You’ve heard of the ‘Greenspan put’ and the ‘Bernanke guarantee’, now get acquainted with the ‘Zhou put’ as China’s central bank pulls monetary levers to ease declines in the country’sSTOCK MARKET.
The ‘Zhou put’ is the term used by traders to describe the perceived attempt by People’s Bank of China (PBoC) Governor Zhou Xiaochua over the weekend to boost the country’s beleagueredSTOCK MARKET by easing monetary policy in order to help money flow into the market.
‘The PBoC didn’t say so, but it certainly had a tried and tested Greenspan tactic in mind when it cut policy rates and selected bank reserve requirements (RRR) on Saturday to inject liquidity into the system and stabilize markets,’ said Uwe Parpart, chief strategist and head of research at Reorient Group.
‘We’ll see the immediate effect on Monday and in coming weeks will see if and to what extent investors buy into the ‘Zhou put’,’ he added.
The benchmark Shanghai Composite opened up almost 1 percent on Monday, only to slip into the red over the course of the morning. The index fell as much as 5 percent in a volatile trading session.
The PBoC on Saturday cut the benchmark one-year lending and deposit rates by 25 basis points to 4.85 percent and 2.0 percent respectively. It also reduced the RRR by 50 basis points for select lenders serving rural areas and small to medium-sized enterprises
This post was published at David Stockmans Contra Corner on June 30, 2015.