Asian stock markets extended their rally on Monday as investors bet that the U.S. Federal Reserve would not raise interest rates again and that China’s policy stimulus would help stabilize its slowing economy.
China’s Policy Support Boosts Sentiment
China’s blue-chip index rose 1.3% on Monday, adding to last week’s 2.2% gain, as Beijing announced more measures to support its economy amid a trade war with the U.S. and a debt crisis in the property sector.
The Chinese government said it would relax restrictions on home buying, lower taxes for small businesses, and increase fiscal spending on infrastructure and social welfare. It also approved a plan to launch a new stock exchange in Beijing to help small and medium-sized enterprises raise funds.
Investors were also relieved that Country Garden, one of China’s largest property developers, won approval from its creditors to extend payments for an onshore private bond, easing fears of a default.
“Chinese newspapers reported a jump in real estate transactions in Beijing and Shanghai over the weekend after the cuts to mortgage rates and downpayment ratios,” wrote analysts at RBC Capital Markets. “Whether this bounce will continue remains to be seen, but it has given China equities a shot in the arm.”
Japan’s Topix Hits 33-Year High
Japan’s Nikkei index rose 0.5% on Monday, after surging 3.4% last week, as corporate earnings reached record levels in the June quarter and the government lifted the state of emergency in most regions.
The broader Topix index jumped 3.7% last week to its highest level since 1990, outperforming other major markets. The Topix has a price-to-earnings ratio of only 14, compared to 23 for the S&P 500 and 29.5 for the Nasdaq.
The Japanese market was also supported by hopes that the ruling Liberal Democratic Party would choose a pro-growth leader in its upcoming leadership election, which would pave the way for a snap general election and more fiscal stimulus.
U.S. Jobs Data Dampens Rate Hike Expectations
U.S. stock futures were little changed on Monday, as markets were closed for Labor Day. On Friday, the S&P 500 and the Nasdaq closed at record highs, after a mixed U.S. jobs report reduced the chances of an imminent rate hike by the Fed.
The U.S. economy added 235,000 jobs in August, well below expectations of 728,000, as the Delta variant of the coronavirus weighed on hiring in sectors such as leisure and hospitality. However, the unemployment rate fell to 5.2%, the lowest since March 2020, and wage growth accelerated to 4.3% year-on-year.
The jobs data suggested that the U.S. labor market was still recovering from the pandemic, but not at a pace that would force the Fed to tighten monetary policy soon.
“This continued rebalancing of the labor market is consistent with our view that the July hike in the Fed funds rate was the last of the cycle,” wrote analysts at Goldman Sachs. “We continue to expect unchanged policy at both the September and November FOMC meetings.”
The market seemed to agree as futures now imply a 93% chance of rates staying steady this month and a 67% probability that the entire tightening cycle is over.
Key Data Ahead This Week
Investors will be watching closely for more economic data this week, especially from China and the U.S., to gauge the impact of the Delta variant and the policy outlook.
On Tuesday, China will release its trade data for August, which will show how its exports and imports fared amid global supply chain disruptions and domestic COVID-19 outbreaks.
On Wednesday, China will report its consumer and producer price indexes for August, which will indicate the inflationary pressures facing its economy and its monetary policy stance.
On Friday, the U.S. will publish its ISM services index for August, which will reflect the activity and sentiment of the largest sector of its economy.