China rate cut, Alibaba shuffle, aircraft manufacturers – what’s moving markets

Investing.com — China’s central bank has trimmed its benchmark lending rates in an attempt to stimulate its flagging economy, while e-commerce giant Alibaba sees a major shakeup at the board level. Wall Street is expected to return from the long weekend in a cautious mood.

1. China cuts interest rates

The People’s Bank of China cut its key lending benchmarks on Tuesday, in the latest sign that the country’s authorities are concerned that the post-pandemic recovery in the world’s second-largest economy is losing momentum.

The one-year was lowered by 10 basis points to 3.55%, while the five-year LPR was cut by the same margin to 4.20% – the first such reductions in 10 months.

The PBOC had also lowered short- and medium-term policy rates last week.

However, these moves received a lukewarm reception as concerns about the country’s property market had meant that some within the market had expected more.

China’s cabinet met on Friday to discuss measures to spur growth in the economy, and while nothing fresh emerged from these discussions, wider stimulus measures are widely expected in the fullness of time.

The weakening Chinese economy could also be behind the apparent thawing in relations between Beijing and Washington – the last thing needed at this point would be a trade war with a major export market!

Secretary of State Antony Blinken met with President Xi Jinping on Monday, with the Chinese leader calling the progress “very good”.

Although little in concrete was agreed upon, the two sides are still talking, with Chinese Foreign Minister Qin Gang now likely to visit Washington in the next few months.

2. Alibaba CEO to head up cloud unit

The importance of Alibaba’s cloud unit was laid bare Tuesday, with the Chinese announcing earlier Tuesday that current chairman and CEO Daniel Zhang will step down after eight years to front up the key unit.

“This is the right time for me to make a transition, given the importance of Alibaba Cloud Intelligence Group as it progresses towards a full spin-off,” Zhang said in a statement issued by Alibaba (NYSE:).

Alibaba announced in March that the company would be restructured into six business groups, looking to spin off and potentially list them in the coming year.

Eddie Yongming Wu, chairman of the Taobao and Tmall Group will take over from Zhang as CEO, while Joseph Tsai, who is currently executive vice chair, will replace Zhang as chairman.

3. Futures lower; Fed speakers prompt caution

U.S. futures traded lower Tuesday, as investors return to a holiday-shortened week and cautiously await more clues of the Federal Reserve’s future monetary policy.

At 04:50 ET (08:50 GMT), the contract had dropped 130 points or 0.4%, fell 19 points or 0.4%, and dropped 85 points or 0.6%.

The main equity averages posted strong gains last week after the Fed paused its prolonged rate-hiking cycle, with the broad-based and the tech-heavy recording their best weekly performances since March, rising 2.6% and 3.3%, respectively.

However, investors appear to be reluctant to chase these gains higher, with the likes of Federal Reserve St. Louis President , New York Fed President , and Fed Vice Chair for Supervision all set to speak later in the session.

Additionally, Fed chair starts his two-day congressional testimony on Wednesday.

These officials could potentially hint at a July hike given the Fed signaled the possibility of more rate increases later in the year if inflation remained an issue.

In corporate news, shipping giant FedEx (NYSE:) reports its quarterly results after the closing bell.

4. Tide turning for aircraft manufacturers

Hard hit during the pandemic, aircraft manufacturers are starting to show signs of having turned the corner, with demand seemingly on the rise.

Airbus (EPA:) secured a historic deal on Monday, announcing an order for 500 narrowbody jets from Indian budget carrier IndiGo – the most jets ever bought by a single airline.

The deal beats Air India’s combined purchase of 470 jets earlier this year as India’s two largest carriers plan for a sharp expansion in regional travel demand.

This follows rival Boeing (NYSE:) stating over the weekend that it expects to increase production of its best-selling 737 MAX to 38 jets a month “pretty soon,” as the U.S. company looks to take advantage of demand ramping up.

That said, there are still likely to be problems ahead, with the head of Boeing Commercial Airplanes, Stan Deal, noting that the company is still likely to see supply chain instability, while Airbus CEO Guillaume Faury said that supply disruption remained a short-term issue.

5. Oil mixed; demand concerns remain despite China cut

Crude prices traded in a mixed fashion Tuesday, as U.S. traders returned from the long weekend to digest the Chinese rate cut.

By 04:50 ET, futures were 0.2% lower at $71.78 a barrel than Friday’s close, while the contract rose 0.6% to $76.58 per barrel. There was no settlement in the WTI contract on Monday due to a public holiday in the United States.

Growing concerns over an economic recovery in China, the world’s largest crude importer, have weighed on oil prices of late, and the latest cut in the country’s benchmark loan prime rate [see above] only had a limited impact given it was largely anticipated by markets.

Traders are also nervous ahead of Fed chair Jerome Powell’s two-day congressional testimony, starting Wednesday, given the central bank hinted at more interest rate hikes ahead even as it paused its year-long tightening cycle last week.

The prospect of rising U.S. rates and the associated impact on economic activity in the world’s largest energy consumer have weighed heavily on crude this year.

U.S. jumped almost 8 million barrels last week, way above forecast, while fuel stocks exceeded expectations as well, raising questions about energy demand during the peak summer travel period.

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