(Bloomberg) — Asian shares rose as a rally fueled by China’s wide-ranging stimulus package lifted equities for a second day and strengthened the yuan.
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Chinese stocks extended gains after the People’s Bank of China on Tuesday unveiled the measures to support the economy and financial markets. 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 past 7 for the first time since May 2023.
From equities to currencies, markets already encouraged by the Fed’s outsized rate cut last week got a boost from the slew of measures announced by China to stimulate its economy, sending the regional gauge around its highest levels since February 2022. Emerging Asian currencies also jumped, led by the Malaysian ringgit and Thai baht.
“The liquidity boost expected from China may have some positive spill-over via commodities and the supply chain, so EM equities and currencies are likely to be boosted,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank in Singapore. “The optimism may be raising the bar on follow-through details and measures, so if not substantial enough, things can fizzle.”
Hong Kong’s short sales ratio as a percentage of market turnover dipped to 13.6% on Tuesday, one standard deviation below average since 2016, indicating many shorts have already been covered, according to JPMorgan Chase & Co.
In another potential boost for equities, the People’s Bank of China cut the one-year medium-term lending facility rate to 2% from 2.3%.
“Within Chinese equities, we anticipate near-term support on the stimulus news, contingent on evidence of effective execution,” said Solita Marcelli, chief investment officer 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, telecoms, energy firms, and financials.”
Support measures unveiled by Chinese authorities Tuesday included interest rate cuts, more cash for banks, bigger incentives to buy homes and plans to consider a stock stabilization fund. However, the efforts may only buy China some time given the scale of challenges facing the economy.
An index of greenback strength fell to trade near the lowest level this year. A gauge of emerging market currencies set a fresh record high.
Overnight in the US, the reading on the Conference Board’s gauge of consumer sentiment posted the biggest drop since August 2021. The report also flagged concerns about a slowdown in the labor market while manufacturing data also came in weaker than expected.
“The decay in the perceptions of jobs available was striking,” said Carl Weinberg, chief economist at High Frequency Economics. “It also will deliver a warning message about the state of the economy to financial markets.”
Swaps traders increased their wagers to more than three-quarters of a point of policy easing by year-end from the Federal Reserve, suggesting at least one more major US cut is in store, after the data. Investors are awaiting data on the Fed’s preferred price metric and US personal spending later this week for further clues on the depth of future reductions.
Fed Governor Michelle Bowman, the only policymaker to dissent on last week’s half-point cut, said the central bank should lower interest rates at a “measured” pace, in Tuesday comments. She said that inflationary risks remain and that the labor market has not shown significant weakening.
Oil steadied after its biggest advance in more than a week, as traders tracked developments in the Middle East and the impact on demand of China’s stimulus measures. Gold hit a record trading above $2,662 an ounce.
In the corporate world, Japanese memory chipmaker Kioxia Holdings Corp. is pushing back plans for an initial public offering until later this year after a downturn in semiconductor stocks.
Key events this week:
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ECB President Christine Lagarde speaks, Thursday
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US jobless claims, durable goods, revised GDP, Thursday
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Fed Chair Jerome Powell gives pre-recorded remarks to the 10th annual US Treasury Market Conference, Thursday
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China industrial profits, Friday
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Eurozone consumer confidence, Friday
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US PCE, University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
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S&P 500 futures fell 0.2% as of 10:58 a.m. Tokyo time
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Japan’s Topix was little changed
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Australia’s S&P/ASX 200 was little changed
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Hong Kong’s Hang Seng rose 2.3%
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The Shanghai Composite rose 2.5%
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Euro Stoxx 50 futures fell 0.2%
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Nasdaq 100 futures fell 0.2%
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro was little changed at $1.1188
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The Japanese yen fell 0.2% to 143.45 per dollar
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The offshore yuan was little changed at 7.0108 per dollar
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The Australian dollar was little changed at $0.6889
Cryptocurrencies
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Bitcoin rose 0.3% to $64,442.42
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Ether was little changed at $2,653.61
Bonds
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The yield on 10-year Treasuries advanced one basis point to 3.74%
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Japan’s 10-year yield declined one basis point to 0.805%
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Australia’s 10-year yield advanced two basis points to 3.91%
Commodities
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West Texas Intermediate crude fell 0.3% to $71.38 a barrel
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Spot gold rose 0.1% to $2,660.62 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Richard Henderson.
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