rebounding in August. Solid data should be coupled with a solid rise in share prices but not this time around. The S&P 500 index was as high as 2.9% above Tuesday’s settlement at one point, only to finish 1.35% lower.

The price action in the US stock market yesterday and in China this morning is telling. The People’s Bank of China cut its one-year benchmark lending rate by 25 basis points to 4.6% and lowered the reserve requirement ratio for big banks by 50 basis points to 18%. This was a desperate attempt to support its economy and stock markets after a 26% drop in the Shanghai Composite Index in less than two weeks.

Did they manage to do so? Judging by yesterday’s stock market settlements they did not. And the Chinese stock market is less than enthusiastic this morning, as well. After a brief rally the Shanghai index is more or less unchanged and so is the MSCI’s index of Asia-Pacific shares outside Japan. The market expects greater support for the Chinese economy and does not believe that the rate cut is enough to perk up the stock markets.

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Posted by Tamas Varga

Tamas Varga has been in the oil industry since 1992 and with PVM for 18 years. During his time in the industry he has gathered a range of experience in the oil markets. At PVM Tamas is in charge of data collection and analysis.