China Stimulus and Japan Politics Influence Q3 Conclusion

By Jamie McGeever

A Look at the Day Ahead in Asian Markets

As Asia approaches the final trading day of the quarter, investors remain buoyed by the recent stimulus measures from the U.S. Federal Reserve and the People’s Bank of China.

Over the weekend, the People’s Bank of China announced plans for banks to reduce mortgage rates for existing home loans by October 31, with an expected average cut of around 50 basis points. This decision follows last week’s significant stimulus package from China, heralded as the largest since the onset of the pandemic, which ignited a remarkable rally in stock markets.

However, Japanese markets could experience volatility on Monday as the news of Shigeru Ishiba, the former defense minister, becoming the new prime minister takes center stage. Ishiba has openly criticized the Bank of Japan’s previous aggressive monetary policies but acknowledged the need for an accommodative approach to support the fragile economic recovery.

The yen saw a nearly 2% increase on Friday, but futures suggest a significant drop at the opening on Monday. Additionally, market gains on Monday may be hindered by investors settling their accounts for the quarter, alongside the upcoming Golden Week holiday in China, which begins Tuesday.

Monday’s economic calendar is packed with critical indicators, including both official and unofficial purchasing managers’ index (PMI) data from China. Additional data slated for release includes Japan’s retail sales, industrial production, housing starts, Taiwan’s GDP figures, and retail and industrial production statistics from South Korea.

China’s markets are expected to confront some stark economic realities, with the National Bureau of Statistics PMIs anticipated to show that factory activity has contracted for a fifth straight month in September. Recent figures indicated a 17.8% decline in industrial profits in August, marking the largest drop of the year. Notably, Citi’s Chinese economic surprises index is at its lowest point in over a year, contrasting with the U.S. surprises index, which, while in negative territory, remains the highest in over a year.

The full impact of Beijing’s stimulus measures on economic data will take time to materialize, implying that investors may continue to encounter some sobering statistics in the weeks and months ahead.

Nevertheless, the prevailing optimism in the markets is hard to overlook. Shanghai’s blue-chip index soared almost 16% last week, while the broader Shanghai composite jumped nearly 13%, both marking the largest weekly gains since November 2008. Hong Kong’s benchmark experienced its biggest weekly rise since 1998 and the fifth largest in the past half-century, with mainland Chinese property stocks also surging by 16%.

Here are some key developments that could influence Asian markets on Monday:

• China official and unofficial PMIs (September)
• Taiwan GDP (Q2, final)
• Japan retail sales and industrial production (August)