Most Asian markets started on Monday on a positive note to build on last week’s gains after China unveiled fresh stimulus measures and below-par US jobs data reinforced expectations the Federal Reserve (Fed) will cut interest rates this month.
The People’s Bank of China (PBoC) on Friday said it would slash the amount of cash lenders must keep in reserve to its lowest level in 12 years, freeing up more than $100 billion for the stuttering economy.
The announcement came two days ahead of the release of figures showing a contraction in imports and exports as the trade war with the US bites deeper, with speculation that further measures could be on the way.
“Concerns of a more protracted trade war have already sapped business confidence in China and any way you want to slice and dice the data, at the end of the day it makes for a convincing argument for the PBoC to turn on the monetary taps,” said Stephen Innes, Asia-Pacific market strategist at AxiTrader.
Asian investors were broadly upbeat on the move, while a weaker-than-forecast reading on US jobs creation increased the chance the Fed will reduce borrowing rates again at its policy meeting this month.
The news suggested the world’s number one economy was also feeling the pinch from the trade row and the bank’s boss Jerome Powell said in a speech on Friday it will “continue to act as appropriate to sustain this expansion”, while noting
“significant risks” to growth.
Tokyo ended 0.6 per cent higher, Shanghai added 0.8 per cent and Seoul jumped 0.5 per cent. Singapore and Taipei each added 0.2 per cent, while Sydney was marginally higher. There were also gains in Mumbai, Jakarta, Bangkok and Manila. The Cambodia Securities Exchange index rose 0.07 per cent.
Johnson’s tough week
Hong Kong was marginally down with gains offset by profit-taking after last week’s surge as well as ongoing worries about months-long protests in the city following another weekend of violence.
In early trade London rose 0.4 per cent, Paris was flat and Frankfurt gained 0.3 per cent.
Neil Wilson, chief market analyst at Markets.com, warned: “With central banks refilling the punch bowls, markets can shrug off the weakening economic data and put off the coming dawn for another hour. The party goes on for now, but it’s looking increasingly precarious.”
Traders will turn their attention back to Westminster, where members of Parliament (MPs) are expected to pass a bill preventing Prime Minister Boris Johnson from taking Britain out of the EU without a divorce agreement. Most economists have warned that a no-deal Brexit would hammer the economy.
The pound has enjoyed a rally since the new premier last week saw a number of his own party members help inflict a succession of parliamentary defeats that took control of the agenda out of his hands.
“Having failed to overturn the bill, fired . . . [nearly] 30 of his own MPs and failed to lure Labour [the opposition] into an early election, PM [Prime Minister] Johnson’s next move will be to challenge the bill’s legality in court while Parliament is in suspension,” said Jeffrey Halley, senior market analyst at Oanda.
“He may sell it as all part of his cunning Brexit plan. The rest of the world will likely view it as a desperate rear-guard action.”
Johnson’s future has already been called into question less than two months after taking over at 10 Downing Street, and he suffered another blow at the weekend when one of his top cabinet ministers resigned in protest over his handling of the Brexit crisis.
On oil markets, both main contracts rose more than one per cent on the Chinese monetary easing as well as hopes for US trade talks, while a meeting this week of top producers from the Organisation of the Petroleum Exporting Countries and some non-members will be pored over for signs of further output cuts.