Asia Markets wrap

Asian stocks climbed on Monday after Chinese services data and a new directive to boost the southern Shenzhen tech boomtown stoked optimism that the Chinese economy was recovering strongly.

The yuan also slipped, reversing much of its record gains last week, after the People’s Bank of China (PBoC) lowered the barriers to international use of the currency.

European bourses edged higher in early trade as investors, pricing in a Joe Biden win in the November 3 presidential election, as they expect the former vice president to be more likely to unlock a new US stimulus package.

China’s composite index climbed 3% and the Hang Seng Index in Hong Kong rose 2.2% after weekend data showed China’s services industry expanded for the fifth-straight month, as a sustained rise in overall client demand created jobs for the second month in a row.

Firms hired more for the second month in a row, although at a still modest rate, indicating some recovery in a labour market that has been hit by sharp falls in demand and epidemic restrictions earlier in the year. Investors are looking for more guidance on the economy from Chinese President Xi Jinping on Wednesday.

Further reforms

Gains were further driven “on hopes that Xi will announce further reforms, which could drive foreign capital inflows at a speech,” Fiona Cincotta at GAIN Capital Group said. “The risk-on mood is underpinning equities whilst dragging on the safe haven US Dollar.”

Hong Kong stocks were boosted by the announcement of Xi’s address in Shenzhen, with reports saying reforms would be introduced to make it a “socialist pilot zone with Chinese characteristics” over the next five years. The move is seen as granting more autonomy to the city that sits on the former British colony’s doorstep.

“Investors are optimistic on further reforms and upgrades for Shenzhen, which are expected to drive foreign capital inflows and enhance the tech sector,” Patrick Shum, at Tengard Holdings, said.

The PBOC on Saturday said lenders would no longer be asked to hold reserves when buying foreign currency forward contracts, in effect lowering the cost of trading in the yuan to zero. The move was introduced to slow the currency’s appreciation, which climbed 1.5% on Friday. It’s thought that Chinese planners want to pave the way for better relations with an “incoming Biden presidency” in the US.

The prospects of a Biden win, as predicted in polling, and a Democratic sweep of Congress have raised expectations that a new stimulus bill – currently stalled amid bickering on both sides of the political divide – will be agreed.

Blue Wave rally

“Investors are revelling on the Blue Wave rally bus where the first order of the day come November 5 [after the poll] will be to open up the stimulus taps, and stocks are rallying in kind,” AxiTrader chief global market strategist Stephen Innes wrote. “The seemingly positive ramifications of a possible Democratic clean sweep in the US election continue to play out globally.”

European stocks are mixed amid worries about a fresh wave of coronavirus infections, with British Prime Minister Boris Johnson set to unveil a new alert system that could see some cities put back into lockdown.

Meanwhile, Berlin bars and restaurants were ordered to shut early under a partial curfew announced until October 31, while spiralling cases in France have led to fears that the government may need to impose local shutdowns in major cities, following similar moves in the Spanish capital.

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Asian Stocks

  • Japan’s Nikkei 225 fell 0.3%
  • Hong Kong’s Hang Seng rose 2.2%
  • China’s CSI300 climbed 3%
  • The MSCI Asia Pacific Index advanced 0.2%

Stock of the Day

Airline giant IAG fell 1.6% after the chief executive of British Airways Alex Cruz stepped down without offering a reason. The airline, clobbered by the coronavirus-led downturn in international flying, has axed 13,000 jobs. Cruz will be replaced by IAG’s Aer Lingus chief Sean Doyle. 

This report appeared first on Asia Times Financial.

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