Most Asian Shares Stable as Japan’s Rate Concerns Weigh on Nikkei, According to Reuters

By Wayne Cole

SYDNEY (Reuters) – Asian share markets were mostly on the rise on Monday following China’s announcement of additional stimulus measures. However, Japan’s new prime minister expressed a preference for normalizing interest rates, leading to a significant drop in that market.

Ongoing Israeli strikes in Lebanon added a layer of geopolitical uncertainty, but oil prices remained under pressure due to concerns about a potential increase in supply.

This week is crucial for U.S. economic data, particularly a payrolls report that could influence the Federal Reserve’s decision on whether to make another substantial rate cut in November.

The Nikkei index experienced a sharp decline of 4.0% as investors awaited further clarity from new Prime Minister Shigeru Ishiba, who has previously criticized the Bank of Japan’s accommodative policies. Over the weekend, he appeared to adopt a more conciliatory tone, stating that monetary policy should remain supportive given the current economic conditions.

This shift in sentiment contributed to a 0.5% rebound in the dollar, which rose to 142.85 yen, recovering from a drop of 1.8% the previous Friday after reaching a peak of 146.49.

HSBC economist Jun Takazawa noted, "Ishiba has supported the BoJ’s intention to normalize monetary policy, though the pace and timing remain uncertain." He added, "Should additional stimulus measures be enacted, it would likely support an increase in spending and reinforce the BoJ’s commitment to a gradual interest rate hike."

In China, the central bank is set to instruct banks to lower mortgage rates for existing home loans by the end of October, likely by an average of 50 basis points. This follows a series of monetary, fiscal, and liquidity support measures introduced last week, forming Beijing’s most significant stimulus package since the pandemic began.

Christian Keller, head of economic research at Barclays, remarked, "Deflation risks are being taken more seriously now, and it appears there’s a consensus in Beijing that fiscal stimulus and central government involvement are crucial to stem the economic downturn."

The blue-chip CSI300 and other key indexes saw gains of approximately 16% and 13% last week, respectively, while Hong Kong’s market increased by 13%.

On Monday, MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.2%, following a 6.1% surge last week that brought it to a seven-month high. Wall Street also had a strong week, buoyed by favorable U.S. core inflation figures that indicate the possibility of another half-point rate cut from the Fed.

Futures suggest a 53% chance that the Fed will opt for a 50 basis point reduction on November 7, although the presidential election two days earlier remains a significant variable.

Several Federal Reserve officials will speak this week, with Chair Jerome Powell addressing the public later on Monday. Additionally, data on job openings and private sector hiring will be released, along with ISM surveys related to manufacturing and services.

U.S. stock futures rose slightly on Monday, with the Nasdaq gaining 0.2%. The stock market has increased by 20% year-to-date and is poised for its best performance from January to September since 1997.

In currency markets, the dollar remained stable at 100.41 after a 0.3% decline last week. The euro was trading at $1.1169, having bounced back on Friday following the positive U.S. inflation report.

Europe will release its inflation figures this week, alongside data on producer prices and unemployment. Notably, German inflation and retail sales data are expected later on Monday, with European Central Bank President Christine Lagarde scheduled to speak to parliament.

The combination of a softer dollar and lower bond yields propelled gold to record highs of $2,685 an ounce, although it settled at $2,664 an ounce and is on track for its best quarterly performance since 2016.

Oil prices exhibited volatility, as concerns about a potential increase in supply from Saudi Arabia conflicted with ongoing tensions in the Middle East. West Texas Intermediate crude decreased by 1 cent to $71.86 per barrel, while Brent crude increased by 3 cents to $68.21 per barrel.