Deposit Rates Slashed

In the latest sign that the Chinese economy is struggling, its six state-owned commercial lenders have been required to cut deposit rates once again. Yuan-denominated deposit rates were seen falling to 0.2% from 0.25% prior in the latest series of cuts aimed at increasing liquidity in the financial sector and boosting profitability. The move comes on the back of a recent slew of poorer-than-forecast Chinese data.

Chinese Economy in Focus

With many major players now concerned over the health of Chinese recovery, focus is shifting back to expecting fresh easing from the PBOC. Similar periods of PBOC easing in recent years have proved beneficial to stock markets, helping lift risk sentiment. With nine-months since the PBoC last cut rates, analysts are now pegging a forthcoming move this month or next which should bolster sentiment. However, with exports falling and weak consumption driven by higher unemployment, the question is whether such a move will be enough to shift the Chinese economy back into a positive state.

Banking Sector Concerns

Liquidity issues in the banking sector in both Europe and the US have come under scrutiny this year. With the closure of several banks in the US and the severe issues faced by Credit Suisse, traders are now turning their lens onto Chinese banks which could spell fresh trouble for the global banking sector as a whole if the market senses any weakness. For now, however, the prospect of further easing should help keep stocks supported.

Technical Views

Shanghai Composite

The correction lower in the index from YTD highs has seen the market stalling into a test of the 3185.9209 level and the bull channel lows. While this area holds, the focus is on a fresh push higher and a break above 3347.68 targeting a continuation of the bull channel. Should the current support break, however, focus will turn to 3043.18 thereafter.