Asian stocks surged with the injection of $112 billion by China’s central bank, the People’s Bank of China (PBOC), to fortify the economy. Meanwhile, Treasuries witnessed a slight dip. The MSCI AC Asia Pacific Index climbed 1%, reaching its highest point since early August. Hong Kong stocks, in particular, soared by 3%, and US equity futures showed marginal gains, supported by technical indicators signaling overbought conditions.
The PBOC’s record cash infusion through one-year policy loans aims to bolster an economy grappling with a property market crisis and subdued demand. Despite China’s recovery presenting mixed signals, optimism prevailed among traders due to the relaxation of home-buying restrictions in Beijing and Shanghai.
Ken Wong, Asian equity portfolio specialist at Eastspring Investments, attributed the Chinese stock market rally to a combination of positive news, including property easing and a substantial injection of Medium-term Lending Facility (MLF). Additionally, some investors may be closing short positions ahead of the holiday season.
In Asian trading, Treasuries experienced declines across tenors, with the 10-year yield nearing 4%. After breaking below the 200-day moving average of 4.02%, strategists Ian Lyngen and Ben Jeffery at BMO Capital Markets anticipate a bullish sentiment persisting into the New Year.
The yen stabilized below 142 per dollar as traders adjusted positions before the weekend and the Bank of Japan’s policy decision next week. Although the BOJ is anticipated to maintain its policy, speculation is growing that policymakers may hint at the end of the negative-rate policy.
The dollar traded within a narrow range against Group-of-10 currencies. A decline against most developed-market peers in the previous session, partly driven by strength in the euro and pound after Europe’s central bankers signaled a reluctance to follow the US pivot towards interest-rate cuts.
Economists at major Wall Street banks are advocating for the Federal Reserve to implement rate cuts earlier and more swiftly next year. Goldman Sachs envisions a series of interest-rate cuts beginning in March, Barclays now forecasts three cuts in 2024, and JPMorgan Chase has shifted its view on the start of the easing cycle to June from July.
Ed Al-Hussainy, global rates strategist at Columbia Threadneedle, highlighted the Fed’s shift, stating, “Throughout the year, the Fed was nursing residual doubt about whether inflation is coming down sustainably, and that doubt is finally starting to dissipate, and we’re starting to see the Fed act on it.”
In other markets, oil is poised for its first weekly gain in almost two months following the Fed’s recent stance, and gold is heading for a weekly advance.
Key Events This Week:
- Eurozone S&P Global Manufacturing PMI, S&P Global Services PMI, Friday
- US industrial production, Empire manufacturing, S&P Global US Manufacturing PMI, Friday
Market Moves:
Stocks
- S&P 500 futures rose 0.1%
- Nasdaq 100 futures rose 0.1%
- Japan’s Topix rose 0.3%
- Australia’s S&P/ASX 200 rose 0.7%
- Hong Kong’s Hang Seng rose 3%
- The Shanghai Composite rose 0.3%
- Euro Stoxx 50 futures rose 0.2%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.0999
- The Japanese yen rose 0.1% to 141.69 per dollar
- The offshore yuan rose 0.2% to 7.1064 per dollar
- The Australian dollar rose 0.3% to $0.6716
Cryptocurrencies
- Bitcoin fell 0.4% to $42,814.07
- Ether fell 0.8% to $2,282.35
Bonds
- The yield on 10-year Treasuries advanced two basis points to 3.95%
- Japan’s 10-year yield advanced five basis points to 0.705%
- Australia’s 10-year yield was little changed at 4.14%
Commodities
- West Texas Intermediate crude rose 0.5% to $71.91 a barrel
- Spot gold was little changed
