(Bloomberg) — Asian stocks advanced after China’s central bank announced stimulus measures in a bid to meet this year’s economic growth target and halt a stock market sell-off.
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Hong Kong stocks were the biggest gainers, with major benchmarks up around 3%, while onshore Chinese indexes rose more than 1% as authorities said they are studying the creation of an equity stabilization fund. The MSCI Asia Pacific index rose 0.5%, and Japanese stocks also advanced after reopening from a holiday. The yield on 10-year Chinese government bonds fell to 2% for the first time ever.
China is planning at least 500 billion yuan ($71 billion) of equity liquidity support and will allow brokerages and funds to tap central bank funding to buy stocks after the benchmark CSI 300 index fell to a more than five-year low earlier this month. This is part of a broad package of policy measures to revive the economy, including a cut in a key short-term interest rate and lower borrowing costs on up to $5.3 trillion of mortgages.
While the initial market response to the stimulus measures was positive, analysts see a risk that the rally could soon fail as some of the fundamental problems affecting the Chinese economy, including deflationary pressure, remain unresolved.
“These measures clearly show that Beijing now understands and appreciates the urgency of boosting confidence in the stock market and the property market,” said Siguo Chen, portfolio manager at RBC BlueBay Asset Management. “In the short term, they will help the market bottom out, but in the long term I think we need 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 tap central bank liquidity to buy stocks, the governor said at a briefing on Tuesday.
“This kind of measure can raise more funds, increase market liquidity and can also improve market sentiment to a certain extent in the short term, but it cannot change the market trend,” said Zhou Nan, founder and chief investment officer 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 further before hitting bottom.”
U.S. stock futures fell slightly after the S&P 500 closed up 0.3% in the previous session, very close to last week’s record high.
Data released on Monday showed U.S. business activity expanded at a slightly slower pace in early September, while expectations deteriorated and a gauge of prices received rose to a six-month high, fuelling confidence that the world’s largest economy can achieve a soft landing. Investors now await data on the Fed’s preferred price metric and U.S. personal spending later this week.
The policy-sensitive two-year Treasury yield fell one basis point to 3.58% in Asian trading, while longer-dated Treasuries were little changed. Traders have been betting that monetary policy will ease by nearly three-quarters of a point by year-end, suggesting at least one more huge rate cut is on the horizon.
Chicago Federal Reserve President Austan Goolsbee said that with inflation nearing the central bank’s target, the focus should be on the labor market and “that likely means a lot more rate cuts over the next year.”
Neel Kashkari of the Minneapolis Fed also pointed to weakness in the labor market and said he supports cutting interest rates by another half percentage point by the end of the year. His counterpart at the Atlanta Fed, Raphael Bostic, took a dovish stance. Starting the central bank’s cutting cycle with a big step would help bring interest rates closer to neutral levels, but officials should not commit to a cadence of outsized moves, according to Bostic.
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In other key events for Asia, the Reserve Bank of Australia is expected to hold the cash rate at a 12-year high of 4.35% on Tuesday, and keep it there at least through February. The country’s 10-year bond yield fell in early trading.
Gold held steady near a record high after several Federal Reserve officials appeared to leave the door open to further rate cuts. Oil edged higher after Israel launched airstrikes in Lebanon that killed nearly 500 people and raised regional tensions.
Key events of this week:
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Australian rate decision on Tuesday
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Jibun Bank of Japan Manufacturing PMI and Services PMI, Tuesday
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Mexico CPI, Tuesday
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Bank of Canada Governor Tiff Macklem speaks Tuesday
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Australian CPI, Wednesday
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China’s medium-term lending facility interest rate, Wednesday
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Swedish interest rate decision on Wednesday
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Swiss interest rate decision on Thursday
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ECB President Christine Lagarde speaks on Thursday
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U.S. jobless claims, durable goods and revised GDP, Thursday
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Federal Reserve Chairman Jerome Powell delivers pre-recorded remarks at the 10th annual U.S. Treasury market conference on Thursday
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Mexico’s interest rate decision, Thursday
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Tokyo CPI, Japan, Friday
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China industrial profits, Friday
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Eurozone consumer confidence, Friday
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US PCE, University of Michigan Consumer Sentiment, Friday
Some of the main movements in the markets:
Stocks
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S&P 500 futures fell 0.2% as of 11:24 a.m. Tokyo time.
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Nasdaq 100 futures fell 0.3%
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Japan’s Topix index rose 0.6%
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Australia’s S&P/ASX 200 index fell 0.3%
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Hong Kong’s Hang Seng rose 1.7%
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The Shanghai Composite rose 0.7%
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Euro Stoxx 50 futures up 0.1%
Coins
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Bloomberg Dollar Spot Index little changed
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The euro remained virtually unchanged at $1.1104.
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The Japanese yen remained unchanged at 143.57 per dollar.
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The offshore yuan was unchanged at 7.0642 per dollar.
Cryptocurrencies
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Bitcoin fell 0.6% to $62,922.38
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Ether fell 1.6% to $2,619.1
Captivity
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The yield on the 10-year Treasury note was virtually unchanged at 3.74%.
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The yield on Japanese 10-year bonds fell one basis point to 0.820%.
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The yield on Australian 10-year bonds fell two basis points to 3.94%.
Raw materials
This story was produced with assistance from Bloomberg Automation.
–With assistance from Mark Cudmore, Winnie Hsu and Zhu Lin.
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