(Bloomberg) — Asian shares rose as a rally fueled by China’s massive stimulus package lifted stocks for a second straight day and strengthened the yuan.
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Chinese stocks extended their gains after the People’s Bank of China announced measures on Tuesday to support the economy and financial markets. The onshore benchmark CSI 300 rose as much as 3.2%, on track to erase year-to-date losses. The offshore yuan strengthened past 7 for the first time since May 2023.
From stocks to currencies, markets already buoyed by the Fed’s outsized rate cut last week were boosted by China’s raft of measures announced to stimulate its economy, sending the regional indicator to its highest level since February 2022. Emerging Asian currencies also rose, led by the Malaysian ringgit and Thai baht.
“The liquidity boost expected from China could have a positive spillover through commodities and the supply chain, so EM equities and currencies are likely to get a boost,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank in Singapore. “The optimism could raise the bar for follow-through details and measures, so if it’s not substantial enough, it could fail.”
Hong Kong’s short sales ratio as a percentage of market turnover fell to 13.6% on Tuesday, one standard deviation below the average since 2016, according to JPMorgan Chase & Co., indicating that many shorts have already been covered.
Another potential boost for stocks is that the People’s Bank of China cut the interest rate on medium-term loans with a maturity of one year from 2.3% to 2%.
“Within Chinese equities, we expect near-term support on the stimulus news, subject to evidence of effective execution,” said Solita Marcelli, Chief Investment Officer Americas at UBS Global Wealth Management. “We expect rate cuts and capital market support to benefit state-owned enterprises concentrated in high-dividend sectors, including utilities, telecoms, energy companies and financials.”
The support measures unveiled by Chinese authorities on Tuesday include interest rate cuts, more money for banks, bigger incentives to buy homes and plans to consider a stock stabilization fund. But the efforts can only buy China some time, given the scale of the challenges facing its economy.
An index of the dollar’s strength fell to near its lowest level this year, while a gauge of emerging-market currencies hit a new record.
In the US, the Conference Board’s consumer confidence indicator showed its biggest drop since August 2021 last night. The report also flagged concerns about a slowdown in the labour market, while manufacturing data was also weaker than expected.
“The decline in the perception of available jobs was striking,” said Carl Weinberg, chief economist at High Frequency Economics. “It will also send a warning message to financial markets about the state of the economy.”
Swap traders raised their bets to more than three-quarters of a point of policy easing by the Federal Reserve by year-end, suggesting at least one more major U.S. cut is on the horizon after the data. Investors are awaiting data on the Fed’s preferred price benchmark and U.S. personal spending later this week for further clues about the depth of future cuts.
Fed Governor Michelle Bowman, the only policymaker to dissent from last week’s half-point cut, said the central bank should cut interest rates at a “measured” pace in remarks Tuesday. She said inflation risks remain and the labor market has not shown significant weakness.
Oil stabilized after its biggest gain in more than a week as traders watched developments in the Middle East and the impact on demand from China’s stimulus measures. Gold hit a record trading high above $2,662 an ounce.
In the business world, Japanese memory chip maker Kioxia Holdings Corp. is postponing plans for an initial public offering until later this year amid a downturn in the semiconductor market.
Important events this week:
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ECB President Christine Lagarde speaks on Thursday
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US jobless claims, durable goods, GDP revisions, Thursday
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Fed Chairman Jerome Powell delivers pre-recorded speeches at the 10th annual US Treasury Market Conference, Thursday
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Chinese Industrial Profits, Friday
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Eurozone consumer confidence, Friday
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US Consumer Confidence PCE, University of Michigan, Friday
Some of the major moves in the markets:
Shares
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S&P 500 futures were down 0.2% at 10:58 a.m. Tokyo time
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The Japanese Topix has hardly changed
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Australia’s S&P/ASX 200 was little changed
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Hong Kong’s Hang Seng rose 2.3%
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The Shanghai Composite rose 2.5%
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Euro Stoxx 50 futures fell 0.2%
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Nasdaq 100 futures fell 0.2%
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro remained virtually unchanged at $1.1188
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The Japanese yen fell 0.2% to 143.45 per dollar
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The offshore yuan remained virtually unchanged at 7.0108 per dollar
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The Australian dollar remained virtually unchanged at $0.6889
Cryptocurrency
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Bitcoin rose 0.3% to $64,442.42
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Ether remained little changed at $2,653.61
Bonds
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The yield on 10-year government bonds rose one basis point to 3.74%
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Japan’s 10-year yield fell one basis point to 0.805%
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The Australian 10-year yield rose two basis points to 3.91%
Raw materials
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West Texas Intermediate crude oil fell 0.3% to $71.38 a barrel
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Spot gold rose 0.1% to $2,660.62 an ounce
This story was produced with the help of Bloomberg Automation.
–With assistance from Richard Henderson.
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