Nikkei pulls back, China rallies By Reuters

A look at the day ahead in European and global markets from Wayne Cole.

There’s so much news it’s hard to know where to start, what with the conflicts in the Middle East and more stimulus from Beijing. It stole the show early with a 4.6% drop as markets priced in the risk of higher interest rates under new Prime Minister Shigeru Ishiba.

He has long been a critic of the Bank of Japan’s ultra-easy policies, so investors assume he won’t stand in the way of policy normalization. However, actually being in charge can change attitudes and he sounded much more conciliatory over the weekend, saying that policy easing was needed given the state of the economy.

Markets still see little to no chance of BOJ tightening in October, but they have 6bp hikes for December, so about a 24% chance of a quarter-point hike. Then again, the market only has the current rate of 0.25%, going to 0.5% by the end of next year, so it’s not exactly a bullish outlook.

Ishiba’s comments were enough to help the greenback hold steady at 142.64 yen, after falling 1.8 percent to 142.07 on Friday. The euro is a shade firmer at $1.1170 after receiving a boost last week from the benign US PCE core price index.

The US data left markets pricing in a 52% chance of another huge rate cut from the Federal Reserve on November 7, although obviously the presidential election is a wild card for that.

A victory for Donald Trump would be seen as a risk to higher inflation and a stronger dollar, given his stated preference for large-scale tariffs. PredictIt has Kamala Harris ahead 57 cents to 48 cents, but that’s not a convincing lead.

A host of Fed officials will have a chance to make their case this week, led by Chairman Jerome Powell later on Monday, while Friday’s August payrolls report is key to deciding how big the next rate will be. reduction.

While the Nikkei stumbled, Chinese shares extended their blistering run up 5 percent after the country’s central bank said it would guide mortgage rates lower.

The property sector received a further boost after top cities such as Guangzhou lifted all restrictions on home purchases over the weekend, while Shanghai and Shenzhen announced plans to ease purchase restrictions.

The stimulus rush helped offset a drop in the Caixin/S&P Global manufacturing PMI to 49.3 in September and a slowdown in the services PMI to 50.3.

Key developments that could influence markets on Monday:

– German CPI and retail sales, French CPI. EU consumer and business sentiment

– Introductory statement by ECB President Christine Lagarde at the ECON hearing. Bank of England policymaker Megan Greene takes part in a discussion

– Federal Reserve Chairman Jerome Powell talks about the economic outlook. Fed Board Governor Michelle Bowman speaks

– US Chicago PMI, Dallas Fed activity index

(By Wayne Cole; Editing by Edmund Klamann)