China finally takes out the hammer

Following a variety of steps over the past year to cool their property market, most which had only a temporary influence, China finally used the hammer, a rise in official lending rates by 25 bps to 5.56%. This follows a report yesterday that prices of land for residential construction rose 11.7% y/o/y and last week’s release of a 9.1% rise in property prices in Sept. They also responded to the rising trend in inflation by raising deposit rates by 25 bps to 2.5% which however still remains below the y/o/y gains in CPI which a government official over the weekend said will be 3.5% y/o/y for Sept after a 3.5% y/o/y rise in Aug. The move comes after the Shanghai index closed overnight at a 6 month high and copper immediately responded with a move down to a one week low. The German ZEW economic confidence # over the next 6 months was a touch below expectations at -7.2, the weakest since Jan ’09 but Current Conditions rose to the most since Sept ’07.

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