Stimulus Uncertainty in China: Asian Markets on Probation

The Asian stock markets remained largely unfazed at the start of the week in a trading session thinned out by holidays. Investors were tense about the mainland Chinese markets' reaction to the recent, yet vaguely formulated, economic stimulus measures by the Chinese government. Finance Minister Lan Foan announced a "considerable" increase in debt but lacked details on the exact amount of the stimulus—an essential element for assessing the sustainability of a stock market surge. Chinese stocks had shown an impressive rise since the government presented its most comprehensive stimulus program since the pandemic at the end of last month. However, this momentum has somewhat lost steam as investors await further details on the support methods. Ray Attrill, Head of Currency Strategy at National Australia Bank, warned of potential market disappointments at the start of the week, as concrete announcements regarding fiscal stimulus were absent over the weekend. The uncertainties regarding the extent of fiscal easing and possible direct support for consumers continue to keep the markets on edge. The MSCI Asia-Pacific Index outside Japan recently showed a slight increase of 0.12% after falling by 1.7% in the previous week. Trading in Asia was heavily restricted on Monday due to a holiday in Japan. Meanwhile, US stock futures recorded slight losses, as did EUROSTOXX 50 and FTSE futures, each dropping 0.1%. Regarding China's growth, consumer price inflation unexpectedly fell in September, while producer price deflation increased, adding pressure for further stimulus measures. Despite the weekend's disappointments, Goldman Sachs raised its forecast for China's real gross domestic product for this year from 4.7% to 4.9%, but emphasized that structural challenges remain. Developments in the foreign exchange market were largely subdued, while the US dollar continued to benefit from reduced expectations of a significant interest rate cut by the Federal Reserve next month. In commodity markets, oil prices fell by more than a dollar per barrel, due to disappointing inflation data and uncertainties regarding stimulus plans in China.