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Asian Session – China rate cut fails to stabilize markets; dollar edges higher

Financial markets around the world remain volatile as China’s rate cut and reduction in the reserve requirement ratio failed to convince investors that the move would be enough to calm markets. The People’s Bank of China cut its one-year lending rate by 0.25% and the reserve requirement ratio for large banks by 0.50%.

European equities were boosted by the measures as the announcement came in European trading after Asian markets had closed. Major indices in Europe closed up between 3% and 5%. But US shares gave up earlier gains to close more than 1% lower, extending Monday’s sharp losses. In Asia, shares were mixed with Chinese stocks going into the red in early trading but managed to recover in late Asian session. The Shanghai SE Composite index was up by 0.6% and the Shanghai/Shenzen CSI300 index was up by 1.5% in late trading.

Most analysts expect that the PBOC will be required to continue with further monetary easing as the latest move is seen as a catch-up and is unlikely to have a major impact on China’s equity rout.

Oil prices rose modestly in Wednesday’s Asian session – US crude futures were up 0.7% to $39.60 and Brent crude was up 0.6% to $43.48. In other commodities, gold fell for a third day on the rising dollar. It was down at $1137.50 in late Asian trading. But copper prices were up 2.3% at $5065 on hopes that China’s rate cut would boost economic growth.

The dollar edged higher against major currencies on Wednesday as it was supported by positive consumer confidence and new home sales data from Tuesday. The greenback rose to 119.40 against the yen but the euro was struggling to hold on to the 1.15 level and was trading just above it in late Asian session. Against the pound, the euro was at 0.7329, while sterling was lower against the dollar at 1.5692.

The Australian dollar was little moved by China’s latest monetary stimulus and held near 6-year lows against the greenback at 0.7118. The kiwi was also steady against the dollar at 0.6498. A larger-than-expected trade deficit in July did not have much effect on the New Zealand dollar.

Coming up later today, the key data will be US durable goods orders for July, which is expected to show a 0.4% decline on the month. Also of interest will be the press conference by New York Fed President William Dudley whose comments on the US economy will be closely watched.

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