Asian stocks surged to two-month highs on Wednesday, buoyed by expectations of Chinese stimulus measures and signs of a halt to rate hikes in the United States. This rally coincided with a substantial decline in the dollar, which experienced notable losses following a benign U.S. inflation report.
During the mid-session break in Hong Kong, MSCI’s broadest index of Asia-Pacific shares outside Japan rose by 2.3%, hitting its highest level since mid-September and on track for its most significant daily gain since January. The Hang Seng exhibited a nearly 3% rise, breaking above its 50-day moving average, while Japan’s Nikkei saw an increase of 2.3%.
Bond markets in countries like Australia and South Korea experienced their most robust gains since March. Despite this, rallies in Treasuries and U.S. and European equity futures tapered off into steady trade.
The U.S. Consumer Price Index (CPI) for October, showing flat headline consumer prices against expectations of a 0.1% rise, contributed to the positive sentiment. Core CPI, at 0.2%, also fell short of the anticipated 0.3%.
Naka Matsuzawa, Nomura’s chief macro strategist, noted that the CPI number may have prompted the last short-seller to cover their positions. However, he cautioned about a potential collision between stock market enthusiasm and bond market expectations of an economic slowdown driving rate cuts, expressing the view that the bond market might be more vulnerable than equities.
Overnight, the Nasdaq rose by 2.4%, and the small-cap Russell 2000 index jumped by 5%. The U.S. dollar faced declines of 1.6% against the euro and 2% against the Australian and New Zealand dollars.
China’s positive industrial output and retail sales data, coupled with a report that China plans to provide 1 trillion yuan ($137 billion) of low-cost financing to boost the housing market, further bolstered market optimism in Asia.
The weaker dollar contributed to a three-month high for the yuan, reaching 7.2356 per greenback. Meanwhile, the euro, hovering around $1.0877, surged through its 200-day moving average, and sterling held gains at $1.2491.
Financial markets now turn their attention to upcoming British inflation data, U.S. retail sales, and a scheduled meeting between U.S. President Joe Biden and Chinese President Xi Jinping in San Francisco. Brent crude futures also rose by 0.4%, reaching $82.78 per barrel.