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Oil prices fell on Monday after China’s central bank unexpectedly cut interest rates after data showed economic activity slowed across the board in July, including consumer spending and factory production, reviving concerns of a global slowdown.
Signs of a further slowdown in the world’s second-largest economy, already strained by China’s zero-Covid policy and a housing crisis, alarmed energy markets. The prospect of lower demand sent oil prices down 5 percent — pushing West Texas Intermediate Crude down to $87 a barrel.
July data signaled that the post-lockdown recovery is fizzled out amid a range of economic challenges, including the ongoing threat of the coronavirus pandemic. Much like the conflicting priorities faced by other nations’ central bankers, Chinese officials are eyeing rising debt and inflation. But a faltering domestic economy seemed to have priority.
“That [People’s Bank of China] “Seems to have decided it now has a more pressing problem: the latest data shows lackluster economic momentum in July and a slowdown in credit growth, which has been less responsive to policy easing than during previous economic downturns,” said Julian Evans-Pritchard Economist covering China for economic research firm Capital Economics
China’s move to boost the economy through monetary policy put Wall Street in a bad mood. The Dow Jones industrial average lost 38 points, or 0.4 percent, at the start of the trading session. The broader S&P 500 index lost 16 points, or 0.4 percent, while the tech-heavy Nasdaq lost 34 points, or 0.3 percent
The People’s Bank of China cut its medium-term lending rate to 2.75 percent, or 10 basis points, the first cut since January. The move came as new data showed a slowdown in the national economy as measures to contain Covid-19 infections and a housing crisis stalled growth.
“The momentum of economic recovery has slowed,” government spokesman Fu Linghui said at a news conference, the Associated Press reported. “Further efforts are needed to solidify the basis of economic recovery.”
For months, some homebuyers in China have been refusing to pay the mortgage on properties they’ve bought but construction is ongoing. The mortgage protests are linked to more than 100 delayed projects, leading to falling home prices and frustrated homebuyers. The boycotts have raised concerns that China’s housing market could collapse, undermining the country’s financial system and dealing a blow to the global economy.
For more than a decade, construction and real estate have helped fuel China’s amazing economic growth and bolstered a burgeoning middle class, underscoring the importance of the mortgage crisis and the damage a deepening crisis could do.