China surprises with rate cut

The chase by Marty Cej:

China cut interest rates for the first time since 2008 in a bid to stoke growth and defend against the European debt crisis, almost like throwing up a massive wall, a great wall, even. The People's Bank of China cut the one-year deposit rate to 3.25 percent starting tomorrow and said the one-year lending rate will fall to 6.31 percent from 6.56 percent. The PBOC also said banks will be able to offer a 20-percent discount to the benchmark lending rate, up from the current 10 percent. Back in May, the country's ruling State Council said that risks to the economy were growing. I guess that the risks had grown quite enough, thank you.

The biggest challenge today will be in understanding and communicating how a quarter-point rate cut in China will be transmitted through the global economy and financial markets. Lending has dropped in China and the rate cut is intended to spur companies and consumers alike to borrow, which in turn stokes demand for goods and services both domestically and from abroad. Can lower Chinese lending rates offset Europe's impact on the global economy? Will the cuts be enough to lift industrial commodities from their recent funk (Maybe Prince, who turns 54 today, can help with the funk)? The Australian and Canadian dollars became the world's favourite currencies the last time China cut rates and introduced stimulus in 2008; will it happen again? For stock investors, is it suddenly time to take another look at the likes of Teck, Hudbay and other miners? The oil companies?

Today's action by the People's Bank of China may enliven Federal Reserve Chairman Ben Bernanke's visit with the Senate Joint Economic Committee at 10:00 a.m. ET. Bernanke will deliver a prepared statement at the top of the hour before facing a series of rambling political statements from committee members that may or may not end with the upward lilt of a question. At some point, he will be asked about jobs, and there will be a question or two on the impact of the European debt crisis buried in the rhetoric somewhere. We'll cover the Q&A.

Bernanke's testimony also comes a day after Fed Vice Chairman Janet Yellen told an audience in Boston that a "stalled" improvement in the jobs market and worsening financial conditions may result in more monetary easing by the central bank. The Fed's next meeting is June 19.

Among the stocks we're watching today is Lululemon, which reported a 25-percent jump in same-store sales in the first quarter and beat the average earnings expectation by 2 cents. The company said, however, that it sees second-quarter profit in a range of 28-30 cents US a share, compared with an average estimate of 33 cents. Full-year earnings per share and revenue are also seen coming in just short of analysts' consensus forecasts. Perhaps Tom Jones, who turns 72 today, could help sales with a new tour; all those Groovy Girlshorts, Premium Technikinis and Foxy Lulu Hotshorts flung from the audience will have to be replaced.

There's still more work to be done on the Barrick story. I'm interested in hearing more about the company's strategy now that Aaron Regent has been replaced. Will the focus return to gold? Is the new CEO Sokalsky cut from the same cloth as Munk? Is Barrick more of a "buy" today than yesterday? How many investors have had a change of heart, as Dean Martin asked in his 1955 hit. Martin would have been 95 today.

Bank Of Canada Rate Remains at 1%

Canada's central bank it keeping its benchmark interest rate steady at one per cent — the same level since September 2010.

The Bank of Canada said Tuesday it would hold its target for the overnight rate steady in its latest policy decision.

The bank has decided not to raise or lower the rate on which other banks base many of their interest rates for 14 consecutive six-week policy meetings, dating back to fall 2010. That's the longest that Canada's central bank has stayed on the sidelines since the 1950s.

MAPInterest rates around the globe

"Underlying economic momentum appears largely consistent with expectations," the bank said in its statement accompanying the decision.

"To the extent that the economic expansion continues and the current excess supply in the economy is gradually absorbed, some modest withdrawal of the present considerable monetary policy stimulus may become appropriate," the bank said.

That was a slightly more hawkish tone that the previous statement, suggesting if and when the bank makes a move, it's more likely to be a hike to curb lending, not a cut to stimulate the economy.

"The message is that the bank, unlike the market, still expects the next move to be a hike, but it is acknowledging that there is less certainty about the economy being strong enough to warrant that move," CIBC economist Avery Shenfeld said in a note following the bank's rate announcement.

Modest growth

Canada's central bank says the U.S. economy has continued to expand at a modest pace, but activity in emerging markets has slowed a bit faster than expected, and Europe remains a major concern.

In Canada, the first-quarter growth rate was disappointing at 1.9 per cent, but the economy is holding up overall because of a strong housing sector, positive business, and consumer confidence and low interest rates.

The bank also said inflation remains in control and not a worry at this time. The bank has its next scheduled decision on rates on July 17.