Market Close Oct 06

Investors mull central banks' restraint

RBA keeps rates steady, now expected to ease in November; Gold rebound has legs as yuan strengthens; Major central banks unlikely to move much 

Investors mull central banks' restraint
Traders watch US President Donald Trump speak from the White House on a monitor from the floor of the New York Stock Exchange (NYSE) in New York in this file photo from, March 2020. REUTERS/Lucas Jackson.

(ATF) Hong Kong: Markets made tentative advances after US President Donald Trump returned from hospital but there was an air of trepidation ahead of important speeches by central bankers with investors concerned about the monetary support possibilities.

Japan’s Nikkei 225 benchmark added 0.52%, Australia’s ASX 200 climbed 0.35% and Hong Kong’s Hang Seng index vaulted 0.90%. Mainland China markets remain shut for holidays.

“US President Trump has left the Walter Reed Medical Centre and is back in the White house, much to the relief of the markets,” said Fiona Cincotta, analyst at City Index.

“The President is planning on participating in the next Presidential debate on 15th October, narrowing some of the uncertainties surrounding these elections, which had notched up when Trump fell ill.”

The Reserve Bank of Australia kept interest rates unchanged at today’s meeting but signalled more stimulus ahead. RBA kept the cash rate target, its 3-year yield target and the interest rate on the term funding facility unchanged at 0.25%. It acknowledged that the “unemployment rate will probably peak at a lower rate than earlier expected”.

“We now expect the Bank to cut the cash rate target, the 3-year yield target and the interest rate on the term funding facility to 0.1% at its November meeting,” said Marcel Thieliant, Senior Australia & New Zealand Economist at Capital Economics.

“We also expect the Bank to announce additional purchases of government bonds in order to reduce long-term interest rates.”

Ahead of speeches by Federal Reserve’s Jerome H. Powell, Bank of Japan Governor Haruhiko Kuroda, and ECB executive board member Philip Lane, markets are watching how much or whether any more stimulus will be needed. There are concerns this could add excessive fuel to the recovery if the coming wave of Covid proves to be less damaging than feared.

“Plenty of indications that economies are in relatively robust good shape. Industrial production has been strengthening, trade is largely back to where it was and in many corners of the world,” said Luca Paolini, Chief Strategist at Pictet Asset Management.

“Strength in US and China retail sales belies some of the gloom of sentiment surveys. Complicating matters is whether the recovery is self-sustaining.”

Paolini said central banks are unlikely to boost monetary stimulus significantly from this point, which should squeeze stocks’ price-to-earnings multiples in the coming months.

While there are slim chances of central banks’ expanding their balance sheets or cutting rates further, the expectation is for governments to boost spending and support flagging economies. 

In fact, the US government is currently in talks to introduce more fiscal stimulus to offset the damage of the resurgent coronavirus on the world’s largest economy.

“Governments in most developed economies have either increased spending already or are about to do more to bail out their own economies,” said Fawad Razaqzada, a market analyst at TF Global Markets who said there were signs of gold sustaining its rebound after it rose 0.25% to $1,917 per ounce.

“Meanwhile, the recent strengthening of the Chinese yuan means one of the world’s largest gold consumers can now purchase the metal relatively cheaper than before.”

The yuan has gained 4% in the three months to September 30, which was the best quarter in 12 years. It is now trading at 6.72 to a dollar in offshore markets.

Also on Asia Times Financial:

Ban on SMIC stirs call for 'Long March' to counter US chip dominance

Ignoring China Government Bonds is not an option

China rapidly expanding Baotou rare earth high-tech zone 

Invest in infrastructure for post-Covid growth, IMF urges

Asia Stocks

· Japan’s Nikkei 225 index added 0.52%

· Australia’s S&P ASX 200 climbed 0.35% 

· Hong Kong’s Hang Seng index vaulted 0.90%

· The MSCI Asia Pacific index advanced 0.48%.

Stock of the day

Camera equipment maker Cowell e Holdings rose as much as 38% after it declared a special dividend of HK$0.93206 per share which translated into a yield of 25% on its previous close.