Time out beckons as China stimulus boost fades

Asian markets could lose steam on Thursday following a sluggish performance on Wall Street on Wednesday, and as the sugar high from China’s biggest economic and market stimulus package since the pandemic earlier in the week shows signs of fading.

Higher US bond yields across the curve and the dollar’s biggest rise in a month should limit investors’ risk appetite. That one-two combo is certainly weighing on the Japanese yen, which goes into Thursday’s session in Asia at a three-week low near 145.00 per dollar.

The global growth and policy picture is pretty murky too, which may give investors pause. Weak US consumer confidence figures have revived doubts about the US “soft landing”, while the euro zone’s growth and inflation outlook seems to be softening by the day.

Economists at HSBC on Wednesday revised their European Central Bank forecasts, and now expect 25 basis point rate cuts at every meeting from October until April 2025. That would take the benchmark deposit rate down to 2.25%.

Weakness in the eurozone should ring alarm bells for China, given the strength of bilateral trade and financial ties. While Chinese stocks leapt another 1.5% on Wednesday to a fresh two-month high, they closed near the lows of the day.

Hong Kong stocks are on a roll – the Hang Seng is up 15% in just two weeks – and the MSCI Asia ex-Japan index is its highest since February 2022. Could both be ready for a time-out?

The euro’s slide and US bond yield spike, meanwhile, helped the dollar claw back some ground on Wednesday. Having earlier flirted with a new 14-month low, the dollar index rose 0.4% to post its biggest daily gain in a month.

The greenback struggled more against emerging market currencies though, and perhaps the most eye-catching move was by the Chinese yuan.

It continued its impressive rally of the last couple of months and rose for a sixth day against the dollar in spot trading, its longest winning streak since January last year. The offshore yuan, meanwhile, pierced 7.00 per dollar for the first time also since January last year.

Indeed, since the one-day burst of global market volatility on Aug. 5, China’s yuan has appreciated more than 3% against the US dollar, a remarkable run given how tightly Beijing manages the exchange rate.

Among the Asian economic indicators on deck on Thursday are manufacturing data from Thailand, industrial production figures from Singapore, and the latest snapshot of international trade from Hong Kong.

On the policy side, the Bank of Japan releases minutes of its July 30-31 policy meeting, and the Reserve Bank of Australia publishes its Financial Stability Review.

Here are key developments that could provide more direction to Asian markets on Thursday:

– BOJ minutes from July 30-31 policy meeting

– Singapore industrial production (August)

– Hong Kong trade (August)

(Reporting by Jamie McGeever; Editing by Bill Berkrot)