Shares grind to a record high as PBOC trims its interest rate

On Monday, shares moved to a record high as Peoples Bank of China surprised markets by slashed its interest rates for the first time since 2015.

The bank lowered the seven-day reverse repurchase agreements by five points to 2.50% to support its economy.

The news supported Asia’s main markets close higher, and Europe followed suit. But the 0.1% to 0.3% moves showed a cautious initial market reaction.

It nudged the MSCI’s 49- country world share index 0.12% higher, leaving it less than 1% off. It set the record high back. It set back in early 2018.

“It is a slow start to a slow week, but the risk is marginally on,” said Societe Generale strategist Kit Juckes.

He added it was now difficult to avoid concluding that China was slowly easing monetary policy. China had held off rates in the recent months, maybe wary of the drawing fresh criticism from the U.S.president during trade talks.

“Maybe that’s what five basis points is all about. It’s not rocking the boat, but it’s a shift.”

The pan-European STOXX 600 index extended its six-week winning streak. The index is only 8 points short of its record high of 415.18 points hit in mid-April.

Japan’s Nikkei gained 0.5% just short of its recent 13-month top. E-Mini futures pointed to S&P 500, adding to Friday’s record highs.

China’s latest policy strengthened hopes it might also be more serious about making progress in trade talks with the United States.

On Saturday, the Chinese state media reported that the two sides held a high-level phone conversation. The call included; Vice Premier Liu He, Treasury Secretary Steven Mnuchin, and U.S.U.S. trade representative Robert Lighthizer.

“More than in previous rounds, we see momentum toward reaching at least a limited trade deal, and certainly a mini-deal would remove some of the negative sentiment overhangs for the real economy and markets,” said Patrik Schowitz, global multi-asset strategist at J.P. Morgan Asset Management.

“We have upgraded our outlook on equities as an asset class,” he added. “Emerging-market equities are now our most favored region alongside U.S.U.S. large-cap equities.”

Investors are looking forward to Lagarde’s first significant speech due on Friday

On Monday, the USD remained unchanged against other major currencies and within the recent trading ranges. Market volatility has been the lowest in decades and has shown no signs of shifting.

The USD rose against the safe-haven yen to 108.94.

The euro traded at $1.1063, having found support at $1.0987 last week.

Investors are looking forward to Lagarde’s first significant speech due on Friday for clues on the future policy. 

The GBP gained to $1.2952 as more polls showed the Conservative Party ahead in the campaign for the Dec.12 election.

Spot gold dropped to $1,459 per ounce.

Oil prices also dropped, after bent touched a seven-week high on Friday. Brent crude futures fell 18 cents to $63.12 a barrel. The U.S.U.S. crude slipped by 4 cents to $57.69.