Market Buzz – China’s Central Bank
China’s central bank succumbed to political and market pressure and cut interest rates for the first time in more than two years, in a sign that the country’s leadership is leaning toward more sweeping measures to bolster flagging economic growth.
China’s cut helped oil prices rise on Friday for crudes first weekly gain in two months with benchmark Brent crude returning to above US$80 a barrel after a rally triggered by China’s interest rate cut and speculation of an OPEC output cut. China is the largest net importer of petroleum and metals, and the rate cut sent most commodity prices higher, albeit from beat down levels.
Brent oil rose US$1.03 to settle at US$80.36 a barrel. It had risen as much as US$2.28 earlier to a session high of US$81.61. WTI or U.S. crude finished up US$0.66 at US$76.51, after an intraday peak at US$77.83.
The surprise move by the People’s Bank of China late Friday comes after a series of piecemeal easing measures that failed to encourage banks to lend and companies to borrow. Several economic indicators—from investment growth to factory production to retail sales—showed weakness last month. A number of pundits are not in the camp that China could miss its annual growth target—set at about 7.5% for 2014—for the first time since the 1998 Asian financial crisis. We question whether or not the numbers are accurate in the first place, but the trend in terms of slower growth is something to pay attention to.
Expectations of a production cut from the Organization of the Petroleum Exporting Countries (OPEC) at its November 27th meeting also fed the rally, although profit-taking emerged later, along with selling by those expecting another tumble next week.
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