New York City, New York – (StockNewsDesk) – 11/21/2014 — The major indices of the U.S. market, S&P 500 and the Dow Jones achieve a new height because of the stimulus measures introduced by Chinese government. The European Commission chief Mario Draghi comments also infused optimism among investors on the Wall Street. Currently, the broader indices are trading at all-time high levels. The stimulus measures took place after China’s factory growth sunk to a new low of 50.0 in six months. The European government feared the economy may weaken like Japan’s; because of which Draghi encouraged the bond-purchase program.
People’s Bank of China (PBOC) Surprise World with Interest-rate Reduction
People’s Bank of Chinareduced its benchmark interest rates for the first time since 2012. PBOC will lower its deposit rate and lending rate for one year from tomorrow. PBOC has decided to cut the annual benchmark rates by 0.40% to 5.6% while the annual deposit rates were slashed by 25 basis points. This move has come after the European lawmakers decided to encourage bond-purchase program and Japanese economy reduced its interest rates. It is for the first time in more than two decades that the second-largest economy in the world will record the slowest growth in Gross Domestic Product (GDP). The country expects to meet a GDP of 7.4%, the lowest in 24 years. The ailing housing sector has forced the domestic demand of the country to fall below expectations for multiple quarters. Demand in sectors like steel, cement and furniture is negatively affected. The Chinese lawmakers did try to save the ailing economy by infusing cash in small amounts, however, resulted in bad loans.
Draghi Encourages Stimulus
ECB Chief Draghi has welcomed this move by the bank to prevent the European economy from facing a fate like Japan’s. The Japanese economy had lost one decade in deflation and disinflation, which made the economy stagnant. Among the three of Eurozone’s 18 countries are facing deflation, and many of them are at a high risk of facing such fate. This prompted the ECB chief to control the economy by introducing stimulus measures in the form of the bond-purchase program. The Consumer Price Index is well below the ECB’s target of 2% at 0.4%. The ECB said that bond-purchase program had already started. This will result in the banks providing more liquidity, which will kick-start the European economy. The ECB has decided to include debt instruments in the bond-purchase program which will further bolster the bond-purchase program. However, this has been strongly opposed by the German government. The ECB aims to defy deflation and meet an inflation rate of 2% in the long run.