China Announces Robust Stimulus Measures

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Main Content:

1.    Major indexes weekly performance 

2.    U.S stocks weekly wrap 

3.    S&P 500 sector index weekly performance 

4.    China/Hong Kong stocks weekly wrap 

5.    Singapore stocks weekly wrap 

6.    Major indexes weekly chart and technical support & resistance levels

U.S.

For the week of Sep 27, the Dow Jones Industrial Average(DJI) and the S&P 500 Index(SPX) moved to record highs, as investors appeared to celebrate new stimulus measures in China (see below). Chemicals and materials stocks were particularly strong on hopes for a rebound in Chinese demand. Copper prices also increased, raising hopes that “Doctor Copper” was again reflecting a healthier global industrial economy. Refer to below major indexes weekly performance table.

Key highlights for the week and next:

1.    Election heading to Nov 5. This election poses uncertainty, and markets hate uncertainty. Historically, market volatility has risen leading up to elections and has subsided after. Markets have generally done well after elections, so stick around. 

2.    Inflation gauge nears Fed’s target. On Friday, the Federal Reserve’s preferred inflation gauge, the core (less food and energy) personal consumer expenditures (PCE) price index, rose only 0.1% in August, a tick below expectations. On a year-over-year basis, the index climbed only 2.2%, close to the Fed’s 2.0% long-term inflation target and the least since February 2021.

SPX sectors in play

Six out of the 11 SPX sectors closed with gains for the week. Chemicals and materials (XLB) stocks were particularly strong on hopes for a rebound in Chinese demand. “Doctor Copper” especially strong. Technology stocks related sectors including Consumer Discretionary(XLY) and Communication Services(XLC) outperformed as well, helped by reports of a possible takeover of Intel and news that NVIDIA’s CEO had ceased sales of his own shares in the company. In addition, chipmaker Micron Technology surged and seemed to provide a general tailwind for the sector following its upbeat outlook for artificial intelligence demand. Energy stocks (XLE) lagged. Refer to below SPX sectors ETF weekly performance table.

Indexes technical levels

Both Dow(DJI) and SPX indexes hit new records again, while Nasdaq Composite(COMP) also closed its 3^rd weekly gains in a row. Click below three indexes for their weekly charts.  

DJI weekly chart

SPX weekly chart

Nasdaq weekly chart

 

China/HK

China stocks surged after Beijing unveiled a slew of measures to shore up the economy. The Shanghai Composite Index(SSE) gained 12.81% and the blue chip CSI 300 added 15.7%. In Hong Kong, the benchmark Hang Seng Index gained 13%. (Refer to the above weekly performance table). The rally marked the biggest weekly gain for the benchmark CSI 300 since 2008, when Beijing unveiled a massive stimulus package during the global financial crisis.

Key highlights for the week and outlook for China/HK:

1.    The People’s Bank of China (PBOC) cut its reserve requirement ratio by 50 basis points for most banks, its second cut in banks’ required reserves this year, and reduced its seven-day reverse repo rate—a key short-term policy rate—by 20 basis points to 1.5%. It cut the medium-term lending facility rate by 30 basis points to 2%, marking the largest-ever cut to the monetary policy tool since the central bank began using it to guide market rates in 2016, according to Bloomberg. The moves were part of a sweeping stimulus package announced last Tuesday at a rare press conference by PBOC Governor Pan Gongsheng that aims to jumpstart China’s ailing economy. Other measures unveiled by the PBOC included a rate cut for existing home mortgages and slashing the nationwide down payment ratio for second home purchases to 15% from 25%. 

2.    On Thursday, China’s top leaders vowed to take action to stabilize the country’s property market and make real estate prices “stop declining,” according to state media. The readout from the 24-man Politburo included a statement that China would deploy the necessary fiscal spending to meet its 2024 growth target of around 5%. The Politburo statement contained no specifics on fiscal spending. However, China plans to issue special sovereign bonds worth about RMB 2 trillion (USD 284.4 billion) this year as part of the fiscal stimulus plan, Reuters reported, citing unnamed sources. The package will include RMB 1 trillion of special sovereign debt focused on boosting domestic consumption, which has flagged since pandemic lockdowns ended. 

3.    Taken together, analysts believe the stimulus package is a positive development for China’s economy and will bolster near-term activity and pull market sentiment from very weak levels.

Click below SSE and .HSI indexes for their weekly charts. 

SSE weekly chart

.HSI weekly chart

Singapore

STI index closed lower after a six-week consecutive rally with total of 11% gains, the decline possible due to proit-taking led by the banks. Counters related to China rallied following China/HK markets’ stunning gains. Refer to below index stocks weekly performance.

Click below for STI weekly chart.

STI weekly chart

Source: Some contents and data excerpted from various public market reports.