about 1 month ago • 2 mins
What’s going on here?
China bucked expectations by doing nothing about interest rates on Monday.
What does this mean?
China’s economy has been the poster child for the ox zodiac over the last year, proving stubborn even in the face of the central bank’s escalating stimulus. So in the pursuit of transforming the economy into the lucky dragon instead, economists expected the bank to trim a key interest rate again. But instead, the rate was held steady at 2.5%. Now, that could be because there are already signs of building momentum. But the bank may also have decided that there’s essentially no point in cutting rates further: if folk and businesses have no interest in borrowing cash and loading up with debt, then a mildly lower interest rate would probably make little difference.
Why should I care?
Zooming out: Let’s get political.
Taiwan's recent election cemented an unprecedented third term for the country’s Democratic Progressive Party. The outcome was a bolster for the country’s stocks, sending the main index within inches of an all-time high. Thing is, the party stands for a democratic Taiwanese identity that’s separate from China, so despite Taiwan’s new president vowing to improve fraying relationships between the pair, the Chinese government has made it clear that this outcome doesn’t have its vote.
For markets: Taiwan’s harboring a not-so-secret weapon.
Taiwan has an ace up its sleeve: TSMC, the world’s biggest chipmaker, makes up a third of the country’s stock market. Nvidia might have stolen investors’ attention last year thanks to ties to the artificial intelligence theme, but the American stock market darling doesn’t actually make its own superpowered chips – the likes of TSMC do. But while the chipmaker does have one plant in the US and a couple of factories in China, the bulk of TSMC’s production takes place in Taiwan. So investors may have a touch of the jitters: China’s frustrations could well escalate and interfere with the world’s chip supply.
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