Global markets drop as China rate cut underwhelms

NEW YORK, United States — Global stocks mostly fell Tuesday following a smaller-than-forecast Chinese interest rate cut, while a pullback in US markets suggested a rally was running out of steam.

Asian stocks finished mostly lower, as did European equities.

All three major US indices also pulled back, with the S&P 500 losing 0.5 percent.

London stocks firmed on the eve of critical UK inflation data and ahead of Thursday's expected interest rate increase from the Bank of England.

"Developments in China, where the central bank cut its reference interest rate by ten basis points, continue to point to a slower-than-predicted post-pandemic recovery in the world's second-largest economy," said ActivTrades analyst Ricardo Evangelista.

"With China's economy struggling to regain momentum, the headwinds for the global economy get stronger," he warned.

The People's Bank of China reduced its benchmark five-year rate by 10 basis points, less than the 15 points expected, though it did meet forecasts for a 15-point reduction in the one-year rate.

Traders were left disappointed by Beijing's lack of action to kickstart the country's lumbering economic recovery.

CMC Markets analyst Michael Hewson said the consensus was that the PBoC's "measure won't make much difference and is mere tinkering around the edges."

The move came after the PBoC had last week lowered two other key rates and pumped billions into financial markets.

In reaction Hong Kong stocks dropped more than one percent, with tech firms -- which are susceptible to higher borrowing costs -- taking the brunt of the selling, while property companies also dropped. 

Shanghai was also in negative territory, but Tokyo eked out gains.

Rally over?

Wall Street stocks slid at the start of trading in a week where Federal Reserve Chairman Jerome Powell's semi-annual appearances before lawmakers will be closely scrutinized.

"US markets have returned from their long weekend with a lower open, as doubts start to creep in about the sustainability of the current rally," said Hewson of CMC Markets.

While the run up in stock prices in recent weeks has been based on belief that the Fed is done or nearly done in raising interest rates, the rally may yet not be over, said analyst Patrick O'Hare at Briefing.com.

He said the rally's "resilience to selling efforts has been a driver of the extended winning streaks in that it has prompted short sellers to cover positions and has swayed sidelined investors to redeploy cash for fear of missing out on better inflation-adjusted returns."

In company news, Chinese e-commerce giant Alibaba said it will replace its top boss in a surprise move as it looks to recover from years of slow growth. 

Chairman and CEO Daniel Zhang will be replaced by Joseph Tsai as chairman and Eddie Wu as CEO from September 10.

Alibaba shares shed 1.5 percent in Hong Kong and 4.5 percent in New York.