(Bloomberg) — Asian shares advanced after China’s central bank announced stimulus measures in an effort to meet its economic growth target this year and prevent a selloff in equity markets.
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Shares in Hong Kong gained the most, with key benchmarks rallying at least 3%, while the Chinese onshore index rose more than 2% as authorities said they were studying to set up a stock stabilization fund. The MSCI Asia Pacific index rose 0.8%. Most Asian currencies strengthened against the dollar.
China plans at least 800 billion yuan ($114 billion) of liquidity support for stocks and will allow brokers and funds to tap central bank financing to buy equities after the benchmark CSI 300 Index hit a more than five-year low earlier this month. . It is part of a broad set of policy measures to revive the economy, including major short-term interest rate cuts and lower borrowing costs for up to $5.3 trillion in mortgages.
While the initial market response following the stimulus measures has been positive, analysts see a risk that the rally could fizzle out as some of the fundamental problems plaguing China’s economy, including deflationary pressures, remain unresolved.
“These steps clearly show Beijing now understands and appreciates the urgency of boosting the stock market and housing market sentiment,” said Siguo Chen, portfolio manager at RBC BlueBay Asset Management. “Short term, it will help the market find the bottom, but long term I need to see more fiscal support.”
The People’s Bank of China will set up a swap facility that will allow securities firms, funds and insurance companies to borrow liquidity from the central bank to buy stocks, the governor said in a briefing on Tuesday. China’s 10-year government bond yield pared the decline after falling to 2% for the first time on record.
“This action can raise more funds, increase market liquidity, and also improve market confidence in the short term, but it cannot change the market trend,” said Zhou Nan, founder and investment director of Shenzhen Long Hui. Fund Management Co. “There is a high probability that in the short and medium term, the market will have to fall before going down.”
Elsewhere in Asia, the Reserve Bank of Australia kept its cash rate target at 4.35% for the seventh straight meeting and said it would not “order anything in or out” on policy. The Australian dollar held earlier gains while yields on the policy-sensitive three-year note fluctuated after the decision.
US stock futures fell after the S&P 500 closed up 0.3% in the previous session, off last week’s high. The yield on policy-sensitive two-year Treasuries was unchanged at 3.59%. Traders have been wagering on almost three quarters of the policy easing point at the end of the year, suggesting at least one more jumbo rate cut in store.
Data released on Friday showed US business activity expanded at a slightly slower pace in early September, when expectations deteriorated and the gauge of prices received climbed to a six-month high, stocking the confidence of the world’s largest economy can tip soft landing. Investors are now awaiting data on Fed-favored price metrics and US private spending this week.
Chicago Fed President Austan Goolsbee said with inflation approaching the central bank’s target, the focus should turn to the labor market and “that could mean more rate cuts next year.”
Neel Kashkari at the Minneapolis Fed also pointed to weakness in the labor market, saying he supports lowering interest rates by half a percentage point by the end of the year. His counterpart at the Atlanta Fed, Raphael Bostic, took a moderate stance. Starting the central bank’s rate-cutting cycle with a big step would help interest rates move closer to neutral, but officials shouldn’t make any bigger moves, according to Bostic.
Gold hit a new record high of $2,636.16 an ounce during Asian market hours after some Fed officials appeared to be opening the door to additional rate cuts. Oil rose higher after Israel launched airstrikes in Lebanon that killed nearly 500 people and heightened regional tensions.
This week’s highlights:
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Japan Jibun Bank Manufacturing PMI, Services PMI, Tuesday
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Mexican CPI, Tuesday
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Bank of Canada Governor Tiff Macklem said on Tuesday
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Australian CPI, Wednesday
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China’s medium-term lending facility rates on Wednesday
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Swedish tariff decision, Wednesday
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Swiss rate decision, there
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ECB President Christine Lagarde said on Thursday
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US jobless claims, durable goods, revised GDP, Thursday
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Fed Chairman Jerome Powell delivered pre-recorded remarks at the 10th annual US Treasury Markets Conference on Thursday
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Mexico’s tariff decision on Thursday
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Japan Tokyo CPI, Friday
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China’s industrial profits, there
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Eurozone consumer confidence, there
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US PCE, University of Michigan consumer sentiment, is
Some of the main movements in the market:
Deposit
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S&P 500 futures fell 0.1% at 13:09 Tokyo time
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Nasdaq 100 futures down 0.2%
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Japan’s Topix rises 0.8%
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Australia’s S&P/ASX 200 fell 0.3%
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Hong Kong’s Hang Seng rises 3.3%
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Shanghai Composite rose 2.4%
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Euro Stoxx 50 futures rise 0.2%
currency
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The Bloomberg Dollar Spot Index was little changed
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The euro was little changed at $1.1110
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The Japanese yen fell 0.2% to 143.89 per dollar
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The offshore yuan rose 0.3% to 7.0409 per dollar
Cryptocurrencies
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Bitcoin fell 0.4% to $63,053.38
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Ether fell 1.5% to $2,623.32
Bond
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The yield on 10-year Treasuries was little changed at 3.76%
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Japan’s 10-year yield fell one basis point to 0.820%
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Australia’s 10-year yield unchanged at just 3.95%
Commodity
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West Texas Intermediate crude rose 1% to $71.08 a barrel
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Spot gold rose 0.2% to $2,633.09 an ounce
This story was produced with the help of Bloomberg Automation.
–With assistance from Mark Cudmore, Winnie Hsu, Zhu Lin and April Ma.
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