Morning Bid: China Rate Cuts Looming, US Booming

By an impartial author

The trading week in Asia starts against a positive global environment, driven by strong performance in U.S. stocks. However, local sentiment remains cautious due to the persistent uncertainties surrounding China's economic challenges.

On Monday, the People's Bank of China (PBOC) is anticipated to cut its loan prime rates as part of ongoing efforts to support the ailing property sector, stimulate growth, and combat deflation. PBOC Governor Pan Gongsheng mentioned at a financial forum on Friday that the loan prime rates will likely decrease by 20 to 25 basis points.

In addition, the PBOC announced measures to inject over $100 billion into the stock market, leading to a 3.6% increase in Shanghai's blue-chip equity index. This marks the index's strongest performance since September 26, with a 1.6% rise on the last trading day.

Friday's batch of economic data from China was not as bleak as some had feared, with annual GDP growth for the third quarter coming in slightly above expectations at 4.6%. Nevertheless, economist Phil Suttle pointed out that the past two quarters have seen unusually low growth, with a seasonally adjusted annualized growth rate of just 2.75%. Such figures represent the weakest two-quarter growth outside of the COVID-19 pandemic.

In response to these economic conditions, the Chinese government has acted decisively. Stocks have reacted positively to the news, but bond yields are falling again. Initially, yields rose with hopes that support measures, which include significant bond issuance, would stimulate the economy. The 10-year yield is now approaching 2.00%.

Tensions regarding U.S.-China trade relations have also resurfaced, particularly following comments from Republican presidential candidate Donald Trump, who indicated he would impose tariffs of "150% to 200%" on Chinese goods if China were to engage in military action concerning Taiwan, as reported by the Wall Street Journal.

On the other hand, the U.S. economy continues to show strong performance. Key economic data is surpassing expectations, with GDP growth projected to be over 3%. Earnings reports are robust, and U.S. stock markets are reaching new heights.

However, some analysts at Raymond James suggest that the current optimism might be overinflated. They note skewed short-term options and technical indicators, making the market potentially ripe for a consolidation phase or a near-term pullback.

Global financial conditions are easing as central banks lower rates and stock markets advance. Therefore, Asian investors are also keeping a close watch on the value of the U.S. dollar, which recently rose to a three-month high.

Here are some significant events to look out for on Monday:

- Announcement of China's loan prime rate adjustment.

- Release of Malaysia's GDP data for Q3.

- Speech by Andrew Hauser, Deputy Governor of the Reserve Bank of Australia.

China, US, Finance