China Cuts Interest Rates

June 7, 2012 01:53 AM

What Traders are Talking About:

* China surprisingly cuts interest rates. The People's Bank of China announced a 25-basis-point cut to interest rates, effective June 8. This is the first interest rate cut by China since the 2008-09 global financial crisis and is its boldest move yet as the central bank tries to boost economic activity. While China was expected to further ease monetary policy amid its slowing economy, the timing and nature of this move caught economists and investors by surprise.

The long and short of it: Markets are having a positive reaction to the news, including commodities. Soybeans are leading the price rally in the grain and soy complex.

* Risk appetite building again. Recent price action saw investors actively shedding risk amid increasing macro-economic pressures. But hopes of further quantitative easing in the U.S. and Europe, along with the surprise interest rate cut by China is giving investors more confidence to assume risk again. That's friendly for risky assets, such as commodities and stocks and negative for safe-havens such as bonds and the U.S. dollar.

The long and short of it: There are still a lot of macro-economic headwinds, but the tide appears to be turning when it comes to investors' attitudes toward in risky assets.

* Chinese demand for state-owned soybeans slows. China sold only 13,902 MT of soybeans from state-owned reserves this week out of around 600,000 MT put up for sale. That's a dramatic reduction from the past two weeks when China sold 75,788 MT and 188,410 MT of state soybean reserves.

The long and short of it: Big stockpiles at ports, poor crush margins, slowed demand for soyoil, expected big imports this summer and questionable quality of state-owned reserves are all contributing factors to the slowed processor demand for government stocks.


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