Chinese Shares Jump Amid Robust Retail Sales Forecast, New Benchmark for Floating-Rate Loans

China’s central bank will use the loan prime rate (LPR) as a new benchmark for pricing existing floating –rate loans, in a step that analysts say could help lower borrowing costs and underpin economic growth.
James Hyerczyk
Shanghai Stock Exchange.

The major Asia Pacific indexes were trading mixed on Monday as investors booked profits and squared positions after reaching 18-month highs last week. This could be all of the action we see this week in the region since it is the last full trading day of the year for several major financial exchanges.

There were no major economic releases overnight but investors were keeping an eye on the Middle East and particularly oil prices after the U.S. carried out air strikes on an Iranian backed Shi’ite Muslim militia group in Iraq and Syria.

At 04:47 GMT, Japan’s Nikkei 225 Index is trading 23687.17, down 150.55 or -0.63%. South Korea’s KOSPI Index is at 2202.46, down 1.75 or -0.08% and Hong Kong’s Hang Seng Index is trading 28403.75, up 178.33 or +0.63%.

China’s Shanghai Index is at 3033.33, up 28.29 or +0.94% and Australia’s S&P/ASX 200 is at 6801.30, down 20.40 or -0.30%.

U.S. Carries Out ‘Precision Defensive Strikes’ in Iraq and Syria Against Iranian-backed Militia

The U.S. military carried out “precision defense strikes” in Iraq and Syria against a militia group following a string of attacks on Iraqi bases that host American service members.

“In response to repeated Kata’ib Hizbollah (KH) attacks on Iraqi bases that host Operation Inherent Resolve coalition forces, U.S. forces have conducted precision defensive strikes against five KH facilities in Iraq and Syria that will degrade KH’s ability to conduct future attacks against OIR coalition forces,” chief Pentagon spokesman Jonathan Hoffman said in a statement Sunday

“Iran and their KH proxy forces must cease their attacks on U.S. and coalition forces, and respect Iraq’s sovereignty, to prevent additional defensive actions by U.S. forces,” Hoffman added.

There was little response by U.S. West Texas Intermediate and Brent crude oil traders to the news, but traders were keeping a close eye on the Middle East unrest.

China Shares Lift Region

Chinese equities gained, helping to lift Asian and Australian shares off their lows. Chinese blue chips, which had started the day lower, were up 1.24% at the midday break, bolstered by a report that 2019 retail sales are forecast to rise 8% and expectations that a new benchmark for floating-rate loans could lower borrowing costs and boost flagging economic growth, according to Reuters.

China to Switch Benchmark for Floating-Rate Loans to Lower Funding Costs

China’s central bank will use the loan prime rate (LPR) as a new benchmark for pricing existing floating –rate loans, in a step that analysts say could help lower borrowing costs and underpin economic growth, Reuters reported.

Beijing has unveiled a raft of pro-growth measures this year, including tax cuts, more infrastructure spending, reductions in the amount of cash banks must keep on reserve and lending rates to boost credit.

Starting on January 1, financial institutions will be prohibited from signing floating rate loan contracts based on the previous benchmark bank lending rate, the People’s Bank of China (PBOC) said in a statement on its website on Saturday.

“The purpose of the step is to make interest rates more market-driven and help lower financing costs,” said Wen Bin, an economist at Minsheng Bank in Beijing.

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