A preview of the coming day in the Asian markets.
Asia’s trading week opens amid increasingly bullish global sentiment, driven by continued strength in US stocks, but with more cautious local mood amid uncertainty surrounding China’s deep-seated economic woes.
The People’s Bank of China is expected to cut its key interest rates on Monday. It is the latest move by Beijing in a series of monetary, fiscal and liquidity support measures aimed at propping up the imploding property sector, reviving growth and fighting deflation.
PBOC Governor Pan Gongsheng told a financial forum in Beijing on Friday that the LPR would be cut by 20 to 25 basis points on Monday, according to the official Xinhua news agency, which cited Pan.
The PBOC also unveiled new measures on Friday to inject more than $100 billion into the country’s stock market, helping the Shanghai stock index rise 3.6 percent, while the MSCI Asia ex-Japan index rose 1.6% to its best day since on September 26.
Chinese economic data released on Friday was not as bad as many feared, with third-quarter annual GDP growth slightly above consensus of 4.6%.
But as economist Phil Suttle notes, the past two quarters have been unusually weak, with seasonally adjusted annual growth of 2.75%, “the lowest two-quarter growth rate in modern times,” excluding the shutdowns related to the COVID affair.
It is therefore not surprising that Beijing took action.
Shares have reacted positively, but bond yields are falling again. They initially rose on hopes that the stimulus measures, which include significant bond issuance, will revive the economy, but the 10-year yield is back on target at 2.00%.
Trade wars between the U.S. and China have returned to investors’ minds after Republican presidential candidate Donald Trump said he would impose additional tariffs “of 150 to 200 percent on China if it “entered Taiwan,” the Wall Street Journal reported Friday .
Economic data beats expectations, GDP growth is well above 3%, earnings are strong and Wall Street is hitting new highs.
But the optimism may be exaggerated. Analysts at Raymond James note that near-term options and technical indicators are becoming lopsided, 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, central banks are lowering interest rates and stocks are rising. In this regard, Asian investors will closely follow the dollar, which has recovered recently and is at its highest level in three months.
Friday’s Morning Bid Asia newsletter incorrectly reported that Malaysia would announce GDP data later in the day. The provisional GDP will be published on Monday 21 October.
Here are the key developments that could steer the markets on Monday:
– Decision on the preferential interest rate for Chinese loans
– Malaysia’s GDP (Q3)
– Andrew Hauser, Deputy Governor of the Reserve Bank of Australia, speaking
