Asia: Stocks extend global rally after China adds to stimulus

[HONG KONG] Asian stocks rose with the Australian dollar after China unexpectedly cut interest rates and lenders' reserve requirements Friday. The US dollar slipped against major peers after capping its longest winning streak since January.

The MSCI Asia Pacific Index rose for a second day. The Hang Seng China Enterprises Index extended its monthly gain after the People's Bank of China's surprise move helped a gauge of emerging-market shares cap a fourth weekly advance. The Bloomberg Dollar Spot Index retreated as the Aussie and yen climbed. Poland's zloty fluctuated after the right-leaning Law & Justice party was projected to have won a majority of seats in parliamentary elections.

"China's policy easing suggests the Chinese economy still faces significant downward pressure," Australia & New Zealand Banking Group Ltd analysts led by Cherelle Murphy wrote in a note to clients. "While central bank actions across the G10 have typically been viewed in a 'bad-news-is-good' framework, the easing from the PBOC in China late on Friday was seen as a foreboding sign for global growth."

China begins its policy-setting plenum on Monday, with investors awaiting next year's official growth targets after the PBOC unleashed a flood of liquidity with cuts to interest rates and bank reserve ratios, while also abolishing a ceiling on what lenders can pay for deposits. Coming on the heels of the European Central Bank hinting at further easing and with the Bank of Japan deciding policy this week, the move underscores policy divergence with the US, where traders put the odds of the Federal Reserve raising rates Wednesday at just 6 per cent.

China's one-year lending rate was cut to 4.35 per cent from 4.6 per cent, the PBOC said on its website on Friday, while the one-year deposit rate will fall to 1.5 per cent from 1.75 per cent. Reserve requirements for all banks were lowered by 50 basis points, with an extra 50 basis point reduction for some institutions.

The Asia-Pacific equity gauge climbed 0.3 per cent by 10:33 am in Tokyo, as Hong Kong's China stock gauge advanced 0.9 per cent. MSCI Inc's emerging-market measure rose 0.21 per cent. Australia's S&P/ASX 200 Index rose 0.3 per cent, with the Topix index advancing 1.1 per cent in Tokyo and the Kospi index in Seoul up 0.2 per cent.

The Hang Seng China Enterprises Index is close to entering a bull market after advancing 18 per cent through Friday from a Sept 7 low. The Shanghai Composite Index climbed in early trade after rising almost 17 per cent through Oct 23 from its bottom in August.

China's leaders gathering in Beijing this week to formulate the 13th five-year plan confront an era of sub-7 per cent economic growth for the first time since Deng Xiaoping opened the nation to the outside world in the late 1970s. The nation won't "guard to death" its target for economic expansion, though it will maintain growth within a reasonable range, China News reported, citing Premier Li Keqiang.

Standard & Poor's 500 Index futures fell Monday after the US gauge jumped 1.1 per cent on Friday, erasing a loss in 2015 that reached as much as 9.3 per cent on Aug. 25. Google parent Alphabet Inc., Amazon.com Inc and Microsoft Corp added more than US$80 billion in market value after earnings topped estimates.

The Nasdaq 100 Index surged 2.7 per cent to the highest level since July, as Amazon jumped 6.2 per cent after reporting third-quarter sales that topped analysts' estimates thanks to its fast-growing cloud-computing division. Alphabet climbed 5.6 per cent and Microsoft gained 10 per cent to the highest level since March 2000.

"The results are the dominant force at the moment and there's an underlying positive tone," Otto Waser, chief investment officer at R&A Research & Asset Management AG in Zurich, said Friday. "We had a bit of a weak start in the earnings season, and it now looks like some companies are going to be able to deliver good results." The MSCI All-Country World Index was little changed Monday after adding 1 per cent Friday to cap a fourth weekly gain. The Stoxx Europe 600 Index climbed 2 per cent to post the biggest two-day gain since July. The gauge added 3.9 per cent in the week.

Currencies The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, slipped 0.1 per cent Monday. The measure rose for a seventh day Friday to the highest level this month. The dollar is benefiting from policy divergence as central banks outside the US struggle to bolster growth, while Fed officials are adamant that rates will begin to rise in the near future.

The yen added 0.3 per cent to 121.14 per dollar Monday. Japan's currency fell 0.6 per cent, the most since Sept 2, on Friday to cap its biggest weekly drop since May 29. The Australian dollar, considered a proxy for sentiment on China, climbed 0.4 per cent.

The yuan was little changed Monday in offshore trading. The PBOC's moves "will keep the yuan under downward pressure, drive Chinese money-market rates lower, but have a largely a muted effect on longer-term bond yields," Elias Haddad, a Sydney-based currency strategist at Commonwealth Bank of Australia, wrote in a note.

International Monetary Fund representatives have told China that the yuan is likely to join the fund's basket of reserve currencies soon, according to Chinese officials with knowledge of the matter.

South Korea's won tumbled 0.9 per cent to 1,135.32 per dollar. Sluggish global trade means that the contribution of exports to Korea's economic growth is low and downside risks to the outlook remain, Yonhap News reported Finance Minister Choi Kyung Hwan said during his visit to Russia.

Malaysia's ringgit slid 1.1 per cent as signs of continued weakness in China's economy overshadowed a populist budget from embattled Prime Minister Najib Razak.

The zloty was little changed, erasing a drop of as much as 0.5 per cent. Law & Justice, which pledged a tougher stance on refugees and more state control over the economy, won 39.1 per cent of the vote and a projected 242 seats in the 460-member lower chamber, the first time that a single group will command a majority since the re-introduction of democracy in Poland in 1989, according to the Ipsos poll.

BLOOMBERG