How to view the PBOC move

China surprised markets with a cut in the deposit rate and the required reserve ratio today.

Is China cutting rates good news or bad news? Here are the two arguments.

1) China is providing necessary stimulus

China is fighting the same deflationary forces as the rest of the world. CPI is running at 1.6% y/y and in danger of falling lower. The PBOC highlighted as much in its statement, saying it had room to cut because consumer prices are low. The yuan has been tied to the US dollar for most of the last year and appreciated aggressively, making imports cheaper and driving prices lower in a modestly slower economy.

Cutting rates will stimulate the economy. It will boost lending and investment.

2) Things are worse in China than believed

Is China panicking in a crashing economy?

The rate cut may be viewed as a panic move in an economy that's worse than officials are letting on. That's a risk that's particular to China because its economic data is so opaque. The latest GDP number was stronger-than-expected at 6.9% and it's followed a few days later by a rate cut? Seems odd.

What's really going on in the economy is tougher than ever to figure out. The Caxin China manufacturing PMI was one of the few private measures of the economy. Normally it would have been released earlier today but it was strangely discontinued unceremoniously last month.

The timing is also unusual. The PBOC has been lowering rates for the past year but generally every two-and-a-half to three months. This cut comes less than two months after the August 24 cut. It's also strange that it comes on a Friday; other moves have come on the weekend.

When China devalued it August. These concerns bubbled up and that was a major contributor to the round of fears that gripped global markets.

How I expect it to be interpreted

Whether the economy is really strong or not will remain unknown but domestic investors are less worried. The Shanghai Composite hit a seven-week high on Wednesday and rose 1.3% today.

In addition, markets have been closely watching China for the past three months and haven't found any fresh reasons for worry. Unlike the FX devaluation, this is more of a traditional move from the central bank playbook.

It's a bit early but there are no special worries about China in the market right now. It's also part of a chorus of central banks that are easing. In that sense, the PBOC has the wind at its back.That's extremely important this time and it's why I think this will be interpreted positively for global stocks, bonds, gold and commodity currencies.