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China stocks rally after officials signal support: markets wrap

China stocks rally after officials signal support: markets wrap
The JPMorgan Chase & Co. offices during in London, U.K., on Wednesday, May 4, 2022. (Photo: Chris Ratcliffe/Bloomberg)

Chinese shares pushed regional stocks higher on optimism that more economic support will come from Beijing, while Wall Street markets started the week with gains ahead of key central bank rate decisions.

Technology stocks in Hong Kong jumped more than 4% while mainland China shares also advanced, sending the gains in a regional equity gauge to rise around 0.7% on Tuesday. An index of US-listed Chinese shares on Monday had its biggest one-day gain in almost six months as the nation’s top leaders used a crucial Politburo meeting to flag more aid. 

Shares edged higher at the open in Australia and equities in Japan and South Korea fluctuated. 

While the Communist Party’s top decision-making body fell short of announcing large-scale stimulus, its vow to provide a boost to the slowing economy helped give bullish momentum for equity traders. The Dow Jones Industrial Average rose for an 11th consecutive day — its longest winning run since 2017. The S&P 500 traded near 4,550, while the Nasdaq 100 underperformed after a “special rebalance” that took effect on Monday.

“There’s a clear change of initiative and the clear takeaway is that this was a pro-growth shift,” Jeffrey Schulze, head of economic and market strategy at ClearBridge Investments, said on Bloomberg Television. “This is bullish and we’re going to start to see more stimulus which will not only start to perk up the Chinese economy, but also have some knock on effects to other areas of global growth.”

The offshore yuan also advanced to the strongest level in more than a week after the People’s Bank of China continued its support for the currency. The commodity-heavy Australian dollar, which is sensitive to China’s growth outlook, gained 0.2%.

Meanwhile, key Federal Reserve and European Central Bank gatherings this week will be closely watched for signs policymakers may be reaching the end of the cycle of aggressive policy tightening. There were fresh reminders about the negative recessionary effects of continuous rate hikes with disappointing data from both the US and euro-area. Aside from the economic picture, global companies with a combined $27-trillion in value were set to report results, including giants Microsoft Corp., LVMH and Samsung Electronics Co.

Yields on the two-year Treasury declined around eight basis points on Tuesday in Asia after an auction on Monday drew the highest yield since 2007, while those for the 10-year were steady. The dollar edged slightly lower.

The outlook for the world’s largest economy will likely hinge on the Fed’s willingness to tolerate inflation markedly higher than it would prefer. After taking a break from tightening last month, chair Jerome Powell and his colleagues look locked in to raising interest rates by a quarter percentage point on Wednesday.

“Interest rates are finally at or very close to their peaks and this week could see the Fed and ECB announce the last rate hike in their tightening cycles,” Craig Erlam, senior market analyst at Oanda, wrote in a note. “Policymakers will proceed with extreme caution, albeit very much buoyed by the data they’ve seen over the last month or two.”

However, the delayed impact of aggressive interest-rate hikes by global central banks, dwindling consumer savings and a “deeply troubling” geopolitical backdrop are poised to spur fresh market declines and renewed volatility, according to JPMorgan Chase & Co. strategist Marko Kolanovic.

Kolanovic also noted that the stock-price reaction to earnings reports is expected to be muted as the market was strong coming into the second-quarter reporting season.

Among the corporate highlights from the US, Tesla Inc. advanced after disclosing strong sales outside the US and China. Apple Inc. gained as Bloomberg News reported the company is keeping its iPhone shipments steady despite the 2023 turmoil.

Elsewhere, oil held near three-month highs as China moved to bolster growth. Wheat and corn gained as Russia attacked one of Ukraine’s biggest Danube river ports. DM

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