(Bloomberg) — U.S. and European stock futures fell slightly, while Asian shares pared some of their earlier gains as investors pondered the sustainability of China’s rally.
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Chinese stocks rose as traders continued to bet that Beijing’s sweeping stimulus package would help spur a market turnaround and revive the country’s sluggish economy. The offshore yuan strengthened above $7 for the first time since May 2023, while the dollar hit an eight-month low.
Investors are cautiously optimistic that the policy flurry has put a floor on the rout in Chinese stocks, and are hoping for more fiscal support. The slowdown in the world’s second-largest economy had been a major drag on Asian stocks, and a significant recovery as a result of policy support may help boost gains across the region.
The stimulus that helped the regional stock index soar to the highest level since February 2022 was the latest positive news for stock and currency markets, which were already benefiting from the Federal Reserve’s massive rate cut last week. Emerging Asian currencies also rose, led by the Malaysian ringgit and Thai baht.
“China’s latest easing package to support the property and stock markets is a welcome move,” Morgan Stanley economists including Chetan Ahya wrote in a note published Tuesday. “However, we believe investors will not view the measures as sufficient to address deflation. The measures will not be effective in boosting much-needed consumption.”
Hong Kong’s short-selling rate as a percentage of market turnover fell to 13.6% on Tuesday, one standard deviation below the average since 2016, indicating that many short positions have already been covered, according to JPMorgan Chase & Co.
In another bullish move for stocks, China’s central bank on Wednesday cut the interest rate it charges on one-year loans to the highest level on record.
Support measures unveiled by Chinese authorities on Tuesday include interest rate cuts, more cash for banks, increased incentives to buy homes and plans to consider a stock market stabilization fund.
“The expected liquidity boost from China may have some positive spillover effects through commodities and the supply chain, so emerging market equities and currencies are likely to be boosted,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank in Singapore. “Optimism may be raising the bar on details and follow-up measures, so if they are not substantial enough, things may fall flat.”
The stimulus measures came after Chinese stocks hit a five-year low as the government’s piecemeal approach to stimulus had failed to address a crisis of confidence, with deflationary pressure, anemic consumption and a prolonged housing market slump combining to erode hopes for a near-term economic recovery. The latest efforts can therefore only buy China so much time given the scale of the challenges facing the economy, analysts said.
In the US, the Conference Board’s consumer confidence indicator reading posted the biggest drop since August 2021 last night. The report also pointed to concerns about a slowdown in the labor market, while manufacturing data was also weaker than expected.
“The drop in perceptions of available jobs was surprising,” said Carl Weinberg, chief economist at High Frequency Economics. “It will also send a warning message about the state of the economy to financial markets.”
Swap traders raised their bets on more than three-quarters of a point of Fed policy easing by year-end, suggesting at least one more major U.S. cut is on the cards following the data. Investors are awaiting data on the Fed’s preferred price metric and U.S. personal spending later this week for further clues on the depth of future cuts.
A Bloomberg commodities gauge rose for an 11th day, heading for its longest winning streak since January 2018. Iron ore rose and gold hit another record.
In the corporate world, German software developer SAP SE, product reseller Carahsoft Technology Corp. and other companies are under investigation by U.S. officials for potentially conspiring to overcharge government agencies over a decade.
Key events of this week:
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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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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 6:45 a.m. London time.
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Nasdaq 100 futures fell 0.3%
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Dow Jones Industrial Average futures fell 0.2%
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The MSCI Asia Pacific index rose 0.5%
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The MSCI emerging markets index rose 0.6%
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Nikkei 225 (OSE) futures fell 0.3%
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Japan’s Topix index fell 0.1%
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Australia’s S&P/ASX 200 index fell 0.3%
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Hong Kong’s Hang Seng rose 1.2%
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The Shanghai Composite rose 1.2%
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Euro Stoxx 50 futures fell 0.4%
Coins
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Bloomberg Dollar Spot Index little changed
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The euro rose 0.1% to $1.1195.
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The Japanese yen was virtually unchanged at 143.25 per dollar.
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The offshore yuan was unchanged at 7.0146 per dollar.
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The pound was little changed at $1.3412.
Cryptocurrencies
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Bitcoin remained unchanged at $64,182.45
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Ether fell 1.1% to $2,622.55
Captivity
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The yield on the 10-year Treasury note rose one basis point to 3.74%.
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The yield on 10-year German bonds remained virtually unchanged at 2.15%.
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The yield on 10-year British bonds rose two basis points to 3.94%.
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Australian 10-year bond yields rose three basis points to 3.92%
Raw materials
This story was produced with assistance from Bloomberg Automation.
–With assistance from Richard Henderson and Zhu Lin.
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