Australian central bank cuts interest rates China PMI numbers down

Asian stocks were lower as China’s PMI reading fell to its lowest rate in almost three years. The Purchasing Managers’ Index fell to 50.4 in October from 51.2 in September, the China Federation of Logistics and Purchasing said in a statement today. 

The number was lower than market estimates of around 51.6 and shows recent measures to cool the economy are working. Commodities were lower on the news with copper down around 1.3% in choppy trade. 

The regional stock market measure – MSCI Asia Pacific Index – was 0.9% lower in morning Tokyo trading. 

Australian news was dominated by the Reserve Bank of Australia (RBA) cutting its official interest rate for the first time since early 2009 by 0.25%. The RBA’s decision to cut rates is an admission that domestic demand is feeling pressure. 

Clearly, the RBA is using its toolbox to cushion the impact and comments from its statements indicate this might not be the only move down. The rate cut comes quicker than we had expected but in line with market expectations. 

It seems that inflation targeting is now not as large an issues as previously thought by the board and the recent pace of global growth has spilled over into the Australian economy. 

The RBA’s admission that European issues are still some time away from being fixed could see this loosening bias remain for a while. Overall, the RBA now sees the 4.75% level cash rate as “a little higher than average” and so if demand doesn’t respond favourably in 2012, there is the case for more loosening. 

The A$/US$ has fallen below 1.05 at the time of writing. Next target level for us is the 90 day moving average of 1.0421.

Elsewhere, U.S. jobs data, due out this Friday, will be the key data set for the market over the next few days.