Australia and China equities on the bid

Traders in Asian markets today appeared at a loss on what to do. There were mixed performances in equities across the region.

Singapore stock exchange
Source: Bloomberg

Australian and Chinese markets were in the bull camp, with the latter bolstered by new measures unveiled by the authorities to stabilise sentiments. Furthermore, plans to pump-prime the economy may have also help support buying. Bloomberg noted that China is arranging at least CNY 1 trillion ($161 billion) in bonds to finance construction projects. The pace of economic activity has not been keeping up with what Beijing desired or expected. While China grew 7% in the first half of this year, the second semester is likely to see growth encountering more headwinds. The sharper-than-expected contraction in the Caixin manufacturing PMI certainly adding to the woes.

Last week, China’s top leadership, the Politburo, pledged to make ‘pre-emptive’ adjustments in the second half, with Premier Li Keqiang pointing out the ‘outdated’ underground pipe system is one area earmarked for improvements. Stepping up fiscal spending will be key to stabilise growth in the latter half of the year. Recent official rhetoric and action suggest the government is planning a new round of fiscal stimulus. This will clearly be positive for the economy, which could also complement the government’s efforts to stabilise the stock market.

In Japan, the Nikkei 225 recouped early losses to end the session with little change. The chatter around the country has been on potential QQE tapering lately, after the BOJ presented a different way to measure inflation in its July monthly report. While the main gauge, which strips away the effects of the sales-tax increase, continues to hover near zero, the Japanese central bank retains its confidence that inflation trends are strengthening. It sees its preferred CPI, which excludes fresh food, to pick up to 1% by end of the year, before accelerating to its 2% goal in the second half of the current fiscal year. Although not many analysts expect the BOJ to expand its massive ¥80 trillion monetary easing programme, this could change, contingent on how the Japanese economy perform this summer. Q2 GDP is out on 17 August, and the expectations are leaning towards a decline from the previous quarter.

Meanwhile, AUD/USD is the biggest mover in the otherwise lacklustre currency market. The lack of mention about further depreciation in the Australian dollar in RBA’s policy statement today triggered the rally. AUD/USD pumped up through $0.73 and was last seen heading towards $0.74. The less bearish view also reduced the market pricing of a rate cut by December by five percentage points to 68% from 73% before today’s policy meeting.

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