China Reserve Ratio cuts lifts Asia

China RRR cut boosts Asian equities

Asian equities are higher today after a surprise RRR cut by China on Friday and an upbeat Wall Street session lifted sentiment. The Nikkei 225 has raced 2.20% higher, while the Kospi has rallied by 1.0%. Notably, China’s mainland markets and its nearby neighbours are outperforming. China’s Shanghai Composite is 1.0% higher, with the CSI 300 leaping by 1.60%. However, the China rally could sour if China’s Trade Balance, Industrial Output, Retail Sales and GDP data releases this week show a slowing down of the pace of the China recovery.

US index futures have eased slightly by around 0.20% this morning, but the move looks corrective after a powerful Wall Street session on Friday. The S&P 500, Nasdaq and Dow Jones all hit record highs on Friday. The S&P 500 rose 1.13%, the Nasdaq climbed 0.98%, and the Dow Jones rose 1.30%.

Across regional Asia, stocks are also higher, although less so than in Northern Asia. The expanding China tech-clampdown has muted sentiment in Hong Kong, which is just 0.40% higher. Singapore is 0.25% higher, with Taipei climbing 0.85%. Jakarta has risen 0.80% on commodity prices and IPO fever, but Kuala Lumpur has fallen by 0.40%, with politics and Covid-19 cases weighing on sentiment. Australian markets are shrugging off the Sydney lockdown for now, following US markets and the China RRR rally higher. The ASX 200 has risen 0.80%, while the All Ordinaries has climbed higher by 0.70%.

Northern Asian markets with high beta and geographic location to China are outperforming today. However, that rally may run out of steam as the week progresses if China’s tier-1 data releases suggest the pace of the recovery there is slowing. It would inevitably weigh on sentiment across the rest of the region, with the Asia-Pacific as a whole-ex China, grappling with the cold hard realities of Covid-19. Additionally, a 4.0% plus US Core CPI this week is likely to see EM outflows increase, and DM markets outperform, notably the northern hemisphere heavyweights.

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Jeffrey Halley

Jeffrey Halley

Senior Market Analyst, Asia Pacific, from 2016 to August 2022
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley was OANDA’s Senior Market Analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes. He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays. A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV and Channel News Asia as well as in leading print publications such as The New York Times and The Wall Street Journal, among others. He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley
Jeffrey Halley

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