Morning Bid: China rate cuts looming, US booming

The trading week in Asia opens against an increasingly bullish global backdrop fueled by continued strength in US stocks, but with local sentiment more circumspect due to the uncertainty surrounding China's deep-rooted economic problems.

The People's Bank of China is expected to cut its loan prime rates on Monday, Beijing's latest move in a series of monetary, fiscal and liquidity support measures to shore up the imploding property sector, revive growth and fight off deflation.

PBOC Governor Pan Gongsheng told a financial forum in Beijing on Friday that the LPR will be reduced by 20 to 25 basis points on Monday, the official Xinhua news agency quoted Pan as saying.

The PBOC also on Friday unveiled new measures to inject more than $100 billion into the country's stock market, which helped lift Shanghai's blue chip equity index by 3.6%, while the MSCI Asia ex-Japan index rose 1.6% for its best day since Sept. 26.

Source: Reuters

China's economic "data dump" on Friday wasn't as bad as many feared it could have been, and annual GDP growth in the third quarter was slightly above consensus at 4.6%.

But as economist Phil Suttle notes, the past two quarters have been unusually weak, delivering 2.75% growth on a seasonally-adjusted annualised basis, "the weakest two-quarter growth rate in modern times" outside of COVID-related shutdowns.

Little wonder Beijing has sprung into action.

Stocks have responded positively, but bond yields are sliding again. They initially spiked higher on hopes the support measures, which include substantial bond issuance, will reflate the economy but 10-year yield is once again within sight of 2.00%.

Source: Reuters

US-Sino trade wars have been pushed to the forefront of investors' minds again after Republican presidential candidate Donald Trump said he would impose additional tariffs "at 150% to 200%" on China if China were to "go into Taiwan," the Wall Street Journal reported on Friday.

The US juggernaut, meanwhile, keeps rolling on - economic data are beating expectations, GDP growth is tracking well over 3%, incoming earnings are strong, and Wall Street is hitting new highs.

But perhaps the optimism is overdone. Analysts at Raymond James note that short-term options and technical indicators are getting skewed, suggesting the market may be "ripe for a period of consolidation or vulnerable to a near-term pullback."

Financial conditions are easing around the world, as central banks cut rates and stocks march higher. On that score, investors in Asia will keep close tabs on the dollar, which has recovered recently and is at a three-month high.

Friday's Morning Bid Asia newsletter incorrectly stated that Malaysia would announce GDP data later in the day. The preliminary GDP will be released on Monday, Oct. 21.

Here are key developments that could provide more direction to markets on Monday:

- China loan prime rate decision

- Malaysia GDP (Q3)

- Reserve Bank of Australia deputy governor Andrew Hauser speaks