Asian Markets Poised for a Cautious Start
The new trading week in Asia begins against a backdrop of global optimism, fueled by the continued strength of U.S. stocks. However, local sentiment remains cautious due to the uncertainty surrounding China’s deep-seated economic problems.
China’s Economic Woes Take Center Stage
The People’s Bank of China is expected to cut its loan prime rates on Monday, marking the latest move in a series of monetary, fiscal, and liquidity support measures aimed at shoring up the imploding property sector, reviving growth, and fighting off deflation. PBOC Governor Pan Gongsheng announced that the LPR will be reduced by 20 to 25 basis points, sparking a rally in Shanghai’s blue-chip equity index, which rose 3.6% on Friday.
A Boost for China’s Stock Market
The PBOC also unveiled new measures to inject over $100 billion into the country’s stock market, providing a much-needed boost to investor confidence. The MSCI Asia ex-Japan index rose 1.6% on Friday, marking its best day since September 26.
Mixed Signals from China’s Economic Data
China’s economic “data dump” on Friday provided a mixed bag of results. While annual GDP growth in the third quarter was slightly above consensus at 4.6%, the past two quarters have been unusually weak, delivering 2.75% growth on a seasonally-adjusted annualized basis – the weakest two-quarter growth rate in modern times outside of COVID-related shutdowns.
U.S.-Sino Trade Tensions Simmer
U.S.-Sino trade wars have been pushed to the forefront of investors’ minds again after Republican presidential candidate Donald Trump threatened to impose additional tariffs on China if it were to “go into Taiwan.” The U.S. juggernaut, meanwhile, continues to roll on, with economic data beating expectations, GDP growth tracking well over 3%, and Wall Street hitting new highs.
A Note of Caution
However, analysts at Raymond James warn that short-term options and technical indicators are getting skewed, suggesting the market may be “ripe for a period of consolidation or vulnerable to a near-term pullback.” Financial conditions are easing around the world, but investors in Asia will keep close tabs on the dollar, which has recovered recently and is at a three-month high.
Key Developments to Watch
On Monday, investors will be keeping an eye on several key developments, including:
- China’s loan prime rate decision
- Malaysia’s GDP data for Q3
- A speech by Reserve Bank of Australia Deputy Governor Andrew Hauser
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