China’s Latest Stimulus Offers Relief, but No Bazooka By Reuters

Market Insights: A Day in Focus

Investors have been eagerly anticipating comprehensive stimulus measures from China to rejuvenate market sentiment. While the measures announced on Tuesday don’t represent a drastic shift, they are a positive sign.

Following the central bank’s announcement of monetary stimulus, including a 50 basis point reduction in reserve requirement ratios for banks, Chinese stocks experienced a notable surge, with bonds also rallying.

European futures suggested a modestly higher opening, particularly for luxury companies that rely significantly on Chinese consumers for their revenues. The stimulus package also introduced measures enabling funds and brokers to tap into central bank funding for stock purchases.

Although analysts and investors expect these initiatives to provide a temporary boost to the stock market, there is an anticipation for additional easing measures and fiscal policy support to address the sluggish economy. China’s stock markets have struggled recently, with the CSI300 index down 4% year-to-date and reaching multi-year lows due to a bleak economic outlook and persistently weak investor sentiment.

On Tuesday, the CSI300 climbed 2.3%, while Hong Kong’s market surged 3.2%, reaching a four-month high. The sustainability of this rally hinges on investor confidence in a sentiment turnaround and whether China can achieve its growth targets for the year.

The Australian dollar showed slight strength following the Reserve Bank of Australia’s decision to keep interest rates unchanged. The currency had earlier reached a new high for 2024, bolstered by China’s stimulus measures.

With a sparse economic calendar in Europe, traders will be looking for insights on U.S. interest rates following last week’s 50 basis point cut by the Federal Reserve. Current market sentiment appears evenly divided over a potential 50 bps or 25 bps rate cut in November, particularly with the U.S. Personal Consumption Expenditures (PCE) data—favored by the Fed for measuring inflation—set for release on Friday, along with significant payroll data next week.

Key developments that could affect markets on Tuesday include the German IFO September business climate report.

(Reporting by Ankur Banerjee in Singapore; Edited by Muralikumar Anantharaman)