US futures and European markets received an unexpected fillip in the form of a change in Chinese monetary policy. The People’s Bank of China announced that it had removed the floor on lending rates, allowing banks to compete more directly.
The floor had been put in place to prevent a ‘race to the bottom’ on lending rates, which would have been detrimental to bank profits. The removal means that unfettered capitalism (in lending rates at least) can now operate, with businesses able to obtain more competitive rates. This will lead to a boost in consumption and investment, as companies borrow to expand.
This has also helped to liven up an otherwise boring morning, where a lack of corporate and economic data meant that European shares failed to move outside a narrow trading range. The dominant element last night was weak tech earnings from Google and Microsoft, which added to a poor week for tech companies generally.