China's stimulus-led stock rally pulls Asia higher; oil falls

By Rae Wee

SINGAPORE (Reuters) -Asian stocks bucked the global trend to extend a China-led rally on Thursday, fuelled by persistent optimism over the country's aggressive stimulus package and news that more support could be in the works.

Oil prices reversed early gains to trade lower on a report that Saudi Arabia is preparing to abandon its unofficial price target of $100 a barrel for crude as it prepares to increase output.

Brent crude futures fell 0.88% to $72.81 a barrel, while U.S. crude shed 0.9% to $69.06 per barrel. [O/R]

In the broader market, equities in Asia got an additional boost on Thursday after China's leaders pledged to support the struggling economy through "forceful" interest rate cuts and adjustments to fiscal and monetary policies, among other things.

The news came just hours after a report that said Beijing is considering injecting up to 1 trillion yuan ($142.39 billion) of capital into its biggest state banks.

Chinese stocks extended their gains on the back of the announcement, with the CSI300 blue-chip index last up 1.9%. The Shanghai Composite Index advanced 1.62%.

The CSI mainland real estate index jumped 5%, as Beijing also said it would make efforts to pull the beleaguered real estate sector out of its slump.

Hong Kong's Hang Seng Index rose 3%, while the Hang Seng Mainland Properties Index surged 9%.

That propelled MSCI's broadest index of Asia-Pacific shares outside Japan to an over two-year high, with the index last up 1.5%. Japan's Nikkei similarly rode the wave of buying and gained 2.5%.

Futures pointed to a strong opening in Europe, with EUROSTOXX 50 adding 0.67%. FTSE futures gained 0.43%.

S&P 500 futures added 0.55%, while Nasdaq futures jumped 1%.

RATES OUTLOOK

Investors also had their eye on a raft of speeches from Federal Reserve policymakers later in the day, including remarks from Chair Jerome Powell, which could provide further clues on the U.S. rate outlook.

The release of the core personal consumption expenditures (PCE) price index - the Fed's preferred measure of inflation - is also due on Friday.

"I don't think the reaction will be excessive, but the direction will be there," said Jeff Ng, head of Asia macro strategy at SMBC, referring to Friday's data release. "If let's say prices are sticky, then maybe that will slightly dampen expectations for a 50-basis-point (rate cut)."

Markets are now pricing in a roughly 62% chance of a 50bp cut at the Fed's November policy meeting and see a total of 77bps worth of cuts by the year end.

Shifting expectations of how aggressive the Fed would ease rates this year and next have in turn kept the dollar largely rangebound over the past month.

In currencies, the Australian and New Zealand dollars drew additional support from the latest news out of China, with the Aussie gaining 0.5% to $0.6856.

The kiwi was last 0.19% higher at $0.6273.

The yuan extended its gains and hovered near a 16-month high in both the onshore and offshore markets.

The onshore unit was last 0.2% higher at 7.0182 per dollar, while its offshore counterpart tacked on 0.3% to 7.0118 per dollar.

"While rate cuts should weigh on the RMB, this may be offset by equity inflows," said DBS analysts in a note.



"Still, China's economic outlook remains fragile, and sustained RMB gains are acceptable only if regional currencies continue their appreciation against the USD."

Elsewhere, spot gold rose 0.18% to $2,660.93 an ounce, having scaled a record high on Wednesday. [GOL/]

Source: Investing.com