China Stocks Surge on Stimulus Effects; Dollar Weakens on Rate Speculation – Reuters

By Kevin Buckland

TOKYO (Reuters) – Chinese stocks experienced a significant surge on Wednesday, propelling regional markets and contributing to a global rally fueled by stimulus measures. This momentum also supported risk-sensitive currencies as markets approached a three-week high.

The U.S. dollar weakened following disappointing macroeconomic data, which strengthened the argument for a potential second substantial interest rate cut by the Federal Reserve at its upcoming meeting. Meanwhile, gold reached a new all-time high.

As of 0230 GMT, mainland Chinese blue chips rose by 3.1%, following a remarkable 4.3% increase in the previous session. In Hong Kong, stocks climbed 2.2%, building on Tuesday’s 4.1% surge.

The strong performance of Chinese stocks invigorated other regional indexes, with Taiwan’s benchmark up 1.3% and South Korea’s Kospi gaining 0.1%. The MSCI index, which tracks shares across the Asia-Pacific region (excluding Japan), rallied 1%.

The Japanese yen, typically viewed as a safe haven, rebounded by 0.3% after initially exhibiting weakness in the face of a declining dollar.

The People’s Bank of China followed up its recent policy easing announcement with a cut to medium-term lending rates for banks. This measure is part of a wider stimulus initiative—the most significant since the pandemic—which aims to bolster China’s stock market and support its struggling property sector.

"The focus in Asia remains very much on China," noted UBS analysts in a client communication. They pointed out that the debate continues regarding the sustainability of this rally, with many investors opting to buy or cover short positions before seeking clarity.

The yen dipped approximately 0.17% to 143.47 per dollar, reversing earlier gains amid overall dollar softness.

The euro rose slightly to $1.11915, having previously reached $1.1194 for the first time in a month. The British pound increased to $1.3417, earlier hitting a peak not seen since March 2022 at $1.3430.

In the U.S., consumer confidence unexpectedly fell to 98.7 in September, down from an upwardly revised 105.6 in August—the largest decline since August 2021.

The likelihood of a 50-basis-point rate cut by the Federal Reserve at the November meeting increased to 60.4%, up from 53% the previous day, according to CME Group’s FedWatch Tool.

Meanwhile, the Australian dollar initially reached its highest level since February last year at $0.6908, before retreating to $0.68915 following monthly inflation data indicating a potential cooling, which may lead to an earlier rate cut by the Reserve Bank of Australia.

Tony Sycamore, an analyst at IG, commented, "The fall in the underlying measures of inflation is an unexpected and welcomed surprise." He suggested that if this trend continues in the next month’s quarterly price data, it could lead to a dovish shift from the RBA, resulting in a quarter-point rate cut in December.

Gold prices increased by 0.2% to $2,662.50 per ounce, earlier reaching a record peak of $2,665.10.

In commodities, Brent crude futures slipped by 19 cents to $74.98 a barrel but remained close to Tuesday’s high of $75.87, a level not seen since September 3. U.S. West Texas Intermediate crude fell by 22 cents to $71.34 per barrel.