Chinese stocks experienced a downturn, lagging behind their Asian counterparts as investors adopt a cautious stance ahead of a crucial briefing over the weekend regarding potential fiscal stimulus measures from Beijing. The CSI 300 Index plummeted by as much as 2.4%, reversing the gains made on Thursday. In contrast, markets in Japan and South Korea showed resilience, avoiding losses from Wall Street following an unexpectedly high core inflation report that has intensified scrutiny on the Federal Reserve’s next steps. Meanwhile, Australian equities also saw declines.
The market’s focus is on a Saturday briefing in which China’s finance minister is expected to announce additional support measures aimed at revitalizing the country’s slowing economy. Analysts and investors anticipate that Beijing could introduce up to 2 trillion yuan (approximately $283 billion) in new fiscal stimulus to boost growth and restore economic confidence.
Kieran Calder, head of equity research for Asia at Union Bancaire Privee in Singapore, noted that the recent drop in Chinese stocks reflects “the risk of another disappointment” from the Ministry of Finance’s upcoming briefing. He added, “The MOF doesn’t approve extra budget or bond quota, so there is uncertainty about whether Saturday’s briefing can provide new details on additional stimulus.”
In the U.S., equity futures showed slight gains after the S&P 500 and Nasdaq 100 fell by 0.2% and 0.1%, respectively, on Thursday. Notably, Hong Kong markets were closed Friday for a holiday.
U.S. Treasuries remained stable during early Asian trading after the two-year yield decreased by six basis points, while the ten-year yield fell by one basis point on Thursday.
Recent data highlighted challenges facing the Federal Reserve, with underlying U.S. inflation rising more than expected in September, indicating stalled progress toward their price targets. Additional reports revealed that applications for unemployment benefits surged to their highest level in over a year.
“The Fed acknowledged that the last mile towards their inflation target will be challenging, and we are witnessing that,” commented David Donabedian from CIBC Private Wealth US. He noted, however, that there is still an expectation for the Fed to implement a quarter-point rate cut in November, potentially followed by a similar reduction in December.
Market expectations for a Fed rate cut in November remain stable, with traders pricing in an approximately 80% chance of a 25 basis point cut, compared to a fully priced-in adjustment prior to last week’s robust jobs data.
Federal Reserve officials, including John Williams, Austan Goolsbee, and Thomas Barkin, appeared unperturbed by the higher-than-expected consumer price index, suggesting that a continuation of rate reductions is feasible. However, Raphael Bostic, the Atlanta Fed president, indicated in an interview with The Wall Street Journal that his projections from September accounted for one more quarter-point cut in the Fed’s remaining meetings for 2024.
Chris Larkin from E*Trade, part of Morgan Stanley, remarked, “One slightly hotter-than-expected CPI reading doesn’t indicate a new wave of inflation, but the accompanying rise in weekly jobless claims could contribute to short-term market uncertainty.” He emphasized that while the figures were concerning, they did not disrupt the broader outlook for steady economic growth and moderate inflation.
In currency markets, the yen remained stable at around 148 per dollar after strengthening on Thursday, while the dollar index showed little movement. The South Korean won retained its gains against the dollar following the Bank of Korea’s decision to cut its key interest rate by 25 basis points to 3.25%, in line with expectations.
In the oil market, prices edged lower, pulling back some gains from Thursday when West Texas Intermediate futures rose by 3.6% as traders awaited Israel’s response to Iran’s missile attack.
Looking ahead, investors are preparing for third-quarter earnings reports from major U.S. banks, including JPMorgan Chase & Co., Wells Fargo & Co., and Bank of New York Mellon Corp. JPMorgan’s projections for net interest income will be a focal point, following efforts by executives to temper expectations for this vital revenue source. Investors are also expected to seek updates on Wells Fargo’s asset cap, while BNY Mellon’s revenue is projected to have increased by 4% last quarter, marking the fastest growth rate in over a year, according to Bloomberg Intelligence.
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