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SYDNEY (Reuters) – Asian stocks rose on Monday as China announced new measures to support its ailing markets, although the mood remained cautious ahead of readings on U.S. jobs and inflation that may decide whether interest rates should be raised again.
Beijing announced on Sunday that it would halve stamp duty on stock trading in its latest attempt to boost the ailing market and followed steps to support housing. The China Securities Regulatory Commission has also approved the launch of 37 retail funds.
The help was necessary given that profits of Chinese industrial firms fell 6.7% in July from a year earlier, extending this year’s decline to a seventh month.
Investors welcomed whatever help they could get, and China’s blue chip stocks (.CSI300) rose 1.5% in choppy trade, pulling away from their lowest levels for the year so far.
All eyes now turn to the official PMI for August which will be released on Thursday which is still expected to show activity in the red.
“We believe these latest measures are in line with guidance from the Politburo meeting in July, when the authorities pledged to invigorate China’s capital markets, but do not represent a meaningful increase in policy support to revive the real economy,” analysts at Nomura wrote. note.
MSCI’s broadest index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) rose 1.0%, after posting slight gains last week, snapping a three-week losing streak.
Japan’s Nikkei (.N225) rose 1.6%, partly supported by the yen’s continued weakness.
An improvement in risk sentiment increased EUROSTOXX 50 futures by 0.7%, while FTSE futures were closed for a holiday. S&P 500 futures and Nasdaq futures rose 0.1%, extending last week’s modest rally.
The market managed to outpace the slightly optimistic forecasts from Federal Reserve Chairman Jerome Powell, who reiterated that he may have to raise interest rates again but promised to move “cautiously”.
“We take this to mean that the FOMC has no intention of raising interest rates at the September meeting,” wrote analysts at Goldman Sachs.
“We still expect the FOMC to eventually decide that further policy tightening is not necessary, making the July FOMC hike the last in the cycle.”
Futures point to roughly an 80% chance of a firm outcome at the September 20 meeting, but a 58% chance of a rate hike by the end of the year.
downside risks to jobs
Much will depend on the influx of US data, which was hot until a batch of manufacturing surveys last week indicated a slowdown at home and abroad.
This raised the stakes for this week’s ISM survey on manufacturing, along with reports on payroll, core inflation and consumer spending.
The median forecast is for a 170k jobs increase in August with a flat unemployment rate of 3.5%.
Analysts at JPMorgan warned that job gains may decline due to the Hollywood entertainment industry strike and expect an increase of only 125 thousand jobs.
This week’s EU inflation figures may also be useful in determining whether the European Central Bank decides to raise interest rates next month.
The market is evenly divided on whether there will be another hike in the 3.75% rate, with European Central Bank President Christine Lagarde stressing on Friday that policy should be restrained.
This was a common theme among Western central banks, with BoE Deputy Governor Ben Broadbent saying over the weekend that interest rates may have to remain high “for some time yet”.
The odd man out was Bank of Japan Governor Kazuo Ueda, who on Friday reiterated the need for policy to remain very loose.
This divergence kept the yen under pressure, and the dollar rose early Monday to 146.40, close to Friday’s 10-month high of 146.64. The euro approached its highest level since October last year at 158.20 yen.
The single currency was less fortunate against the dollar, which got widespread support from the rise in Treasury yields, and reached $1.0808 after falling for six weeks in a row.
Yields on two-year US bonds rose to 5.104%, after touching their highest levels since early July on Friday.
Higher yields and a strong dollar were a headwind for gold, which was idle at $1,915 an ounce.
Oil prices drew some support from the sharp rise in diesel prices in the US, although concerns about Chinese demand remain a drag.
Brent rose a cent to $84.49 a barrel, while US crude rose six cents to $79.89 a barrel.
Reporting by Wayne Cole. Editing by Stephen Coates
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