Asia joins WS rally on US rates, China hopes

HONG KONG (AFP): Markets rallied Monday, tracing another bump on Wall Street, where investors cheered a further slowdown in US inflation that stoked optimism the Federal Reserve will not have to hike interest rates again. The gains built on last week’s broad advance and were boosted by more pledges by China of measures to stimulate its stuttering economy.

The yen, however, remained under pressure against the dollar as traders weighed the Bank of Japan’s decision Friday to loosen its grip on government bond prices, which saw the currency swing wildly. US equities charged higher Friday after data showed the Fed’s preferred gauge of inflation fell again last month to its slowest pace in two years.

The news follows a string of upbeat readings out of Washington that appear to show the central bank’s long-running campaign of rate hikes is bearing fruit, while the economy remains in rude health.

On Wednesday, officials tightened again but said future decisions would be data-dependent, suggesting it may have come to the end of its cycle.

A key reading on job creation at the end of this week will be closely watched for a better idea about the bank’s plans, while rate decisions are also due by the Bank of England and Reserve Bank of Australia.

Hong Kong and Tokyo gained more than one percent while there were also healthy performances in Shanghai, Sydney, Seoul, Singapore, Mumbai, Wellington, Bangkok and Jakarta. However, London was flat at the open while Paris and Frankfurt fell.

China announced fresh measures Monday to boost consumption, providing further support to markets, after the government on Friday unveiled a number of initiatives for light industry.

Authorities released a 20-point plan that includes more support for housing demand, the culture and tourism sector, and green consumption such as electric vehicles.

The move comes as spending by China’s army of consumers remains subdued even after the lifting of strict Covid containment measures late last year.

A fresh round of figures showed the country’s manufacturing activity continued to shrink in July, albeit at a slightly slower pace than last month.

Hopes for a government drive to kickstart the economy have provided much-needed support to markets over the past week, even as some observers warn the large-scale measures seen in the past were unlikely.

“While the actual implementation and depth of these policies remain untested, the meeting, combined with the recent series of policy announcements, has created a significant psychological impact,” Tommy Xie, at Oversea-Chinese Banking Corporation, said.

“This shift has redirected investors’ perspectives from seeing the glass as half-empty to viewing it as half-full.”

Still, Robert Carnell, at ING, added: “While the authorities have been vocal in their support for the economy, so far, that has not translated into the sort of sizeable fiscal policy stimulus many in the market have become used to expecting.
“We don’t think it is coming.”