European shares tracked lower in Asia on Tuesday, as investors questioned whether a smaller-than-expected cut in China’s benchmark lending rate would be enough to boost the country’s sluggish economy.
Europe’s Stoxx 600 index fell 0.1%, extending losses from the previous session, while Germany’s Dax fell 0.3%. London’s FTSE 100 bucked the trend and rose 0.2%.
The move came after the People’s Bank of China cut its one-year lending prime rate by 0.1 percentage point to 3.55% in an effort to boost growth in the world’s second-largest economy after three years of strict Covid-19 restrictions.
China’s benchmark CSI 300 index fell 0.2 percent after the announcement, dragged down by losses in real estate stocks. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong fell 1.8%. In Europe, the Stoxx 600 basic resources index fell 0.5%.
Policymakers also cut the country’s prime rate for five-year mortgage-linked loans to 4.2 percent from 4.3 percent, missing investors’ expectations for a 0.15 percentage point cut.
“The risk of this gradual approach to rate cuts is that potential homebuyers will delay purchases in anticipation of further reductions in mortgage lending, dampening home sales activity,” said Duncan Wrigley, chief China economist at Pantheon Macroeconomics.
Goldman Sachs cut its forecast for China’s 2023 gross domestic product growth to 5.4% from 6% over the weekend, noting that a weak property market and subdued investor confidence continue to hamper the economic recovery.
Meanwhile, traders braced for U.K. economic data and the Bank of England’s monetary policy decision later in the week. Markets expect the central bank to raise interest rates to a 15-year high of 4.75 percent when policymakers meet on Thursday.
Annual consumer price inflation is expected to edge down to 8.4% in May from 8.7% in April, still higher than in Europe and the US, and well above the Bank of England’s 2% target.
The two-year gilt yield, which is sensitive to interest rate changes, slipped 0.02 percentage point to 5.06%, having touched its highest level since 2008 in the previous session. The yield on the benchmark 10-year Treasury note fell 0.03% to 4.45%. Bond yields rise as prices fall.
In the U.S., contracts tracking the benchmark S&P 500 and the tech-heavy Nasdaq 100 fell 0.2% as Wall Street reopened after a federal holiday on Monday.