Asian Markets Soar to Two-Month High Amid China's Economic Upswing

China's robust industrial and retail sectors have boosted investor confidence in the Asian market, mirrored in the significant gains in major indexes such as Hong Kong's Hang Seng and Japan's Nikkei. Moreover, Australian and South Korean bond markets have experienced growth, while the currency market has shown a weakening trend for the US dollar.

On Wednesday, Asian stock markets soared to their highest levels in two months, invigorated by the dual prospects of China ramping up its economic activity and the United States potentially pausing its interest rate hikes. This surge in market confidence also coincided with a notable dip in the US dollar's value following a recent report indicating milder-than-expected inflation in America.

Key indices like Hong Kong's Hang Seng Index (HSI) experienced a near three-percent surge, surpassing its 50-day moving average, and Japan's Nikkei Index (N225) also saw a 2.3 percent jump. Also, the Asia-Pacific’s comprehensive index, MSCI (without Japan), matched this enthusiasm with a similar rise, reaching its highest peak since mid-September and poised for its biggest daily increase since January.

Bond Markets and Global Reactions

The optimism was not limited to stock markets. Bond markets from Australia to South Korea saw their most robust performance since March. Initial excitement in Treasuries and equity futures settled into steady US and European trading. This global market response comes in the wake of America's October consumer price data, which revealed a stabilization in headline inflation, defying expectations of a 0.1 percent increase, registering a rise of only 0.2 percent against the projected 0.3 percent.

Expert Insights

Naka Matsuzawa, chief macro strategist at Nomura, shared his insights with the media. He highlighted a growing complexity in market dynamics, pointing to a tug-of-war between the stock market's optimism and the bond market's cautious stance on potential economic slowdowns. Matsuzawa underscored that bonds might face more vulnerability than equities under these circumstances.

US Market Movements

The US market reflected these global trends, with the Nasdaq Index and the Russell 2000 index posting remarkable gains of 2.4 percent and 5 percent, respectively. The currency market saw the US dollar weakening, falling 1.6 percent compared to the euro and decreasing by 2 percent against Australian and New Zealand dollars. Current market predictions indicate a potential interest rate cut by the US Federal Reserve by May, with a 30 percent probability of it taking place in March.

Beijing's Support Boosts Markets

Boosting the upbeat mood in Asian markets, China reported robust industrial output and retail sales figures. A media report also suggested that China is set to offer 1 trillion yuan (equivalent to $137 billion) in low-cost financing to stimulate its housing market. The commodities market witnessed iron ore rallying to its highest point in two and a half years, and copper reached a three-week maximum in Shanghai. Brent Crude futures increased by 0.4 percent, or 31 cents a barrel, to $82.78.

The Mainland China CSI 300 Index (CSI300) showed a modest increase of 0.6 percent. Meanwhile, the Hang Seng Index tracking Mainland property developers (HSMPI) jumped by 4.3 percent.

In October, China reported a 7.6 percent increase in retail sales, a figure potentially boosted by the Golden Week holiday observed at the beginning of the month. However, real estate investment from January to October declined 9.3 percent, which is steeper than the same period last year. "It is clear that Beijing has been turning more proactive in recent weeks to help support the recovery," noted HSBC economists to news sources. "With ongoing uncertainties highlighted by the property sector, we think Beijing will continue to step up support through both fiscal and monetary means," economists noted.

Currency Markets React

A weaker dollar helped boost the Chinese yuan to a three-month high of 7.2356 against the greenback. The euro surged through its 200-day moving average overnight, hovering at $1.0877, while the sterling maintained sharp gains at $1.2491.

Australian and Japanese Market Movements

Data on Australian wages showed high inflation impacting pay deals, although annual growth of 4 percent remains below many other developed nations. Japan's economy contracted in the July-September quarter, official data revealed, affecting the yen. The Japanese currency reached a 16-year low of 163.9 yen per euro and traded at 150.68 per dollar. Meanwhile, two-year Japanese government bonds experienced their sharpest rally since April 2022.