China Stocks Set For Best Week Since 2008; Japan’s leadership contest in focus By Reuters

By Stella Qiu

SYDNEY (Reuters) – Chinese shares are on track for their best week since 2008 as Beijing rolled out a huge stimulus package to revive the economy, lifting Asian stocks to 2½-year highs while a sharp drop in oil is auspicious. for global disinflation.

The yen retreated to a three-week low ahead of a leadership contest for Japan’s ruling Liberal Democratic Party on Friday, as investors sought to gauge what it might mean for the country’s interest rate hike path.

In the United States, the core price index for personal consumption expenditures (PCE) – the Fed’s preferred measure of inflation – is due later in the day. Forecasts are centered around a small monthly rise of 0.2 percent as markets are divided over the size of a Federal Reserve interest rate cut expected in November.

MSCI’s broadest index of Asia-Pacific shares outside Japan gained 1.1 percent to its highest level since February 2022. It was on course for a 6 percent weekly gain thanks to a huge rally in Chinese shares.

China’s blue chips rose another 2.9 percent, bringing the weekly gain to 14 percent, the biggest since November 2008.

Hong Kong also rose 2.7% and rose 12% this week, its best performance since 2009.

“Beijing finally seems determined to roll out its bazooka-based stimulus in rapid succession…Beijing’s acknowledgment of the economy’s dire situation and lack of success in a piecemeal approach should be appreciated by markets,” it said Ting Lu, Chief Economist for China at Nomura.

“But ultimately Beijing still needs to introduce well-thought-out policies to address many of the deep-seated problems, particularly on how to stabilize the housing sector, which is now in its fourth year of contraction.”

As reported, the People’s Bank of China on Friday cut banks’ reserve requirement ratio by 50 basis points and cut the 7-day reverse repo rate by 20 bps. It also cut the 14-day reverse repo rate by 20 bps, the second cut this week.

Reuters reported on Thursday that China plans to issue about 2 trillion yuan ($284.43 billion) worth of special sovereign bonds this year as part of a new fiscal stimulus.

Commodities had a good week on stimulus from China. Iron ore prices rose another 1.8% on Friday to over $100 a tonne, breached the key $10,000 a tonne mark, gold hit another record and silver hit a 12-year high.

Oil was a loser and was poised for heavy weekly losses on a report that Saudi Arabia was preparing to ditch the unofficial $100 a barrel price for crude as it prepares to increase production. (OR)

Futures fell 0.8 percent to $71.09 a barrel and are down 4.6 percent this week. This should bode well for global disinflation as central banks step up interest rate cuts and are bullish on consumer spending.

In currency markets, the yen was the biggest mover on Friday, with the greenback gaining 0.5% to ¥145.47. Japan’s LDP, which has a parliamentary majority, will choose a new leader in an unpredictable contest, with the result of the poll expected around 14:20 JST (0520 GMT).

“In overly simplistic terms, the three front-runners have quite different attitudes to fiscal and monetary policy developments, so the outcome could influence equities, JGBs and the yen,” said Ray Attril, head of currency research at National Australia . Bank (OTC:).

Treasury yields were steady in Asia, rising overnight on weak weekly US jobless claims that prompted markets to cut odds of another half-point Fed rate cut in November to 51% from 57% with a day earlier.

Two-year Treasury yields rose 6 bps this week to 3.6287%, while 10-year yields rose 7 bps on the week to 3.7943%.