China’s central bank cuts interest rates after growth slows in July

Yahoo Finance Live anchors discuss the People’s Bank of China cutting interest rates amid an economic slowdown.

Video transcript

BRIAN SOZZI: Don't worry, Julie. Brian Smith and Brad Sozzi have it covered. Here are three things you need to know right now. COVID lockdowns and a deflating property bubble caused a rough July for China's economy, missing estimates for retail sales and industrial production, among a long list of others. This all leading to two key interest rates being cut by China's central bank.

Both the one-year lending facility rate and the seven-day lending rate were cut by 10 basis points by the People's Bank of China. The bank is also putting over $59 billion into the financial system to help wider economic growth. And the mood here on The Street, at least in the early going, perhaps, China is not doing enough here given the slowdown it is seeing in the economy. We're seeing some weakness here in the futures.

BRAD SMITH: Well, the big thing, too, is that since 2015, they haven't missed one of their official growth targets. And they're on track to actually do that. And that comes after, of course, they're continuing to enact their zero COVID policy or the zero tolerance policy around COVID. And that's prompted lockdowns. But I think over this extended period of time, even with what we're looking at right now, which they had set their target at 5 and 1/2%, they're set to miss that.

They've also got employment situation that continues to remain up in the air right now. It seems like the jobless rate has eased to about 5.4%. But still, at this point in time, there are more question marks, even as-- and that's without even getting into the real estate conversation in China as well right now.

JULIE HYMAN: Yeah, so I just want to dig into some of the individual numbers a little bit. We're showing the unemployment rate, which actually improved in July, but didn't improve if you look at the youth unemployment rate specifically-- ages 16 to 24. That was a 19.9% unemployment rate.

The country only started coming out with that specific data set in 2018, but it's the highest since they started keeping track of that. So that's something that is potentially worrying retail sales, which we alluded to. 2.7% increase. That is a slowdown from 3.1% in June. And it's slower than economists anticipated.

So, basically, we got just this list of different economic data points. And all of them pretty much came out below estimates. Part of it, certainly, has to do with COVID shutdowns here. But you also have to wonder if there are some underlying concerns, especially if you think about the readthrough from some of the inventory buildups that we are hearing about here in the United States. One would think that that would have to then have a ripple effect.

BRIAN SOZZI: Yeah, Citi coming out with a flash note on this. Their team saying, more growth supporting efforts are needed beyond monetary policy. So The Street, I think, was just looking for more here just given the weakness economically in China. They didn't necessarily get it.

The next thing I'd be watching is some of these earnings results out of some of these luxury companies that do business in China. Starbucks, of course, didn't have a great quarter in China because of the lockdowns a couple of weeks ago. But I'm talking about a Tapestry, a Capri. I think Louis Vuitton caught some weakness after this report. How are these companies doing? That could be another shoe to drop.

BRAD SMITH: But it begs the question of whether we're seeing a similar type of luxury buyer in China as we are here in the US because luxury, or the upper income buyers, in the US, clearly, they're still spending. So it's just a matter of at what frequency or what cadence relative to when times were a little bit more rosy, when everyone was, perhaps, here in the US, really looking at the additional amount of money that they were having, either as a result of changing jobs and the opportunity to do so and get a higher wage, or because of a short-lived or a stimulus that they could essentially lean on if they wanted to.

But that, far removed at this point in time. A year, year and change removed. Now you think about China as well, and if they have a similar profile of that consumer that could perhaps still be spending on the upper side.

BRIAN SOZZI: What's Tesla doing? I mean, Tesla's had some-- had a lot of momentum in China. But is this news bad or good? Because you're cutting rates. Maybe that spurs more car sales. But have their sales fallen off a cliff?

JULIE HYMAN: The car numbers were one of the better points within all of these data points. The car production numbers were actually better than expected. By the way, it's not just about Tesla or Tapestry. It's also about the Chinese based companies that trade here in the US that we can track, like an Alibaba, for example. You see they were trading lower this morning.

You've got the Chinese automakers trading lower, although Li Auto also came out with disappointing earnings, which we're going to talk about later. But JD is down. So it's also these big, especially consumer-facing, companies in China that are seeing some weakness as well.