By Stella Qiu and Sruthi Shankar
SYDNEY/LONDON (Reuters) – China’s big stimulus steps helped nudge global stocks to all-time highs on Friday, while the yen firmed sharply against the dollar after Japan’s former defence minister Shigeru Ishiba looked set to become the next prime minister.
Europe’s benchmark index rose 0.3% to touch a record high, with the German , 40 and 100 rising between 0.3% and 0.8%. ()
Futures pointed to a slightly weaker open on Wall Street, a day after the notched a record high. Investors are waiting for the core personal consumption expenditures (PCE) price index – the Fed’s preferred measure of inflation – later in the day. [.N]
The dollar weakened by as much as 1.4% to 142.78 yen, reversing earlier gains of about 1% when traders were bracing for hardline nationalist Sanae Takaichi, a vocal opponent of rising borrowing costs, to become Japan’s premier.
Ishiba, who won a closely fought contest in his fifth attempt to lead the ruling Liberal Democratic Party, has said the Bank of Japan (BOJ) is on the “right policy track” by ending negative rates.
“Ishiba’s victory is a relief for the BoJ as he generally supports the BoJ’s policy normalisation,” said Min Joo Kang, senior economist for South Korea And Japan at ING.
“Moreover, his fiscal policy should focus on reviving the regional economy, which should also support sustainable inflation and growth. We believe that the upcoming inflation results and the Fed’s interest rate actions will be the key to gauge the BOJ’s next move.”
The dollar was last down 1.1% against the yen at 143.29 yen, while futures tracking the stock index dropped about 5%.
CHINESE STIMULUS SPREADS CHEER
MSCI’s world stocks index rose 0.3%, also touching a new peak, thanks to a big turnaround in Chinese shares as Beijing ramped up pledges to revive sputtering economic growth.
China’s blue chips jumped 4.5%, bringing their weekly rise to 15.7%, the most since November 2008. Hong Kong’s also gained 3.6% and was up 13% for the week, its best performance since 1998.
“We think there is further upside but a lot will depend on the specific details in the coming days around the fiscal stimulus,” said Kiran Ganesh, multi-asset strategist at UBS Global Wealth Management.
“If this is something more about stabilisation, then maybe it doesn’t have as big a global economic impact. But if this is a long-term measure to increase the amount of fiscal spending the government is doing, then that could be positive for global growth.”
They see a further upside of close to 10% in Shanghai stocks.
China’s central bank lowered interest rates and injected liquidity into the banking system, and more fiscal measures are expected to be announced before week-long Chinese holidays starting on Oct. 1.
Commodities have had a good week on the back of the stimulus. Iron ore clambered back above $100 a metric tonne and broke above the key $10,000-a-tonne mark.
But oil was set for heavy weekly losses on a report that Saudi Arabia was preparing to abandon its unofficial price target of $100 a barrel for crude as it gets ready to increase output. [O/R]
futures edged up 0.2% to $71.75 a barrel, but are down 3.9% for the week. That should be good for global disinflation as central banks ramp up rate cuts, and bullish for consumer spending.
MORE ECB CUTS EXPECTED
The euro dipped 0.1% to $1.1164 after data showed French consumer prices rose less than anticipated in September and Spain’s European Union-harmonised 12-month inflation fell to 1.7% – the lowest reading since June 2023.
Money markets priced in an 80% chance of an ECB rate cut in October from around 20% early this week and 60% before the data.
“The trend of more rate cuts than investors may have expected is something to position for,” said UBS’ Ganesh.
U.S. Treasury yields were steady, having risen overnight on low U.S. weekly jobless claims that led markets to lower the odds of another outsized half-point rate cut from the Fed in November to about 50%, from 57% a day earlier.
Forecasts for the inflation data at 1230 GMT (8:30 a.m. ET) centre around a small monthly rise of 0.2%.
Two-year Treasury yields were up 5.1 basis points (bps) this week to 3.6246%, while 10-year yields rose 6.1 bps in the week to 3.7886%.