By Sruthi Shankar and Ankur Banerjee
LONDON/SINGAPORE (Reuters) – Global stocks hit record highs on Tuesday after China unveiled stimulus measures to support its economy and equity markets, sending Asian and European shares higher and leading to a rebound in commodity prices.
People’s Bank of China Governor Pan Gongsheng announced plans to cut borrowing costs and pump more money into the economy, as well as ease the burden of mortgage payments on households. Pan also said China will introduce structural monetary policy tools for the first time to help stabilize capital markets.
The moves sent Chinese stocks higher, with the blue-chip CSI300 and the main index each up more than 4%. Hong Kong’s index jumped 4.1% to a four-month high.
“The immediate reaction is definitely positive for markets because the measures were more robust than previous ones we have seen from policymakers,” said Ekaterina Pegos, principal investment manager (Asia ex-Japan) at AXA Investment Managers.
“But in order to see a sustained impact from all these measures, we need to see some support from the fiscal side as we move into the end of the year.”
Chinese stocks fell in Asia, with the CSI300 index down 2.3% this year after hitting multi-year lows as partial stimulus from authorities failed to galvanize markets.
The European index rose 0.6%, with mining and luxury goods stocks exposed to China leading the way. Germany’s blue chips were trading just below their all-time highs.
The MSCI World Index rose 0.3% to hit an all-time high. Futures pointed to a weak opening on Wall Street. (.N)
The upbeat mood also lifted commodity prices, with oil prices rising more than 2%. Prices jumped to a 10-week high, helped by expectations of improving demand in China, the biggest consumer. (O/R) (MET/L)
Iron ore futures traded on China’s Dalian Commodity Exchange posted their biggest daily gain in more than a year. (IRONORE/)
Gold prices touched a record high of $2,639.95 an ounce as rising tensions in the Middle East prompted safe-haven flows. (GOL/)
RBA sticks to its guns
The Reserve Bank of Australia kept interest rates steady, as expected, and stressed that monetary policy needs to remain tight, in contrast to the US Federal Reserve which began its easing cycle with a 50 basis point cut last week.
The Australian dollar rose 0.1 percent to $0.6846, after touching its strongest level in 2024 earlier at $0.68695.
The US dollar hit a 20-day high against the yen, extending gains after the Bank of Japan signaled last week that it was in no rush to raise interest rates. USD/JPY was up 0.3% at 144.06.
Speaking at a meeting with business leaders in Osaka on Tuesday, Bank of Japan Governor Kazuo Ueda said the bank could take time to scrutinize market and external economic developments when setting monetary policy.
Meanwhile, markets are now evenly split on whether the U.S. central bank will cut by another 50 basis points or 25 basis points in November, according to the CME Fedwatch tool. They are pricing in 76 basis points of easing this year.
The market is overestimating the Fed’s ability to ease monetary policy, said Elias Haddad, chief market strategist at Brown Brothers Harriman. “However, it will likely take strong U.S. jobs data to prompt a meaningful upward reassessment of the federal funds rate outlook,” he added.
The next nonfarm payrolls report is due on Oct. 4, and until then, Haddad said a more accommodative Fed policy and a strong U.S. economy would support market sentiment and further undermine the dollar against growth-sensitive currencies.
The US dollar index, which measures the greenback’s value against six rival currencies, fell slightly to 100.86, not far from a one-year low of 100.21 hit last week.
The euro rose 0.1 percent to $1.1123. The single currency fell about 0.5 percent on Monday after weak business activity reports in the euro zone economy raised expectations of an interest rate cut by the European Central Bank.
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