Global Markets Surge as China Unveils Sweeping Stimulus Package
Asian equities rallied for a second consecutive day, driven by China’s comprehensive stimulus package aimed at boosting its economy and financial markets. The CSI 300 index soared as much as 3.2%, putting it on track to erase its year-to-date losses. The offshore yuan strengthened past 7 for the first time since May 2023, while emerging Asian currencies, including the Malaysian ringgit and Thai baht, also jumped.
The stimulus measures, which include interest rate cuts, increased liquidity, and incentives for homebuyers, have lifted market sentiment and bolstered the yuan. According to Vishnu Varathan, head of economics and strategy at Mizuho Bank, the liquidity boost could have positive spillover effects on commodities and the supply chain, benefiting emerging market equities and currencies.
Hong Kong’s short sales ratio dipped to 13.6%, indicating that many shorts have already been covered. The People’s Bank of China also cut the one-year medium-term lending facility rate to 2%, providing further support to equities. Solita Marcelli, chief investment officer Americas at UBS Global Wealth Management, expects rate cuts and capital market support to benefit state-owned enterprises in high-dividend sectors.
However, the stimulus package may only provide temporary relief, as China’s economy faces significant challenges. Meanwhile, an index of greenback strength fell to near its lowest level this year, while a gauge of emerging market currencies set a fresh record high.
In the US, consumer sentiment posted its biggest drop since August 2021, sparking concerns about a slowdown in the labor market. Swaps traders increased their bets on further policy easing by the Federal Reserve, suggesting at least one more major rate cut is likely.
Oil prices stabilized after a significant advance, while gold hit a record high above $2,662 an ounce. In corporate news, Japanese memory chipmaker Kioxia Holdings Corp. delayed its initial public offering plans due to a downturn in semiconductor stocks.
Key events this week include speeches by ECB President Christine Lagarde and Fed Chair Jerome Powell, as well as data on US jobless claims, durable goods, and personal spending.
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