Asian Stocks Resist Wall Street Selloff, Bolstered by Persistent Optimism in China – Reuters

By Rae Wee

SINGAPORE – Asian stocks diverged from the global trend and continued their rally on Thursday, driven by ongoing optimism regarding China’s substantial stimulus measures, although signs emerged that some of this enthusiasm might be waning.

Despite Wall Street closing lower overnight, leading to a retreat in global stock indexes, the performance of Asian equities remained strong.

"After such a robust run in the past few days, the selling could be attributed primarily to profit-taking. Others may argue it reflects a belief that the People’s Bank of China’s policy stimulus won’t significantly change the game or boost consumption," noted Chris Weston, head of research at Pepperstone.

The MSCI’s broadest index of Asia-Pacific shares outside Japan surged more than 1% to reach a two-year high on Thursday. Hong Kong’s index climbed 1.5%, and the mainland CSI300 blue-chip index rebounded from early losses, closing 0.3% higher.

Adding to the positive sentiment, reports indicated that China may consider injecting up to 1 trillion yuan into its largest state banks to enhance their ability to support the struggling economy.

Investors were also focused on a series of speeches from Federal Reserve officials scheduled for later in the day, including remarks from Chair Jerome Powell, which could offer insights into the U.S. interest rate outlook.

Additionally, the release of the core personal consumption expenditures (PCE) price index, the Fed’s favored measure of inflation, was expected on Friday.

"I don’t anticipate an excessive reaction, but the directional trend will be there," remarked Jeff Ng, head of Asia macro strategy at SMBC, in relation to the upcoming data release. "If prices are sticky, that might slightly dampen expectations for a 50-basis-point rate cut."

Current market expectations suggest a roughly 62% chance of a 50 basis point cut during the Fed’s policy meeting in November, with a total of 77 basis points worth of cuts anticipated by year-end.

Shifting expectations around the Fed’s rate easement this year and next have kept the dollar mostly stable over the past month, though it regained strength on Thursday after experiencing declines earlier in the week, as China’s support measures spurred risk appetite and drove investments into assets linked to China.

Analysts noted that the greenback also benefitted from month-end flows. The Australian dollar was last 0.18% higher at $0.6835, while the New Zealand dollar dipped 0.06% to $0.6257. The euro and the British pound backed off from recent highs, trading at $1.1137 and $1.3324, respectively.

The Chinese yuan ticked up 0.06% to 7.0277 per dollar, having briefly strengthened past the critical level of 7 per dollar in the previous session.

"While rate cuts should exert downward pressure on the yuan, this might be counterbalanced by equity inflows," analysts at DBS wrote. "Nevertheless, China’s economic outlook remains fragile, and consistent gains for the yuan are sustainable only if regional currencies continue to appreciate against the dollar."

In commodities, oil prices saw a slight increase, with futures trading 0.27% higher at $73.66 a barrel, while another oil benchmark rose 0.2% to $69.82 per barrel. Gold remained stable at $2,659.56 an ounce, having reached a record high the previous day.