Chinese stimulus signals propel stocks to rally: Market wrap

Chinese shares rallied on optimism that more economic support will come from Beijing, while traders also geared up for a number of key central bank rate decisions later this week.

Technology shares in Hong Kong jumped more than 4% while a China property stock gauge was on course to post the biggest gain since December as the nation’s top leaders used a crucial Politburo meeting to flag more aid. Other Asian markets were narrowly mixed, with the benchmark index in Australia marginally higher and Japanese equities trading slightly lower.

While the Communist Party’s top decision-making body fell short of announcing large-scale stimulus, it signaled more support for the troubled real estate sector, alongside pledges to boost consumption and resolve local government debt. That helped give bullish momentum for equity traders.

“For the property sector, the country’s top policymakers did not reiterate the previously-repeated message of ‘housing is for living in but not for speculation’,” Jizhou Dong, head of China property research at Nomura Holdings Inc., wrote in a note. The lack of that message was “the most significant surprise” as the motto became the foundation of the central government’s property policies since the statement was first introduced in 2016, Dong said.

The offshore yuan also advanced to its strongest level in more than a week after the People’s Bank of China continued its support for the currency. The commodity-heavy Australian dollar, which is sensitive to China’s growth outlook, gained 0.4%.

The big question that comes next is whether the positive sentiment will be sustainable.

“It’s becoming more obvious that these longer-term measures have to be accompanied with the short-term measures,” Jennifer Kusuma, senior Asia rates strategist at Australia & New Zealand Banking Group Ltd., said on Bloomberg Television. During these early days, “it will be difficult in our view to see turnaround in the policy direction for longer-term priorities, but there is scope for policies to surprise to upside given how low expectations are.”

ANZ expects to see a cut in the China’s reserve requirement ratio in the coming months and possibly more rate cuts in 2024.

Next for the Fed

Key Federal Reserve and European Central Bank’s gatherings this week will be closely watched for signs policymakers may be reaching the end of the cycle of aggressive policy tightening. There were fresh reminders about the negative recessionary affects of continuous rate hikes with disappointing data from both the US and euro-area. Aside from the economic picture, global companies with a combined $27 trillion in value were set to report results, including giants Microsoft Corp, LVMH and Samsung Electronics Co.

Yields on the two-year Treasury declined around eight basis points Tuesday in Asia after an auction Monday drew the highest yield since 2007, while those for the 10-year were steady. The dollar edged slightly lower.

The outlook for the world’s largest economy will likely hinge on the Fed’s willingness to tolerate inflation markedly higher than it would prefer. After taking a break from tightening last month, Chair Jerome Powell and his colleagues look locked in to raising interest rates by a quarter percentage point on Wednesday.

“Interest rates are finally at or very close to their peaks and this week could see the Fed and ECB announce the last rate hike in their tightening cycles,” Craig Erlam, senior market analyst at Oanda, wrote in a note. “Policymakers will proceed with extreme caution, albeit very much buoyed by the data they’ve seen over the last month or two.”

However, the delayed impact of aggressive interest-rate hikes by global central banks, dwindling consumer savings and a “deeply troubling” geopolitical backdrop are poised to spur fresh market declines and renewed volatility, according to JPMorgan Chase & Co. strategist Marko Kolanovic.

Kolanovic also noted that the stock-price reaction to earnings reports is expected to be muted as the market was strong coming into the second-quarter reporting season.

Among the corporate highlights from the US, Tesla advanced after disclosing strong sales outside the US and China. Apple Inc. gained as Bloomberg News reported the company is keeping its iPhone shipments steady despite the 2023 turmoil.

Elsewhere, oil held near three-month high as China moved to bolster growth. Wheat and corn gained as Russia attacked one of Ukraine’s biggest Danube river ports.

Key events this week:

US Conf. Board consumer confidence, Tuesday
US new home sales, Wednesday
FOMC rate decision, Fed Chair Powell news conference, Wednesday
China industrial profits, Thursday
ECB rate decision, Thursday
US GDP, durable goods orders, initial jobless claims, wholesale inventories, Thursday
Japan Tokyo CPI, Friday
BOJ rate decision, Friday
Eurozone economic confidence, consumer confidence, Friday
US consumer income, employment cost index, University of Michigan consumer sentiment, Friday

Some of the main moves in markets:

Stocks

S&P 500 futures were little changed as of 1:23 p.m. Tokyo time. The S&P 500 rose 0.4% on Monday
Nasdaq 100 futures were little changed. The Nasdaq 100 gained 0.1%
Japan’s Topix was little changed
Australia’s S&P/ASX 200 rose 0.5%
Hong Kong’s Hang Seng rose 3.2%
The Shanghai Composite rose 1.9%
Euro Stoxx 50 futures fell 0.1%