Asian Stocks Rally, European Futures Climb on PBOC Stimulus Measures
Asian stocks surged, with key benchmarks in Hong Kong and mainland China rising sharply following China's announcement of significant stimulus measures. Contracts for the Euro Stoxx 50 gained 0.5%, while MSCI’s Asia Pacific Index headed for its fourth consecutive day of gains. Hong Kong stocks climbed by at least 4%, while onshore Chinese indices advanced over 3% as authorities revealed plans for a stock stabilization fund.
Investor sentiment was buoyed by China’s pledge to inject at least 800 billion yuan ($114 billion) in liquidity to support the equity market. The People's Bank of China (PBOC) will allow brokerages to access central bank funding to buy stocks, as part of a broader economic revival plan. The package also includes cuts to key short-term interest rates and reductions in borrowing costs, impacting as much as $5.3 trillion in mortgages.
Despite the market's initial positive response, some analysts remain cautious. "These measures show that Beijing recognizes the urgency of stabilizing both the stock and housing markets," said Siguo Chen, portfolio manager at RBC BlueBay Asset Management. “In the short term, they may help the market find a bottom, but in the long term, further fiscal support will be needed.”
US stock futures were relatively unchanged after the S&P 500 gained 0.3% in the previous session, nearing last week’s record high. Meanwhile, the yield on two-year US Treasuries remained steady at 3.59%, as traders anticipate further rate cuts by the Federal Reserve before year-end.
Economic data from the US indicated slower business activity in early September, while inflation expectations and pricing pressures rose, reinforcing hopes for a soft landing for the world's largest economy. Investors are now focused on upcoming data, including the Fed’s preferred inflation metric and US personal spending figures due later this week.
Several Federal Reserve officials have hinted at the possibility of additional rate cuts. Chicago Fed President Austan Goolsbee emphasized that, with inflation nearing the central bank’s target, the focus may shift to the labor market, suggesting more rate cuts ahead. Similarly, Neel Kashkari of the Minneapolis Fed pointed to labor market weaknesses, supporting the case for another half-percentage point cut by the end of the year. Atlanta Fed President Raphael Bostic took a more moderate approach, advising against committing to large rate reductions but acknowledging that starting with a significant cut could bring rates closer to neutral.
Jessica Amir, a market strategist at Moomoo, noted that the outlook for stocks, gold, and commodities remains favorable over the next 6-12 months. “The Fed and several speakers have signaled further rate cuts are likely before the year’s end, which is positive for global equities, particularly US stocks," she said. Historically, US stocks have gained 70% of the time six months after a Fed rate cut.
In China, the central bank's plan to provide liquidity via a swap facility for securities firms, funds, and insurance companies aims to bolster stock purchases. China’s 10-year government bond yield, which had dropped earlier in the day, rebounded after hitting a record low of 2%.
Zhou Nan, founder of Shenzhen Long Hui Fund Management Co., noted that while the measures would boost liquidity and improve market confidence in the short term, they might not alter long-term market trends. "There is a high probability that the market will continue to decline in the short to medium term before reaching a bottom," he said.
Elsewhere in Asia, the Reserve Bank of Australia held its key interest rate steady at 4.35% for the seventh consecutive meeting, leaving future policy changes open for discussion. The Australian dollar held its gains, while yields on three-year government bonds fluctuated.
Gold hit a new record of $2,636.16 per ounce during Asian trading hours as the Fed signaled the potential for further rate cuts. Oil prices also rose slightly following Israeli airstrikes on Lebanon, which heightened regional tensions and claimed hundreds of lives.
