Optimism in the Markets Today: China and the Fed in the Spotlight

Asian Stocks Surge on Expectations of Fed Rate Cuts

Asian stocks hit over a year high as renewed bets on a likely Fed rate cut this year boosted investor confidence.
With Japan’s markets closed, mainland China markets led the way with a positive start after returning from an extended break.

The broader MSCI index of Asia-Pacific shares outside Japan reached its highest peak since February 2023.
The CSI 300 index jumped by 1.8% after being closed from last Wednesday to Friday, while Hong Kong stocks took a breather after a nine-day winning streak.
Stocks also rose in Australia, Taiwan, and Singapore.

The gains followed a rally in US stocks on Friday as employment data supported the view that the economy is slowing enough for the Fed to start easing policy in September.

China and the Fed Driving Markets

The rebound in Chinese markets came after the country’s Politburo meeting, where policymakers stated they would intensify support for the economy with prudent monetary policies and proactive fiscal measures.

Louisa Fok, China Equity Strategist at the Bank of Singapore, stated, “While the overall policy stance is in line with that set at the National People’s Congress in March, there is a more favorable tone on fiscal policy.” She added that policy implementation and earnings growth momentum were key factors to watch in the coming months.

The much-anticipated recovery in the Chinese economy is gaining momentum, with Monday’s data showing a slightly slowed expansion in services activity due to rising costs, but new orders growth accelerated, and business sentiment strengthened.

Moreover, the broader market rally across Asia received a further boost from Friday’s US nonfarm payroll report.
US employment growth slowed more than expected in April, and annual wage growth fell below 4.0% for the first time in nearly three years.

This reinforced expectations that Fed rate cuts are likely this year, especially after Chairman Jerome Powell maintained the central bank’s dovish stance last week.

The data “indicate a labor market that is still tight but not as hot as it was a year or two ago,” said Wells Fargo economists.
“This should favor further slowing in inflation over the course of the year, although the improvement will proceed only gradually.”