China Revives Stock Rally As Investors Anticipate U.S. Inflation Data

Chinese stocks experienced a resurgence on Thursday, bolstered by expectations surrounding a briefing from finance officials this weekend, which is anticipated to unveil fiscal stimulus measures. As the dollar remains near a two-month peak ahead of a crucial U.S. inflation report, market sentiments are shifting.

In the early hours of the Asian trading session, mainland shares received a boost after the People’s Bank of China (PBOC) initiated its 500 billion yuan facility aimed at invigorating capital markets. This move, part of a series of stimulus initiatives announced in late September, helped restore some investor confidence.

China’s blue-chip CSI300 index rose approximately 3%, partly recovering from the previous day’s substantial 7% drop, which was fueled by concerns over the lack of details in the stimulus package. Similarly, Hong Kong’s Hang Seng Index surged over 4% after experiencing a 1.3% decline on Wednesday, marking a 26% increase year-to-date.

This positive momentum pushed MSCI’s broadest index of Asia-Pacific shares outside Japan up by 1.25%, with futures indicating a slightly higher opening for European markets.

Focus On Upcoming Finance Ministry Briefing

Market participants are now turning their attention to a finance ministry press conference scheduled for Saturday. This event will provide further details on the fiscal stimulus plan, themed “intensifying countercyclical adjustment of fiscal policy to promote high-quality economic development.”

This week has been notably volatile for Chinese markets. After reaching two-year highs on Tuesday following the long National Day holiday, mainland shares quickly lost steam due to a lack of clarity regarding stimulus measures. Benchmark indexes recorded their most significant daily losses since the onset of the COVID-19 pandemic on Wednesday.

Despite these fluctuations, the CSI300 index remains up 26%, and the Shanghai Composite Index has increased by 22% since the stimulus measures were announced on September 24.

US Inflation Data On The Horizon

In the United States, the S&P 500 and the Dow Jones Industrial Average closed at record highs following the release of the Federal Reserve meeting minutes and ahead of the anticipated inflation data for September. The minutes revealed that a “substantial majority” of Fed officials supported initiating an era of easier monetary policy with a potential half-point rate cut. However, they also indicated that this initial move would not tie the Fed to a specific pace of future rate reductions.

Currently, markets are pricing in an 82% probability of a 25 basis point cut next month, according to the CME FedWatch tool. Investor expectations for aggressive rate cuts have softened following a strong U.S. jobs report last week.

The upcoming consumer price index (CPI) report will provide crucial insights into the Fed’s interest rate trajectory, coinciding with the commencement of the corporate earnings season, which kicks off with bank earnings on Friday. Economists polled by Reuters predict that September’s CPI will likely show core inflation stabilizing at a year-on-year rate of 3.2%.

MUST READ: From Tetley To Jaguar: Celebrating Ratan Tata’s Landmark Deals At Tata Group