(Bloomberg) -- Asian shares rose as a rally fueled by China’s wide-ranging stimulus package lifted equities for a second day and strengthened the yuan.
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Chinese stocks extended gains after the People’s Bank of China on Tuesday unveiled measures to support the economy and financial markets. The onshore benchmark CSI 300 rose as much as 3.2% and is on track to erase its year-to-date losses. The offshore yuan strengthened past 7 for the first time since May 2023.
The stimulus that helped the regional stock gauge to soar to the highest level since February 2022 is the latest positive news for equities and currency markets, already benefiting from the Federal Reserve’s outsized rate cut last week. Emerging Asian currencies also jumped, led by the Malaysian ringgit and Thai baht.
“The liquidity boost expected from China may have some positive spill-over via commodities and the supply chain, so EM equities and currencies are likely to be boosted,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank in Singapore. “The optimism may be raising the bar on follow-through details and measures, so if not substantial enough, things can fizzle.”
Hong Kong’s short sales ratio as a percentage of market turnover dipped to 13.6% on Tuesday, one standard deviation below average since 2016, indicating many shorts have already been covered, according to JPMorgan Chase & Co.
In another potential boost for equities, the PBOC cut the one-year medium-term lending facility rate to 2% from 2.3%.
“Within Chinese equities, we anticipate near-term support on the stimulus news, contingent on evidence of effective execution,” said Solita Marcelli, chief investment officer Americas at UBS Global Wealth Management. “We expect rate cuts and capital market support to benefit state-owned enterprises concentrated in high-dividend sectors, including utilities, telecoms, energy firms, and financials.”
Support measures unveiled by Chinese authorities Tuesday included interest rate cuts, more cash for banks, bigger incentives to buy homes and plans to consider a stock stabilization fund.
The policy boosts came after Chinese stocks hit a five-year low as the government’s piecemeal approach to stimulus had failed to fix a crisis of confidence, with deflationary pressure, anemic consumption and an extended property slump combining to erode hopes of a near-term economic recovery. Therefore, the latest efforts may only buy China some time given the scale of challenges facing the economy, according to analysts.
An index of greenback strength fell to trade near the lowest level this year. A gauge of emerging market currencies set a fresh record high.
Overnight in the US, the reading on the Conference Board’s gauge of consumer sentiment posted the biggest drop since August 2021. The report also flagged concerns about a slowdown in the labor market while manufacturing data also came in weaker than expected.
“The decay in the perceptions of jobs available was striking,” said Carl Weinberg, chief economist at High Frequency Economics. “It also will deliver a warning message about the state of the economy to financial markets.”
Swaps traders increased their wagers to more than three-quarters of a point of policy easing by year-end from the Federal Reserve, suggesting at least one more major US cut is in store, after the data. Investors are awaiting data on the Fed’s preferred price metric and US personal spending later this week for further clues on the depth of future reductions.
A Bloomberg gauge of commodities rose for an 11th day, set for its longest winning streak since January 2018. Iron ore rallied and gold hit a record trading above $2,662 an ounce.
In the corporate world, German software developer SAP SE, product reseller Carahsoft Technology Corp. and other companies are being probed by US officials for potentially conspiring to overcharge government agencies over the course of a decade. Japanese memory chipmaker Kioxia Holdings Corp. is pushing back plans for an initial public offering until later this year after a downturn in semiconductor stocks.
Key events this week:
ECB President Christine Lagarde speaks, Thursday
US jobless claims, durable goods, revised GDP, Thursday
Fed Chair Jerome Powell gives pre-recorded remarks to the 10th annual US Treasury Market Conference, Thursday
China industrial profits, Friday
Eurozone consumer confidence, Friday
US PCE, University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
S&P 500 futures fell 0.2% as of 12:05 p.m. Tokyo time
Japan’s Topix rose 0.1%
Australia’s S&P/ASX 200 was little changed
Hong Kong’s Hang Seng rose 1.6%
The Shanghai Composite rose 1.8%
Euro Stoxx 50 futures fell 0.3%
Nasdaq 100 futures fell 0.2%
Currencies
The Bloomberg Dollar Spot Index was little changed
The euro rose 0.1% to $1.1194
The Japanese yen fell 0.1% to 143.38 per dollar
The offshore yuan was little changed at 7.0164 per dollar
The Australian dollar fell 0.1% to $0.6885
Cryptocurrencies
Bitcoin rose 0.2% to $64,363.37
Ether fell 0.2% to $2,645.58
Bonds
The yield on 10-year Treasuries was little changed at 3.74%
Japan’s 10-year yield declined one basis point to 0.805%
Australia’s 10-year yield advanced two basis points to 3.90%
Commodities
West Texas Intermediate crude fell 0.5% to $71.17 a barrel
Spot gold rose 0.3% to $2,665.89 an ounce
This story was produced with the assistance of Bloomberg Automation.
--With assistance from Richard Henderson.
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