PBoC Moves and US Fed Decisions Shape Forecasts

Overview of the Friday Session

On Friday, the ASX 200 led the Nikkei and the Hang Seng Index into positive territory.

US economic indicators from Thursday set the tone. Better-than-expected retail sales, jobless claims, and producer prices supported the upbeat sentiment toward the US economic outlook. Notably, the latest round of economic indicators failed to refuel bets on further Fed rate hikes, driving demand for riskier assets.

China Economic Indicators Ease Fears of a Sharper Economic Slowdown

Ahead of a data deluge from China, the People’s Bank of China (PBoC) cut the Reserve Requirement Ratio by 25 basis points to 7.4%. Beijing continues to drip-feed the economy with stimulus measures to limit the impact of the housing sector crisis on the Chinese economy.

Industrial production, retail sales, and unemployment figures from China added to the positive market sentiment.

Industrial production rose by 4.5% year-over-year in August versus 3.7% in July. Retail sales increased by 4.6% versus 2.5%. The unemployment rate fell from 5.3% to 5.2%.

Australia and New Zealand Bank and JPMorgan (JPM) responded to the August numbers, upwardly revising China growth forecasts.

Fed Hold Bet Remains a Tailwind

The global financial markets will face another test this week, with the US Federal Reserve in action. Investors expect the Fed to leave interest rates unchanged on Wednesday. A Fed pause would place the market focus on the FOMC Economic Projections and the FOMC press conference.

The US economy is running smoothly despite Fed efforts to tame inflation. Upward revisions to forecasts would support bets on a November Fed rate hike.

While the mood from Friday will offer support, we expect Fed Fear to play a hand in market risk appetite early in the week.

US economic indicators from Friday may dampen the mood. The Michigan Consumer Sentiment Index fell from 69.5 to 67.7 in September. The survey signaled uncertainty toward the US economy. However, consumer inflation expectations softened sufficiently to support bets on the Fed ending its monetary policy tightening cycle.

On Friday, the US equity markets ended the day in negative territory. The S&P 500 and NASDAQ Composite Index saw losses of 1.22% and 1.56%, respectively, with the Dow falling by 0.83%.

Looking at the Futures Markets, the ASX 200 was down 41 points. The markets in Japan are closed for Respect the Aged Day.

ASX 200

The ASX 200 rallied by 1.29% on Friday. Bank and mining stocks responded to the PBoC move and stats from China.

Fortescue Metals Group (FMG) jumped by 3.97%. BHP Group Ltd (BHP) and Rio Tinto (RIO) rallied by 3.49% and 3.00%, respectively. Newcrest Mining (NCM) gained 0.23%.

The big four banks also benefitted from the upbeat mood. The National Australia Bank (NAB) and the Commonwealth Bank of Australia (CBA) rose by 1.26% and 1.01%, respectively.

ANZ Group (ANZ) and Westpac Banking Corp (WBC) ended the day with gains of 0.39% and 0.69%, respectively.

Hopes of a pickup in demand supported oil stocks. Woodside Energy Group (WDS) and Santos Ltd (STO) rose by 1.35% and 2.06%, respectively.

Hang Seng Index

The Hang Seng Index trailed the front-runners, rising by 0.75% on Friday. A negative end to the week for the CSI 300 capped the upside.

Alibaba Group Holding Ltd (9988.HK) rose by 0.41%, while Tencent Holdings Ltd (0700.HK) declined by 0.81%.

However, bank stocks responded to the PBoC move to support the economy. China Construction Bank (0939.HK) and the Industrial and Commercial Bank of China (1398.HK) ended the day up 0.68% and 0.26%, respectively. HSBC Holdings PLC (0005.HK) led the way for a second session, rallying 1.84%.

Nikkei 225

(Graph for reference purposes only)

The Nikkei 225 rose by 1.10% on Friday.

Sumitomo Mitsui Financial Group (8316) and Mitsubishi UFJ Financial Group fell by 0.87% and 2.12%, respectively.

However, the main components had a positive session.

Tokyo Electron Limited (8035) gained 3.11%, with Sony Corp. (6758) ending the day up 2.25%. SoftBank Group Corp. (9984) and KDDI Corp. (9433) rose by 2.08% and 2.05%, respectively, while Fast Retailing Co (9983) ended the day up 0.09%.

For upcoming economic events, check out our economic calendar.