(Bloomberg) — Asian shares rose after the People’s Bank of China said it would meet its economic growth target for this year and unveiled stimulus measures to stave off a stock market sell-off.
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Hong Kong shares rose the most, with its main stock index rising at least 3%, while mainland China’s stock index rose more than 2% after authorities said they were considering setting up a stock price stabilization fund. The MSCI Asia Pacific index rose 0.7%.
China plans to pump at least 800 billion yuan ($114 billion) in liquidity support for stocks and allow brokerages and funds to use central bank funds to buy shares after the benchmark CSI-300 index slumped to a five-year low earlier this month.The move comes as part of broader policy measures to jump-start the economy that also include cutting key short-term interest rates and slashing borrowing costs for up to $5.3 trillion in mortgages.
While the market has initially responded positively to the stimulus measures, analysts say there is a risk that stock rallies will soon stall as some of the underlying problems plaguing the Chinese economy, such as deflationary pressures, remain unresolved.
“These measures clearly show that Beijing understands and appreciates the urgency of boosting stock and housing market sentiment,” said Shiguo Chen, a portfolio manager at RBC BlueBay Asset Management. “In the short term, they will help the market find a bottom, but in the longer term, I think more fiscal support is needed.”
The People’s Bank of China will set up a swap facility to allow securities firms, funds and insurance companies to draw liquidity from the central bank to buy stocks, the governor said at a briefing on Tuesday.Yields on China’s 10-year government bonds erased losses after falling to 2% for the first time on record.
“These measures can raise funds, increase market liquidity and boost market confidence to a certain extent in the short term, but they cannot change the market trend,” said Zhou Nan, founder and investment director at Shenzhen Longhui Fund Management Co. “In the short and medium term, the market is likely to fall further before hitting bottom.”
U.S. stock futures were slightly lower after the S&P 500 rose 0.3% in the previous session, just missing last week’s all-time high.
Data released on Monday showed that U.S. business activity expanded at a slightly slower pace in early September while expectations worsened and a price index rose to a six-month high, stoking confidence that the world’s largest economy can achieve a soft landing.Investors now await data on the Fed’s preferred inflation measure and U.S. consumer spending later this week.
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In Asian markets, yields on policy-sensitive two-year Treasury notes fell 1 basis point to 3.58 percent, while longer-dated bonds were little changed. Traders expect nearly three-quarters of a percentage point of policy easing by the end of the year, suggesting at least one more big rate cut is on the way.
Chicago Fed President Austan Goolsbee said that with inflation approaching the central bank’s target, the focus should shift to the labor market, “which will probably mean more rate cuts over the next 12 months.”
Minneapolis Fed President Neel Kashkari also cited weakness in the job market and said he supports another half-percentage point cut by the end of the year. Atlanta Fed President Raphael Bostic struck a more moderate tone. He said starting the central bank’s rate-cutting cycle with a bigger cut would help move rates closer to neutral, but officials shouldn’t commit to another big round of rate cuts.
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In other key events in Asia, the Reserve Bank of Australia is expected to keep its policy interest rate unchanged at a 12-year high of 4.35% on Tuesday and keep it there until at least February. Australian 10-year government bond yields fell at the open.
Gold prices steadied near record highs after several Federal Reserve officials appeared to leave open the door for further big rate cuts, and oil prices edged higher after Israel launched airstrikes on Lebanon, killing about 500 people and raising tensions in the region.
Major events this week:
Australian interest rate decision, Tuesday
Nippon Jibun Bank Manufacturing PMI, Services PMI, Tuesday
Mexican CPI, Tuesday
Bank of Canada Governor Tiff Macklem speaks Tuesday
Australian Consumer Price Index, Wednesday
China medium-term lending rate, Wednesday
Sweden’s interest rate decision Wednesday
Swiss interest rate decision on Thursday
ECB President Christine Lagarde to speak on Thursday
US jobless claims, durable goods and GDP revised Thursday
Federal Reserve Chairman Jerome Powell delivered a pre-recorded speech at the 10th U.S. Treasury Market Conference on Thursday.
Mexico interest rate decision Thursday
Japan Tokyo Consumer Price Index, Friday
China industrial profits, Friday
Eurozone consumer confidence on Friday
US PCE, University of Michigan Consumer Confidence, Friday
Some of the key market developments:
stock
S&P 500 futures were down 0.2% as of 12:23 p.m. Tokyo time.
Nasdaq 100 futures fell 0.2%
Japan’s TOPIX rises 0.6%
Australia’s S&P/ASX 200 fell 0.4%
Hong Kong Hang Seng Index rises 3%
The Shanghai Composite Index rose 2.1%
Euro Stoxx 50 futures up 0.2%
currency
The Bloomberg Dollar Spot Index was little changed.
The euro was little changed at $1.1109
The Japanese yen was almost unchanged at 143.67 yen to the dollar.
The offshore yuan rose 0.2% to 7.0475 yuan per dollar.
Cryptocurrency
Bitcoin fell 0.4% to $63,088.1.
Ether fell 1.5% to $2,622.17.
Bonds
The yield on the 10-year Treasury note was little changed at 3.75%.
Japan’s 10-year government bond yield fell 1 basis point to 0.820%.
Australia’s 10-year government bond yield fell 2 basis points to 3.94%.
merchandise
West Texas Intermediate crude rose 1% to $71.06 a barrel.
Spot gold rose 0.1% to $2,632.22 an ounce.
This story was produced with assistance from Bloomberg Automation.
–With assistance from Mark Cudmore, Winnie Hsu, Zhu Lin, and April Ma.
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