Chinese stocks fell sharply, lagging behind their Asian counterparts as caution looms ahead of a crucial briefing this weekend that could reveal more about Beijing’s fiscal stimulus plans. The CSI 300 Index plummeted by as much as 2.4%, reversing the gains made on Thursday. In contrast, shares in Japan and South Korea saw increases, avoiding losses experienced on Wall Street due to a rise in core inflation, which has intensified scrutiny on the Federal Reserve’s next steps. Australian equities also declined.
Attention is focused on a Saturday briefing where China’s finance minister is expected to announce further support measures aimed at reviving the slowing economy. Analysts predict that Beijing could unveil up to 2 trillion yuan ($283 billion) in new fiscal stimulus to bolster growth and restore investor confidence.
The downturn in Chinese stocks reflects concerns about potential disappointment from the upcoming Ministry of Finance briefing, according to Kieran Calder, head of equity research for Asia at Union Bancaire Privee in Singapore. “The MOF doesn’t typically approve extra budget or bond quotas, so there is uncertainty over whether Saturday’s briefing will provide concrete details on additional stimulus,” he noted.
US equity futures edged higher following a decline in the S&P 500, which fell by 0.2%, and the Nasdaq 100, which dropped by 0.1% on Thursday. Hong Kong markets were closed on Friday for a holiday.
In the bond market, Treasuries remained stable during early Asian trading after the two-year yield decreased by six basis points and the ten-year yield fell by one basis point on Thursday.
Recent economic data highlighted the challenges facing the Federal Reserve. Core US inflation rose more than anticipated in September, indicating stalled progress in reaching inflation targets. Additionally, claims for US unemployment benefits increased last week, reaching their highest level in over a year.
David Donabedian of CIBC Private Wealth US commented, “The Fed indicated that the final push toward their inflation target would be challenging, which is evident in the current data.” Despite the inflation concerns, he anticipates a 25 basis point rate cut in November, with a similar reduction likely at the December meeting.
Market expectations for a Fed rate cut next month remained stable, with traders assigning approximately an 80% probability to a 25 basis point reduction at the November meeting. This figure was adjusted from a fully anticipated cut before last week’s robust US jobs data.
Fed officials, including John Williams, Austan Goolsbee, and Thomas Barkin, expressed confidence despite the higher-than-expected consumer price index, suggesting that the Fed could continue lowering rates. Conversely, Raphael Bostic of the Atlanta Fed noted in a Wall Street Journal interview that his projections from September included an expectation for one additional quarter-point cut across the Fed’s two remaining meetings in 2024.
Chris Larkin of E*Trade, part of Morgan Stanley, commented, “One slightly hotter-than-expected CPI reading doesn’t indicate a new wave of inflation. However, the coinciding increase in weekly jobless claims may contribute to short-term market uncertainty.” He further emphasized that while the data was concerning, it does not fundamentally alter the outlook for robust economic growth and moderate inflation.
In currency markets, the Japanese yen remained stable at around 148 per dollar following its strengthening on Thursday, while the dollar index showed little movement. The South Korean won maintained its gains against the dollar after the Bank of Korea cut its key interest rate by 25 basis points to 3.25%, as anticipated.
Oil prices edged lower, pulling back from Thursday’s 3.6% increase in West Texas Intermediate futures, as traders awaited Israel’s response to Iran’s missile attacks.
Investors are also preparing for third-quarter earnings reports from major US banks later on Friday, including JPMorgan Chase & Co., Wells Fargo & Co., and Bank of New York Mellon Corp. The focus will be on JPMorgan’s outlook for net interest income, especially after executives sought to temper expectations for this critical revenue source. Investors will also be watching for updates on Wells Fargo’s asset cap, while BNY Mellon is expected to report a revenue growth of 4% for the last quarter, the fastest pace in over a year, according to Bloomberg Intelligence.
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