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Stocks Boosted by China's Broad Stimulus Measures

Published 2024/09/26, 08:26
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The Shanghai Composite surged 1.16% to close at 2 896, while the Shenzhen Component rose 1.21% to 8 538 on Wednesday, building on the over 4% gains from the previous session. This rally followed China’s announcement of a broad monetary stimulus package to boost the economy and restore market confidence. On Wednesday, the People’s Bank of China (PBOC) cut its one-year medium-term lending facility rate by 30 basis points to 2%. A day earlier, the central bank's Governor outlined plans to lower the reserve requirement ratio by 50 basis points by year-end and reduce key lending rates, including the seven-day repo rate, medium-term lending facility, and loan prime rates. This overhaul of its policy framework aims to influence market borrowing costs and align with global practices more effectively.

Wall Street traded in mixed fashion on Wednesday as investors evaluated the Federal Reserve's trajectory for interest rate cuts and looked forward to Micron's (NASDAQ:MU) earnings for clues about AI demand. The S&P 500 and Dow dipped 0.20% and 0.70%, respectively, pulling back from earlier gains, with energy stocks leading the declines. In contrast, tech stocks, including Nvidia (NASDAQ:NVDA), Intel (NASDAQ:INTC), and AMD (NASDAQ:AMD) showed strength due to favourable AI demand signals, keeping the Nasdaq close to even by the end of the day.

European stocks ended lower on Wednesday, giving back some of the strong gains from the previous session as rising bond yields weighed on markets. Investors reassessed the effects of Chinese stimulus measures and the extent of the Federal Reserve's potential rate cuts. The Eurozone’s STOXX 50 dropped 0.50%, closing at 4 920, while the pan-European STOXX 600 slipped 0.10% to finish at 519.

The FTSE/JSE All Share index climbed over 1% on Wednesday, after hitting an intraday record of 86 145, marking its fourth straight day of gains. Resource-related stocks and industrials led the rally, supported by China's broad stimulus measures, along with tech heavyweights Naspers (JO:NPNJn) and Prosus (JO:PRXJn). The local market also benefited from growing optimism around the start of the interest rate-cutting cycle, positive sentiment surrounding South Africa's new Government of National Unity, and Eskom's consistent six-month streak of uninterrupted power supply. The rand extended its gains, reaching R17.20 per USD, its strongest level since January 2023, driven by the Federal Reserve's significant rate cut, which pressured the greenback. At 19h00 the rand was trading at R17.26/$, less than 0.10% weaker for the day, but it has appreciated almost 8% against the dollar since June. The local unit was 0.39% firmer at R19.21/€ and had appreciated 0.46% to R23.00/£.

Oil prices declined on Wednesday as investors reconsidered whether China’s stimulus measures would be sufficient to boost the economy and fuel demand in the world's largest crude importer. Brent crude futures fell by 0.20%, to $75 per barrel, while US West Texas Intermediate crude dropped 0.30% to $71.32 per barrel. Analysts cautioned that additional fiscal support was necessary to restore confidence in China’s economy, which diminished the initial positive impact on oil prices.

Gold remained near record highs at $2 660 per ounce on Wednesday as markets continued to gauge the extent of anticipated Federal Reserve rate cuts in the current easing cycle. Several Fed officials have advocated for a cautious approach to policy changes following this month’s sharp 50 bps rate cut. Despite this, markets are pricing in a 62% chance of another 50 bps cut in November, according to Fed fund futures. Investors are now awaiting key US macroeconomic data, including the PCE report, final Q2 GDP figures, weekly initial jobless claims, and durable goods orders, for further direction.

PSG Wealth Daily Investment Update, 26 September 2024

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