Asian stock markets defied global trends to extend their rally on Thursday, driven by sustained optimism surrounding China’s substantial stimulus measures. However, there were indications that this enthusiasm may be waning.
The upward movement in Asian equities occurred despite Wall Street’s decline the previous day, with global stock indices relinquishing earlier gains from the week.
Chris Weston, head of research at Pepperstone, commented, “The recent sell-off may be largely attributed to profit-taking after a robust performance in prior days. Some might argue that this reflects a belief that the People’s Bank of China’s (PBOC) policy stimulus will not fundamentally alter the economic landscape or boost consumption effectively.”
Nevertheless, the MSCI Asia-Pacific index, excluding Japan, surged by over 1%, reaching its highest point in more than two years. The Nikkei in Japan experienced a notable increase of 2.4%.
Hong Kong’s Hang Seng Index rose by 1.5%, while the mainland’s CSI300 blue-chip index rebounded from earlier losses to close 0.3% higher.
Adding to the positive sentiment, Bloomberg News reported that China is contemplating injecting up to 1 trillion yuan (approximately $142.39 billion) into its largest state banks to enhance their capacity to support a faltering economy.
In the broader context, investors focused on a series of speeches from Federal Reserve officials scheduled for later in the day, including comments from Chair Jerome Powell, which are anticipated to offer insights into U.S. interest rate trajectories.
Additionally, the core personal consumption expenditures (PCE) price index—an important gauge of inflation for the Fed—is set for release on Friday.
Jeff Ng, head of Asia macro strategy at SMBC, remarked on the upcoming data release: “While I don’t expect a strong reaction, the general trend will be significant. If prices remain sticky, this could dampen expectations for a 50-basis-point rate cut.”
Currently, markets are estimating a roughly 62% likelihood of a 50 basis point cut during the Fed’s November meeting, with a total of 77 basis points anticipated by year-end.
Shifting expectations regarding the Fed’s potential rate cuts have kept the U.S. dollar largely stable over the past month. On Thursday, the dollar regained some strength after a decline earlier in the week, as China’s support measures enhanced risk appetite, prompting traders to acquire assets linked to China, such as the Australian and New Zealand dollars.
Analysts noted that the dollar also received extra support from month-end capital flows. The Australian dollar rose by 0.18% to $0.6835, while the New Zealand dollar dipped slightly by 0.06% to $0.6257.
The euro and British pound also fell from recent highs, trading at $1.1137 and $1.3324, respectively, against the dollar. The offshore yuan appreciated by 0.06% to 7.0277 per dollar after briefly strengthening below the significant 7 per dollar threshold in the previous session.
DBS analysts noted, “While rate cuts may exert downward pressure on the renminbi, this could be countered by equity inflows. Nonetheless, China’s economic outlook remains fragile, and any sustained appreciation of the renminbi is contingent upon regional currencies continuing to strengthen against the U.S. dollar.”
In the commodities market, oil prices saw slight gains, with Brent crude futures rising by 0.27% to $73.66 per barrel, and U.S. crude increasing by 0.2% to $69.82 per barrel. Spot gold remained steady at $2,659.56 an ounce, having reached a record high on Wednesday.
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