(Bloomberg) — Asian shares advanced after China’s central bank announced stimulus measures in an effort to meet this year’s economic growth target and stem a stock market sell-off.
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Hong Kong stocks rose the most, with major benchmarks rising at least 3%, while domestic Chinese indexes rose more than 2%, as authorities said they were studying the creation of a stock stabilization fund. The MSCI Asia Pacific Index climbed 0.8%. Most Asian currencies strengthened against the dollar.
China plans at least 800 billion yuan ($114 billion) in liquidity support for stocks and will allow brokers and funds to tap central bank funding to buy stocks after the benchmark CSI 300 Index plunged to a record low earlier this month declined for five years. That came as part of a broad package of policy measures to revive the economy, including a cut in key short-term interest rates and lower borrowing costs for as much as $5.3 trillion in mortgages.
While the initial market reaction following the stimulus measures was positive, analysts see a risk that the rally will soon fail as some of the fundamental issues plaguing China’s economy, including deflationary pressures, remain unresolved.
“These measures clearly demonstrate that Beijing now understands and appreciates the urgency of boosting sentiment in the stock and housing markets,” said Siguo Chen, portfolio manager at RBC BlueBay Asset Management. “In the short term it will help the market find a bottom, 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. Yields on Chinese 10-year government bonds erased the decline, having previously fallen to 2% for the first time ever.
“These kinds of measures can attract more money, increase market liquidity and also improve market confidence to a certain extent in the short term, but it cannot change the market trend,” said Zhou Nan, founder and investment director at Shenzhen Long Hui. Fund Management Co. “There is a good chance that the market will have to fall further in the short and medium term before bottoming out.”
Elsewhere in Asia, the Reserve Bank of Australia maintained its cash rate target at 4.35% for the seventh time in a row, reiterating that it was not “ruling in or ruling out” anything on policy. The Australian dollar earlier posted gains, while yields on policy-sensitive three-year bonds fluctuated after the decision.
U.S. stock futures headed lower after the S&P 500 closed down 0.3% in the previous session, a fraction away from last week’s all-time high. The yield on policy-sensitive two-year government bonds remained little changed at 3.59%. Traders are betting that policy will be eased almost three-quarters of a point by the end of the year, suggesting at least one more major rate cut is in store.
Data released Monday showed U.S. business activity grew at a slightly slower pace in early September, while expectations deteriorated and a gauge of prices received rose to a six-month high, boosting confidence that the world’s largest economy is heading for a soft can make a landing. Investors are now awaiting data on the Fed’s preferred price measure and US personal spending later this week.
Chicago Fed 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 many more rate cuts in the coming year.”
Neel Kashkari of the Minneapolis Fed also pointed to weakness in the labor market and said he favors cutting rates by another half percentage point by the end of the year. His counterpart at the Atlanta Fed, Raphael Bostic, took a moderate position. Starting the central bank’s austerity cycle with a big step would help bring rates closer to neutral levels, but officials should not indulge in a cadence of excessive steps, Bostic said.
Gold hit a new record high of $2,636.16 an ounce during Asian market hours after several Fed officials appeared to leave the door open for further major rate cuts. Oil prices rose after Israel launched airstrikes on Lebanon, killing nearly 500 people and increasing regional tensions.
Main events this week:
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Japan Jibun Bank Manufacturing PMI, Services PMI, Tuesday
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CPI Mexico, Tuesday
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Bank of Canada Governor Tiff Macklem speaks Tuesday
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Australia CPI, Wednesday
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Interest rates on Chinese medium-term loans, Wednesday
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Tariff decision Sweden, Wednesday
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Tariff decision Switzerland, Thursday
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ECB President Christine Lagarde speaks on Thursday
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US unemployment claims, durable goods, revised GDP, Thursday
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Fed Chairman Jerome Powell delivers pre-recorded remarks at the 10th annual US Treasury Market Conference, Thursday
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Tariff decision Mexico, Thursday
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Japan Tokyo CPI, Friday
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Industrial gains in China, Friday
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Consumer confidence in the eurozone, Friday
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U.S. PCE, University of Michigan Consumer Confidence, Friday
Some of the major moves in the markets:
Stocks
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S&P 500 futures fell 0.1% as of 1:09 p.m. Tokyo time
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Nasdaq 100 futures fell 0.2%
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Japan’s Topix rose 0.8%
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Australia’s S&P/ASX 200 fell 0.3%
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Hong Kong’s Hang Seng rose 3.3%
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The Shanghai Composite rose 2.4%
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Euro Stoxx 50 futures rose 0.2%
Currencies
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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
Bonds
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The yield on 10-year government bonds was little changed at 3.76%
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The Japanese ten-year yield fell by one basis point to 0.820%
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The Australian ten-year yield was little changed at 3.95%
Raw materials
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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 help from Mark Cudmore, Winnie Hsu, Zhu Lin, and April Ma.
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