China fires ‘bigger guns, but no bazookas yet’ by Reuters

By Jamie McGeever

(Reuters) – A look at the day ahead in Asian markets.

Sugar high or shot in the arm?

That’s the question for Chinese shares and investor sentiment, which rose on Tuesday after central bank-led Beijing unveiled a coordinated monetary and liquidity stimulus package that had a far stronger impact than previous piecemeal efforts.

It was China’s biggest stimulus since the pandemic and domestic and regional markets reacted accordingly – the Shanghai Composite rose 4.2% for its best day since July 2020, the index hit its highest level in April 2022, and MSCI’s emerging markets currency index jumped to a high. new big

All well and good. But can this short-term relief turn into long-term optimism that the Chinese authorities are back in the driving seat and leading the real estate sector, asset prices and the economy to a sustainable recovery?

“Bigger guns, but still no bazooka,” Barclays economists summed up the authorities’ moves on Tuesday, adding that the central bank could fire more volleys in the coming months by cutting interest rates and reserve requirements.

Some analysts have been quick to raise their forecasts for GDP growth for 2024 closer to the government’s 5% target, but most agree that large-scale fiscal stimulus is needed to make a real difference the prospect after this year.

In the short term, however, the Chinese market’s recovery could have several stages. Not only did Chinese stocks fall to their lowest level in over a year, they also underperformed relative to regional and global rivals.

Analysts at Barclays are tactically bullish on Chinese stocks over Indian stocks, while the divergence between the Shanghai CSI 300 and the Shanghai Index over the past few years has been frankly staggering.

The yuan climbed to a fresh 16-month high on Tuesday and is now within striking distance of breaking through the 7.00 per dollar barrier. For a currency as tightly controlled as the yuan, its 3.5% appreciation in just two months is remarkable.

Asian investor sentiment should also be boosted on Wednesday by the S&P 500, which will hit a new high on Tuesday, albeit only just, and by a weaker dollar and lower Treasury yields.

Japanese futures point to a benchmark open 0.7% higher on Wednesday. That said, concerns about global growth – particularly regarding Germany – are spreading, which could legitimately counter any sense of optimism in Asia.

Wednesday’s regional economic data calendar sees the release of consumer inflation in Australia, which is expected to ease sharply to 2.7% in August from 3.5% in July, output price inflation in Japan’s services sector and manufacturing industrial in Taiwan.

Regional policymakers scheduled to speak include South Korea’s Finance Minister Choi Sang-mok and Philippine Central Bank Governor Eli Remolona.

Here are the key developments that could provide more direction for Asian markets on Wednesday:

– Australian CPI inflation (August)

– PPI Japan Services (August)

– Taiwan industrial production (August)