Beijing withdraws policies by Reuters

A look at the day ahead in European and global markets from Stella Qiu

What a week it has been for Beijing.

China’s leadership seems to finally be coming to grips with the reality of a faltering economy and doing what the markets wanted. You name it: RRR cuts, rate cuts, measures to strengthen equity markets and even more fiscal support.

Battered Chinese shares are now heading for their best week since 2008, with the bluechip up 3.6% on Friday and on track for a 15% weekly gain. Hong Kong is heading for weekly growth of nearly 13% – the biggest since 1998.

It was a good week for almost all markets whose fortunes are tied to China. An index of mainland Chinese property shares rose 20% this week. Iron ore prices climbed back above $100 a tonne, breached the key $10,000 a tonne mark, gold hit another record and silver hit a 12-year high.

It remains to be seen whether the rally will last. After all, China’s A-share market has repeatedly disappointed investors, with the benchmark CSI300 no higher than it was in 2007 while rising nearly 300%.

Chinese markets will be shut down after today for a week-long public holiday, and investors could change their minds if China’s reluctant consumers don’t step up and boost spending to restore economic growth.

As the week draws to a close, there are still a few events on the horizon for investors to keep an eye on.

Japan’s ruling party is holding a leadership contest that looks set to be one of the most unpredictable in decades. The yen is nervous, hitting a three-week low of 145.56 per dollar on Friday.

Sanae Takaichi, the minister in charge of economic security, who said the BOJ raised rates too soon, is among the first. If it wins the contest, the yen could fall as markets further discount the chance of another rate hike this year. It is currently priced at around 30%.

The results of the Liberal Democratic Party’s first round are expected around 14:20 JST (0720 GMT), with a run-off likely between the top two candidates after around 15:20 JST (0830 GMT).

Also on the schedule is the core price index for US personal consumption expenditures (PCE), the Fed’s preferred measure of inflation. Forecasts are centered around a small monthly increase of 0.2%, and risks appear biased to the downside.

A benign number would provide room for another half-point rate cut from the Fed in November, although much will ultimately depend on next week’s payrolls report.

Key developments that could influence markets on Friday:

— Japanese driving competition

— France CPI for September, Germany unemployment rate

— US PCE data

(By Stella Qiu; Editing by Edmund Klamann)