Asian stocks, currencies rise on China optimism: Markets close

(Bloomberg) — Asian shares rose as a rally fueled by China’s large stimulus package lifted stocks for a second day and strengthened the yuan.

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Chinese shares extended gains after the People’s Bank of China unveiled measures to support the economy and financial markets on Tuesday. The onshore benchmark CSI 300 rose as much as 3.2% and is on track to erase its year-to-date losses. The offshore yuan strengthened after 7 for the first time since May 2023.

From stocks to currencies, markets already buoyed by the Fed’s huge interest rate cut last week got a boost from a slew of measures announced by China to boost its economy, sending the regional gauge around the highest levels since February 2022. Emerging Asian currencies also rose, led by the Malaysian ringgit and the Thai baht.

“The expected liquidity boost from China could have some positive influence through commodities and the supply chain, so EM stocks and currencies will be supported,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank in Singapore. “Optimism could raise the bar on details and follow-up, so if it’s not substantial enough, things can fall through.”

Hong Kong’s ratio of short sales as a percentage of market turnover fell to 13.6 percent on Tuesday, one standard deviation below its 2016 average, indicating many shorts have already been covered, according to JPMorgan Chase & Co.

In another potential boost to stocks, the People’s Bank of China cut its one-year medium-term lending rate to 2 percent from 2.3 percent.

“Within Chinese equities, we anticipate near-term support on stimulus news, subject to evidence of actual execution,” said Solita Marcelli, chief investment officer for the 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, telecommunications, energy firms and the financial sector.”

The support measures unveiled by Chinese authorities on Tuesday included interest rate cuts, more cash for banks, greater incentives to buy homes and plans to consider an inventory stabilization fund. However, the efforts may only give China time, given the scale of the challenges facing the economy.

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An index of the greenback’s strength fell to trade near its lowest level this year. A gauge of emerging market currencies has set a new record high.

Overnight in the US, the Conference Board’s reading of consumer sentiment saw its biggest drop since August 2021. The report also signaled concerns about a slowing labor market, while manufacturing data was, also weaker than expected.

“The decay in the perception of available jobs has been stunning,” said Carl Weinberg, chief economist at High Frequency Economics. “It will also send financial markets a warning message about the state of the economy.”

Swap traders increased their bets on more than three-quarters of a point of policy easing by the end of the year from the Federal Reserve, suggesting at least one more major U.S. tapering is on the cards, according to the data. Investors await data on the Fed’s preferred rate and US personal spending later this week for more clues about the depth of future cuts.

Fed Governor Michelle Bowman, the only policymaker to challenge last week’s half-point cut, said the central bank should cut interest rates at a “measured” pace in comments on Tuesday. She said that inflationary risks remain and that the labor market has not seen a significant weakening.

Oil settled after its biggest advance in more than a week as traders eyed developments in the Middle East and the impact of China’s stimulus measures on demand. Gold hit a record high trading above $2,662 an ounce.

In the corporate world, Japanese memory chipmaker Kioxia Holdings Corp. is scrapping plans for an initial public offering by the end of this year after a slump in semiconductor stocks.

Key events this week:

• ECB President Christine Lagarde speaks on Thursday

• US Jobless Claims, Durable Goods, GDP Revised Thursday

• Fed Chairman Jerome Powell delivered pre-recorded remarks at the 10th annual US Treasury market conference on Thursday

• Industrial profits in China on Friday

• Eurozone consumer confidence, Friday

• US PCE, University of Michigan, Consumer Sentiment, Friday

Some of the main movements in the markets:

Stocks

• S&P 500 futures were down 0.2% as of 10:58 a.m. Tokyo time

• The Japanese Topix has been changed a bit

• Australia’s S&P/ASX 200 was little changed

• Hong Kong’s Hang Seng rose 2.3%

• Shanghai Composite rose 2.5%

• Euro Stoxx 50 futures fell 0.2%

• Nasdaq 100 futures fell 0.2%

Coins

• The Bloomberg Dollar Spot Index was little changed

• The euro was little changed at $1.1188

• The Japanese yen fell 0.2 percent to 143.45 per dollar

• The offshore yuan was little changed at 7.0108 per dollar

• The Australian dollar was little changed at $0.6889

Cryptocurrencies

• Bitcoin rose 0.3% to $64,442.42

• Ether was little changed at $2,653.61

BONDS

• The 10-year Treasury yield rose a basis point to 3.74%

• Japan’s 10-year yield fell one basis point to 0.805%

• Australia’s 10-year yield rose two basis points to 3.91%

commodities

• West Texas Intermediate crude fell 0.3% to $71.38 a barrel

• Spot gold rose 0.1% to $2,660.62 an ounce

This story was produced with the help of Bloomberg Automation.

–With help from Richard Henderson.

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