Stocks Shine Amid China Stimulus, Yen Rises Following Ishiba Victory – Reuters

By Stella Qiu and Sruthi Shankar

SYDNEY/LONDON – China’s significant stimulus measures contributed to global stock markets remaining close to record highs on Friday, while the yen strengthened considerably against the dollar following the emergence of former defense minister Shigeru Ishiba as a leading candidate for the next prime minister of Japan.

Europe’s main stock index rose by 0.2%, reaching an all-time peak, with the German DAX and other major indices increasing by 0.1% to 0.4%. The dollar depreciated by as much as 1.4% to 142.78 yen, reversing earlier gains of about 1% as traders anticipated a potential victory for hardline nationalist Sanae Takaichi, a known critic of rising borrowing costs.

Ishiba, who secured a hard-fought victory in his fifth, and what he termed final, attempt to lead the ruling Liberal Democratic Party, expressed support for the Bank of Japan’s (BOJ) current strategy of ending negative interest rates.

"Ishiba’s success is reassuring for the BOJ as he generally backs its policy normalization," said Min Joo Kang, senior economist for South Korea and Japan at ING. "His economic policies are expected to focus on revitalizing regional economies, which should contribute to sustainable inflation and growth. Future inflation results and actions by the Federal Reserve will be critical in determining the BOJ’s next steps."

At the close, the dollar was down 1.2% against the yen at 143.03, while stock index futures declined by approximately 5%.

The MSCI world stocks index also saw a 0.2% increase, achieving a new peak fueled by a revival in Chinese shares, as Beijing ramped up its pledges to boost struggling economic growth.

Chinese blue chip stocks surged by 4.5%, marking a weekly increase of 15.7%, the highest since November 2008. Hong Kong’s market also experienced a 3.6% gain, concluding a 13% rise for the week, the strongest performance since 1998.

"There is potential for further growth, but much will depend on the details surrounding the fiscal stimulus in the coming days," noted Kiran Ganesh, multi-asset strategist at UBS Global Wealth Management. "If this relates more to stabilization, the global economic impact may be limited. However, if it aims to increase long-term fiscal spending, this could positively influence global growth."

Analysts predict a potential upside of nearly 10% for Chinese stocks.

Earlier in the week, the People’s Bank of China announced a reduction in banks’ reserve requirement ratios by 50 basis points and lowered the 7-day reverse repo rate by 20 basis points, alongside another cut to the 14-day reverse repo rate.

The commodities market benefited from the Chinese stimulus, with iron ore prices climbing back above $100 per metric ton, and gold reaching new heights, while silver hit a 12-year peak. However, oil prices faced significant weekly losses due to a report indicating that Saudi Arabia planned to abandon its informal price target of $100 per barrel to increase production. Futures for oil slighted increased by 0.1% to $71.69 per barrel but reflected a weekly drop of 3.9%. This could support global disinflation as central banks pursue rate cuts, potentially benefiting consumer spending.

In Europe, the euro fell by 0.3% to $1.1141 against the dollar after data revealed that French consumer prices increased less than expected in September and Spain’s EU-harmonized 12-month inflation decreased to 1.7%, the lowest rate since June 2023. Money markets adjusted expectations, now pricing in an 80% likelihood of an ECB rate cut in October, up from around 20% at the beginning of the week.

"The trend of more rate cuts than investors might have anticipated is an important factor to consider," said UBS’ Ganesh. "We’re advising clients to move funds from cash accounts, facing declining rates, to medium-duration investment-grade bonds to secure yields."

U.S. Treasury yields remained stable after rising overnight in response to low weekly jobless claims in the U.S., which influenced markets to reduce the likelihood of another significant half-point rate cut from the Fed in November, down to 47% from 57%.

Investors are closely awaiting the core personal consumption expenditures (PCE) price index, the Fed’s preferred inflation measure, expected later today. Predictions suggest a minor monthly increase of 0.2%, amid a divided outlook on the anticipated Federal Reserve rate cut in November.

As of this week, two-year Treasury yields increased by 4.9 basis points to 3.623%, while 10-year yields rose by 5 basis points to 3.779%.