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China Starts Cutting Fiscal Stimulus as the Fed Mulls Over it

Yesterday, the People’s Bank of China (PBOC) raised the short-term cash rate for the first time since March. The gesture marks a shift in the economic approach to the post-COVID19 recovery.

While the Federal Reserve (Fed) continues to debate how and when to reduce fiscal stimulus in the US, the PBOC (People’s Bank of China) has already gradually begun the process of slowing down to address the risks of the debt incurred during the pandemic.

According to Bloomberg, the Republic of China’s Asian currency remains an attractive asset for global investors, which may help the yuan remain strong against its peers. Although US interest rates rose after last week’s Fed statement, Chinese bonds continue to yield around 1.6 points above their US counterparts. At the time of writing US Treasuries are below 1.50%.

“The tide of yuan appreciation may have turned following the Fed’s recent announcement,” said Chang Shu of Bloomberg Economics. “Still, rising corporate demand in May – for the first time this year – suggests there is still support for the yuan, limiting the scope for a rapid depreciation.”

While China begins aid reduction, the United States has blacklisted three of the four companies responsible for producing nearly half of the world’s solar polysilicon. This caused the company that was left off the list, Xinte Energy Co, to have its best day on the Hong Kong stock exchange with a rise of 7.3%, its best results in more than a month.

During today’s Asian morning session, Asian stock markets rallied on the back of a $579 billion infrastructure deal. The S&P 500 and Nasdaq reached new highs.

Benchmark US oil is on track for its best weekly earnings season since December. West Texas Intermediate (WTI) remains at $73 per barrel. Gold, meanwhile, rose 0.2% to $1,778.43 per ounce.

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