The rally in Chinese shares gained momentum as authorities escalated support measures, contrasting with broader weakness in Asia amid diminishing hopes for swift policy easing by the Federal Reserve.
Key indicators of Chinese firms listed in Hong Kong surged by 4.4%, while the mainland benchmark CSI 300 index climbed over 3%. These gains followed Beijing’s implementation of additional measures to mitigate a stock market downturn, including the expansion of trading restrictions on specific investors and a commitment by the sovereign wealth fund to further increase holdings of exchange-traded funds.
News that regulators intend to brief President Xi Jinping on market developments as early as Tuesday fueled optimism regarding coordinated efforts to bolster stocks, leading to a rise in the offshore yuan.
Elsewhere in Asia, equities declined in Japan, Australia, and South Korea. However, US equity futures experienced slight gains after the S&P 500 and Nasdaq 100 registered marginal declines on Monday.
Market sentiment regarding China remains cautious, with Marcella Chow, global market strategist for JPMorgan Asset Management, expressing concerns about the sluggish economic recovery and subdued investor expectations.
In bond markets, the 10-year Treasury yield inched lower during Asian trading, reversing a recent uptrend driven by strong US economic data. The Institute for Supply Management’s services index reaching a four-month high, coupled with signs of price inflation, contributed to the sell-off in Treasuries.
Despite growing speculation about potential rate cuts by the Federal Reserve, some officials, including Fed Bank of Minneapolis President Neel Kashkari, emphasized the need to assess incoming economic data before considering policy easing.
Meanwhile, the Reserve Bank of Australia left its policy rate unchanged, suggesting that further rate hikes are possible in the future. The Australian dollar strengthened in response to this announcement.
In currency markets, the dollar weakened slightly after reaching its highest level since November. The Japanese yen strengthened against the greenback, while the offshore yuan appreciated.
Annual wage negotiations in Japan are underway, coinciding with discussions about the possibility of exiting the country’s negative interest rate regime.
Looking ahead, key economic events this week include Eurozone retail sales, Germany factory orders, US CPI revisions, and a meeting between President Joe Biden and German Chancellor Olaf Scholz at the White House.
In summary, the Chinese stock market rally gathers pace amidst increased policy support, while global markets remain cautious amid uncertainties surrounding central bank policies, inflationary pressures, and economic recovery prospects.
