Chinese shares slide with focus on policy briefing: markets wrap

The CSI 300 Index dropped as much as 2.4%, reversing Thursday’s gains. Elsewhere in Asia, shares rose in Japan and South Korea, sidestepping losses on Wall Street following hotter-than-expected core inflation that heightened the focus on the Federal Reserve’s next move. Equities slipped in Australia.

All eyes are on a Saturday briefing, where China’s finance minister will likely announce more support measures to revive a slowing economy. Investors and analysts expect Beijing to deploy as much as 2 trillion yuan ($283-billion) in fresh fiscal stimulus as authorities seek to boost growth and restore confidence.

The declines in Chinese stocks partly reflect “the risk of another disappointment with tomorrow’s Ministry of Finance briefing,” said Kieran Calder, head of equity research for Asia at Union Bancaire Privee in Singapore. “The MOF doesn’t approve extra budget or bond quota so there is uncertainty whether Saturday’s briefing can deliver new details on additional stimulus.”

US equity futures also edged higher, after the S&P 500 fell 0.2% and the Nasdaq 100 dropped 0.1% on Thursday. Hong Kong markets are closed Friday for a holiday.

Treasuries were steady in early Asian trading after the two-year yield fell six basis points and its 10-year counterpart dropped by one basis point Thursday.

Data released Thursday underscored the challenge facing the Fed. Underlying US inflation rose more than forecast in September in a sign of stalling progress in the fight to bring prices to target. Separate data showed applications for US unemployment benefits rose last week to the highest in over a year.

“The Fed said the last mile getting toward their inflation target is going to be tough, and that is what we are seeing,” said David Donabedian at CIBC Private Wealth US “But we still expect the Fed to cut rates by a quarter point in November, and likely a similar cut at the December meeting.”

Swaps market pricing indicating a potential Fed rate cut next month was little changed. Traders are pricing in a roughly 80% chance that the Fed will cut by 25 basis points when it meets in November. That compared with a fully priced-in move prior to last week’s strong US jobs data.

Fed legislators John Williams, Austan Goolsbee and Thomas Barkin were unfazed by the higher-than-forecast consumer price index, suggesting officials can continue lowering rates. The outlier was Raphael Bostic of the Atlanta Fed who indicated in an interview with the Wall Street Journal that in projections released in September he had called for one additional quarter-point cut across the Fed’s two remaining meetings in 2024.

“One slightly hotter-than-expected CPI reading doesn’t mean a new wave of inflation has been unleashed, but the fact that it accompanied a jump in weekly jobless claims may add to short-term market uncertainty,” said Chris Larkin at E*Trade from Morgan Stanley.

“These weren’t good numbers — but that doesn’t mean they upended the larger outlook for solid economic growth and moderate inflation,” Larkin added.

In currency markets, the yen was little changed at around 148 per dollar after strengthening on Thursday while an index of the dollar was steady. The South Korean won held gains against the dollar after the Bank of Korea cut its key interest rate by 25 basis points to 3.25%, as expected.

Oil edged lower, trimming some of its gains from Thursday when West Texas Intermediate futures climbed 3.6% as traders awaited Israel’s response to Iran’s missile attack.

Investors are also gearing up for third-quarter US earnings later Friday from JPMorgan Chase & Co., Wells Fargo & Co and Bank of New York Mellon Corp.

JPMorgan’s outlook for net interest income will be a major focus, after company executives tried to tamp down expectations for the key revenue source. As for Wells Fargo, investors may look for updates on its asset cap. BNY Mellon’s revenue likely grew 4% last quarter, the fastest pace in more than a year, according to Bloomberg Intelligence.