Surprise Rate Cut in China Rallies Stocks and Commodities

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China just announced additional stimulus in the form of a surprise rate cut, dropping one year rates 40 basis points to 5.6 percent. US stock futures responded with a strong rally, with the December contract now trading up .82 percent at 2070. While stocks should feel the benefit of more easing, commodity prices will likely be even a bigger winner, given the high level of Chinese consumption. Copper is trading higher by 1.6 percent at 3.075 on the December futures, while December gold has broken back above the key resistance level at 1200 to trade higher by 1.2 percent at 1205.50. Oil is also showing strength, up nearly 2 percent at 77.98 on the January contract. Given that China is the world's largest consumer of oil, the surprise rate cut will likely out a floor in the price of oil around the 75 level. Brazil, as a large supplier of oil to China and a commodity based economy, should also see some upside. The Brazil ETF
EWZ
is trading higher by 1.82 percent in pre-market trade at 41.90. VIX will likely test the 12 support level, as the rally in stock prices will be a pronounced negative.
Posted In: NewsTop StoriesEconomicsMarkets
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