Asian stocks saw little movement in early holiday-thinned trade on Monday, as nervous investors speculated on how markets in mainland China might respond to broad but vague economic stimulus promises from the Chinese government over the weekend. Despite hopes of significant intervention to boost the struggling economy, details remained scarce, leaving market participants cautious.
China’s Minister of Finance, Lan Foan, pledged over the weekend to “significantly increase” the country’s debt to support economic recovery, but stopped short of providing key information on the scope and size of the stimulus. This uncertainty is crucial for investors trying to assess how long any stock market rally could last and whether it could reignite a more sustained recovery in the Chinese economy.
For weeks, Chinese stocks have been performing well, fueled by the government’s promise of aggressive economic support, the most significant intervention since the pandemic hit in 2020. However, this rally has begun to lose momentum as the market waits for further details on the extent of the support.
According to Ray Attrill, head of FX strategy at National Australia Bank, the market was eagerly anticipating more explicit details from China’s Ministry of Finance (MOF) during a briefing on Saturday. The absence of these details risks leading to market disappointment early in the week, especially as investors are left guessing about the scope and timing of any additional fiscal measures.
“Uncertainty over the overall extent of fiscal loosening and to what extent there will be direct help for consumers will keep markets on tenterhooks,” said Attrill.
MSCI’s broadest index of Asia-Pacific shares outside Japan was up a modest 0.12% in early Monday trade, following a decline of 1.7% last week. The lackluster movement was largely due to a combination of holiday-thinned trading volumes—Japan was out of the market for a public holiday—and the uncertainty surrounding China’s next steps.
The cautious mood extended to global markets, with U.S. stock futures slightly lower in pre-market trading. S&P 500 futures were down 0.05%, while Nasdaq futures slipped 0.1%. European markets were also subdued, with EUROSTOXX 50 futures and FTSE futures both easing 0.1%.
Monday’s tentative movements highlight the broader nervousness across global markets. Investors are closely watching how China navigates its economic slowdown and what form its promised stimulus might take, given the country’s pivotal role in global supply chains and growth.
Adding to the caution, data released over the weekend showed that China’s consumer inflation unexpectedly slowed in September, while producer price deflation deepened, further complicating the economic picture. Consumer inflation eased to 0% year-on-year, lower than anticipated, while producer prices fell by 2.5%, marking the 12th straight month of decline. This deepening deflation has raised concerns that China may need to take even more aggressive action to boost domestic demand.
In response to the weekend’s developments, the offshore yuan weakened by 0.2%, trading at 7.0842 per U.S. dollar on Monday morning. The Australian dollar, often viewed as a proxy for China’s economic prospects due to Australia’s strong trade ties with China, also dipped 0.15% to $0.6741.
Despite the disappointing inflation data, analysts at Goldman Sachs revised their real gross domestic product (GDP) forecast for China for 2023, raising it from 4.7% to 4.9%. The investment bank’s analysts noted that while they are more optimistic about the short-term cyclical outlook due to China’s stimulus efforts, they remain cautious about the country’s long-term growth prospects.
“The ‘3D’ challenges—deteriorating demographics, a multi-year debt deleveraging trend, and the global supply chain de-risking push—are unlikely to be reversed by the latest round of policy easing,” the analysts wrote in a note to clients.
The challenges facing China’s economy are multifaceted and extend beyond the immediate impact of the government’s stimulus measures. Analysts and investors alike are concerned about China’s longer-term structural issues, including an aging population and high levels of debt, both of which could act as significant headwinds to sustained economic growth.
China’s third-quarter GDP data, due for release on Friday, will provide a more comprehensive picture of how the economy is performing and whether the government’s recent stimulus measures are beginning to have an effect. Markets will be closely watching the figures for signs of a turnaround.
In currency markets, there was little significant movement on Monday, though the U.S. dollar continued to gain support from reduced bets on a large interest rate cut by the Federal Reserve in November. The dollar’s strength has been underpinned by solid U.S. economic data, including stronger-than-expected consumer price index (CPI) figures for September, which showed inflationary pressures persisting despite the Fed’s aggressive monetary tightening over the past year.
Sterling fell 0.18% to $1.3043, while the euro edged down 0.13% to $1.0922, reflecting continued nervousness across global currency markets.
The U.S. Federal Reserve is expected to hold off on any major policy changes at its next meeting, with traders now pricing out the possibility of a 50-basis-point rate cut in November. Last week’s CPI data reinforced expectations that inflation, while moderating, remains too high to justify a more significant loosening of monetary policy.
In the commodities market, oil prices fell sharply on Monday, weighed down by disappointing Chinese inflation data and the lack of clarity regarding the country’s stimulus plans. China is the world’s largest oil importer, and signs of weakening demand in the country have fueled concerns about the outlook for global oil consumption.
Brent crude futures were down 1.39%, trading at $77.95 a barrel, while U.S. West Texas Intermediate crude futures slipped 1.4% to $74.50 a barrel. The decline in oil prices reflected broader worries about slowing demand in China, as well as growing unease about the global economic outlook amid persistent inflationary pressures and rising interest rates in major economies.
Gold prices also eased on Monday, with spot gold falling 0.35% to $2,646.63 per ounce. The precious metal’s decline was largely driven by a stronger U.S. dollar and the ongoing uncertainty surrounding China’s economic future.
As the week unfolds, investors will continue to closely monitor developments in China, particularly any additional details about the scope and size of the government’s stimulus measures. While the Chinese government’s pledge to increase debt and boost economic growth has provided some reassurance, the lack of concrete details has left markets in a state of uncertainty.
China’s third-quarter GDP data, due on Friday, will likely be a key focus for investors and could provide further insight into the health of the country’s economy. Meanwhile, global markets will also be watching for signals from the U.S. Federal Reserve and other major central banks as they navigate the delicate balance between controlling inflation and supporting growth.
For now, the combination of weak Chinese inflation data, uncertainty over stimulus measures, and cautious global sentiment means that markets are likely to remain volatile in the days ahead. Investors will be hoping for more clarity from policymakers as they grapple with the complex set of challenges facing the global economy.
