A man walks past an electric monitor showing the average Nikkei share price and the exchange rate of the Japanese yen against the U.S. dollar in front of a brokerage firm in Tokyo, Japan, May 2, 2023. Portal/Issei Kato acquires license rights
- Asian Stock Markets:
- China’s blue chips surge 3% on political support
- Nikkei up 1.5%, S&P 500 futures up 0.1%
- Dollar stable against Yen, supported by high 2-year yields
- US payrolls, EU inflation, China PMI are expected this week
SYDNEY, Aug 28 (Portal) – Asian stocks rallied on Monday as China announced new measures to shore up its struggling markets, although sentiment ahead of US jobs and inflation numbers that could decide whether interest rates rise again must, was careful.
Beijing announced Sunday it would halve stamp duty on stock trading to boost the ailing market and took steps to shore up the property market
The help was needed as Chinese industrial firms’ profits fell 6.7% yoy in July, extending the slump into the seventh month this year.
Investors welcomed any help they could get and Chinese blue chip (.CSI300) rose 3.0% in choppy trading, hitting year-to-date lows.
Eyes are now on the official August PMI, released on Thursday, which is still expected to show activity in negative territory.
“We believe these latest measures are in line with guidance from the July Politburo meeting when the authorities pledged to strengthen China’s capital markets, but they do not represent a meaningful increase in policy support for reviving the real economy,” Nomura analysts wrote a note.
MSCI’s broadest index of Asia-Pacific stocks outside of Japan (.MIAPJ0000PUS) rose 1.4% after posting modest gains last week to break a three-week losing streak.
Japan’s Nikkei (.N225) rose 1.5%, partly due to continued weakness in the yen.
Improving risk sentiment saw EUROSTOXX 50 futures gain 0.7% while FTSE futures were closed for a public holiday. S&P 500 futures and Nasdaq futures were each up 0.1%, extending last week’s modest gain.
The market managed to weather a slightly hawkish outlook from US Federal Reserve Chairman Jerome Powell, who reiterated that interest rates may need to be raised again but vowed to tread “cautiously”.
“We expect the FOMC to have no intention of raising rates at the September meeting,” Goldman Sachs analysts wrote.
“We continue to believe that the FOMC will ultimately decide that further monetary tightening is unnecessary, making the rate hike at the July FOMC meeting the last of the cycle.”
Futures imply about an 80 percent chance of a steady result in the Sept. 20 session, but a 58 percent chance of an increase by the end of the year.
DISADVANTAGE RISK FOR JOBS
Much will depend on US data, which was heating up until a slew of manufacturing surveys last week pointed to a slowdown both at home and abroad.
That raised the stakes for this week’s ISM manufacturing survey, as well as reports on payrolls, core inflation and consumer spending.
According to average forecasts, the number of employed will increase by 170,000 in August, with the unemployment rate remaining constant at 3.5%.
Analysts at JPMorgan warned that the Hollywood entertainment strike could dampen job growth, expecting a rise of just 125k.
This week’s EU inflation figures could also play a role in whether the European Central Bank decides to hike interest rates next month.
The market is divided on whether there will be another rate hike from 3.75%. ECB President Christine Lagarde stressed on Friday that the policy must be restrictive.
This has been a common theme among western central banks. Bank of England Deputy Governor Ben Broadbent said over the weekend interest rates may need to remain high “for some time”.
The oddball was Bank of Japan Governor Kazuo Ueda, who on Friday reiterated the need to keep monetary policy ultra-loose.
This divergence kept the yen under pressure and early Monday the dollar was firm at 146.50, just a touch off Friday’s near 10-month high of 146.64. At 158.27 yen, the euro was near its highest level since October last year.
The single currency was less fortunate against the dollar, which found broad support from higher government bond yields and traded at $1.0801 after slipping for six straight weeks.
The US two-year bond yield rose to 5.104% after hitting its highest level since early July on Friday.
High yields and a strong dollar were headwinds for gold, which traded at $1,915 an ounce.
Oil prices were somewhat supported by a sharp rise in US diesel prices, but concerns over Chinese demand remain a drag.
Brent was up 22 cents at $84.70 a barrel, while U.S. crude was up 21 cents at $80.04 a barrel.
Reporting by Wayne Cole; Edited by Shri Navaratnam and Stephen Coates
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