Asian markets started the week on a cautious note, with shares seeing minimal movement during Monday’s thin holiday trade. Investors were left waiting for how mainland Chinese markets would react to the government’s promises of economic stimulus over the weekend. Despite pledges from Finance Minister Lan Foan to “significantly increase” debt, the overall size of the stimulus package was not disclosed, leaving markets uncertain.
Chinese stocks have shown growth in recent weeks following aggressive government stimulus announcements. However, that rally has begun to lose steam as investors await further details about the scope and focus of the economic support.
Ray Attrill, head of FX strategy at National Australia Bank, noted that the lack of a concrete fiscal stimulus announcement could lead to disappointment early in the week. Markets remain on edge as they anticipate clarity on the extent of fiscal loosening and whether there will be direct aid for consumers.
In early trade, MSCI’s broad index of Asia-Pacific shares outside Japan showed a small gain of 0.12%. This followed a drop of 1.7% the previous week. Trading activity was particularly quiet with Japan closed for a holiday.
U.S. stock futures saw slight declines, with S&P 500 futures slipping 0.05% and Nasdaq futures down 0.1%. Meanwhile, EUROSTOXX 50 and FTSE futures both dipped by 0.1%.
Adding to the concerns about China’s economic outlook, recent data revealed that consumer inflation unexpectedly slowed in September, while producer price deflation worsened. This has intensified calls for more government action to support the economy. Reflecting the uncertainty, the offshore yuan fell 0.2% to 7.0842 per dollar on Monday.
Goldman Sachs has responded to the latest stimulus pledges by raising its real GDP forecast for China from 4.7% to 4.9%. However, the bank’s analysts cautioned that the country’s long-term growth challenges, such as deteriorating demographics, debt deleveraging, and global supply chain shifts, are unlikely to be solved by short-term policy adjustments.
In currency markets, the U.S. dollar remained strong as traders dialed back expectations of a major interest rate cut by the Federal Reserve in November. Sterling dipped by 0.18% to $1.3043, while the euro edged down by 0.13% to $1.0922.
Oil prices also saw a decline of over $1 per barrel on Monday as investors grappled with the disappointing inflation data and the lack of clarity in China’s stimulus plans, raising concerns about future demand.
