Asian stocks on Monday were close to wiping out all their losses since China’s shock currency devaluation in August, as global equities rallied after the Chinese central bank cut rates and US tech giants provided upbeat earnings guidance.
MSCI’s index of Asia-Pacific shares outside Japan rose as much as 0.5 per cent to hit its highest since August 12 and last stood up 0.1 per cent. Japan’s Nikkei jumped 1.1 per cent to a two-month high.
European shares are seen mixed after strong gains in the prior two sessions. Spread-betters expect Germany’s DAX to rise 0.1 per cent and Britain’s FTSE to fall 0.2 per cent.
The surprise move by China on Friday lifted risk assets that had been already boosted by Thursday’s message from the European Central Bank that it stood ready to enhance quantitative easing and cut interest rates to even deeper negative levels.
“These moves by the ECB and China are raising speculation that the Bank of Japan will act later on this week as well,’’ Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management. The BOJ will hold its next policy review on Friday.
Fed policy meet
The US Federal Reserve is also widely expected to refrain from raising rates at its two-day policy meeting on Tuesday and Wednesday. A shaky global economy has a growing number of investors taking the view that even a Fed “lift-off’’ in December is unlikely.
Against this backdrop, the MSCI’s index of the world's share markets shot up to its highest level since August 20, having risen more than 10 per cent from its two-year low hit less than a month ago.
It has recovered most of the losses since August 11, when China’s sudden devaluation of the yuan sparked worries its economy may be in deeper trouble than many had thought.
On Wall Street, S&P 500 Index rose 1.1 per cent to turn positive on the year, while the tech-heavy Nasdaq jumped 2.3 per cent.
Technology shares led the way, thanks to gains in Alphabet, Amazon and Microsoft, after the three companies reported earnings results. The former two hit record highs, while Microsoft rose to a 15-year high.
Mainland Chinese shares rose on Monday after China cut the benchmark one-year lending rate — for the sixth time in less than a year — by 25 basis points to 4.35 per cent, and lowered big banks’ reserve requirement ratio late.
Shanghai composite index rose as much as 1.3 per cent, hitting a two-month high.
“The market was slightly buoyed by the central bank's rate cut. Medium and small companies, and securities companies were relatively dynamic,’’ Said Zhang Qi, an analyst at Haitong Securities in Shanghai.
“But the market appeared to be in correction after it rose a lot in October, and some investors sold stocks on the short-lived rise from the rate cuts. So overall, the market stayed stable today.’’
Communist Party meeting
One big focus is Chinese Communist Party's central committee meeting from Monday to Thursday to set out a new five-year plan, while investors attempt to gauge how much China's growth is likely to slow in coming years.
Ahead of the central committee meeting, Premier Li Keqiang said that China has never stated the economy must grow seven percent this year, coinciding with remarks by a top central bank official on Saturday that China would be able to keep annual economic growth at around 6-7 per cent over that period.
Risk sentiment was broadly underpinned by Thursday’s dovish message from ECB President Mario Draghi.
That saw the Italian and Spanish two-year government bond yields both turn negative for the first time, meaning investors effectively pay to hold them.
The benchmark German two-year yield fell further to minus 0.345 per cent.
As negative yields undermine the attraction of holding the euro, traders pushed it to a 2 1/2-month low of $1.0989 in early Asian trade. It last stood at $1.1037, bouncing back on profit-taking.
The yen dipped to 121.60 to the dollar, its lowest since late August as traders speculated the Bank of Japan might unleash additional easing on Friday, before bouncing back to 121.08 on profit-taking.
“The Japanese economy is weaker than in August and there’s no sign of a rebound. Markets are now expecting easing from the BOJ,’’ said Takeru Ogihara, chief strategist at Mizuho Trust Bank.
Elsewhere, the Polish zloty eased to near a nine-month low hit last week versus the euro after eurosceptic Law and Justice party (PiS) claimed victory in Sunday's election, putting the ex-communist state on a collision course with key European Union allies.
The party is calling for massive fiscal and monetary stimulus to boost growth.
Despite a recovery in global equity prices, oil prices were softer, pressured by ongoing oversupply worries.
Brent futures stood at $48.12 per barrel, up slightly from late US levels but not far from Friday’s three-week low of $47.45.