Morning Bid: Looming Rate Cuts in China and a Booming U.S. Economy

By Jamie McGeever

(Reuters) - Today we take a look at what lies ahead for Asian markets.

As the trading week in Asia commences, a positive global environment is fueled by the ongoing strength of U.S. stocks. However, local sentiment remains cautious due to uncertainty surrounding China’s persistent economic challenges.

The People's Bank of China (PBOC) is anticipated to lower its loan prime rates on Monday. This move is part of a range of monetary, fiscal, and liquidity support measures aimed at stabilizing the struggling property sector, boosting growth, and combating deflation.

During a financial forum in Beijing on Friday, PBOC Governor Pan Gongsheng stated that the LPR will likely be reduced by 20 to 25 basis points on Monday, as reported by the official Xinhua news agency.

Additionally, on Friday, the PBOC announced new measures to inject over $100 billion into the nation’s stock market, leading to a 3.6% increase in Shanghai's blue chip equity index, which marked its best day since September 26 with a 1.6% rise.

China's recent economic data was not as grim as some analysts predicted, with the annual GDP growth for the third quarter coming in slightly above expectations at 4.6%. Nonetheless, economist Phil Suttle highlighted that the prior two quarters exhibited unusually weak growth, delivering a 2.75% growth rate on a seasonally-adjusted annualized basis, representing the weakest growth rate in modern history apart from the COVID-era disruptions.

Given these conditions, it is not surprising that Beijing has taken action to stimulate the economy.

While stocks responded positively to these developments, bond yields are once again on the decline. Earlier, yields had risen on hopes that the support measures would invigorate the economy, but the 10-year yield is now nearing 2.00% once more.

Concerns regarding the U.S.-China trade conflict have resurfaced, particularly after Republican presidential candidate Donald Trump indicated he would impose tariffs ranging from 150% to 200% on China if it were to intervene in Taiwan, according to a report from the Wall Street Journal.

On the other hand, the U.S. economy continues to demonstrate robust performance. Recent economic data has exceeded expectations, with GDP growth anticipated to be over 3%. Furthermore, corporate earnings are strong, and Wall Street is achieving new highs.

That said, some analysts believe the current optimism may be excessive. Analysts from Raymond James have pointed out that short-term options and technical indicators are becoming skewed, suggesting that the market might be due for a consolidation phase or could be vulnerable to a near-term pullback.

Globally, financial conditions are becoming more accommodating, as central banks lower interest rates and stock markets trend upward. In light of this, investors in Asia will pay close attention to the dollar, which has recently strengthened and is currently at a three-month high.

It's worth noting that in Friday's edition of the Morning Bid Asia newsletter, it was incorrectly stated that Malaysia would announce GDP data on that day. The preliminary GDP figure will be released on Monday, October 21.

Key Developments to Watch

Here are some important developments that may influence market directions on Monday:

• China's loan prime rate decision
• Malaysia's GDP for the third quarter
• Speech by Reserve Bank of Australia Deputy Governor Andrew Hauser

China, US, Economy