World stocks reached a record high on Tuesday following China’s announcement of stimulus measures aimed at bolstering its economy and stock markets. This led to gains in both Asian and European shares and a rise in commodity prices.
Governor Pan Gongsheng of the People’s Bank of China (PBOC) revealed plans to reduce borrowing costs, inject additional funds into the economy, and ease mortgage repayment burdens for households. Pan also mentioned the introduction of structural monetary policy tools to stabilize capital markets for the first time.
These measures boosted Chinese stocks, with the blue-chip CSI300 index and the Shanghai Composite index both surging over 4%. Hong Kong’s Hang Seng Index also jumped more than 4%, reaching a four-month high.
Jefferies economist Mohit Kumar noted that investor positioning in Chinese stocks is currently underweight, and the stimulus measures could create a positive environment in the coming months. However, he cautioned that more targeted support for property and infrastructure would be needed for a significant change in outlook.
Despite these gains, Chinese stocks have lagged behind in the Asian region, with the CSI300 index down 2.3% this year, having hit multi-year lows due to insufficient stimulus from authorities.
The pan-European STOXX 600 index rose 0.8%, led by China-exposed mining and luxury stocks, while Germany’s DAX traded just below all-time highs. The MSCI world stocks index gained 0.3%, reaching a record high, with futures indicating a higher open on Wall Street.
The positive sentiment also lifted commodity prices, with oil prices rising nearly 1.5% and copper prices reaching a two-month high, driven by expectations of increased demand in China. Iron ore futures on China’s Dalian Commodity Exchange saw their largest intraday gain in over a year. Gold prices paused after hitting a record high of $2,639.95 earlier, as escalating tensions in the Middle East attracted safe-haven flows.
In other news, the Reserve Bank of Australia (RBA) held interest rates steady as expected, maintaining a tight policy stance in contrast to the U.S. Federal Reserve, which recently began its easing cycle with a 50-basis-point cut. The Australian dollar slipped 0.1% to $0.6831, after reaching its highest level of 2024 earlier at $0.68695.
Meanwhile, the U.S. dollar hit a 20-day high against the yen, rising 0.7% to 144.54 yen. The Bank of Japan kept interest rates steady last Friday, indicating no rush to raise borrowing costs further. BOJ Governor Kazuo Ueda stated in a speech that the bank can afford to take time in assessing market and economic developments before adjusting monetary policy.
Markets are currently divided on whether the U.S. central bank will opt for another 50 bp cut or a 25 bp cut in November, with the CME Fedwatch tool showing 76 bps of easing priced in for this year. Brown Brothers Harriman Senior Markets Strategist Elias Haddad suggested that the market might be overestimating the Fed’s capacity to ease, noting that strong U.S. jobs data would be needed to significantly alter Fed funds rate expectations.
The next non-farm payrolls report is due on October 4th. Until then, a dovish Fed and a robust U.S. economy are expected to support market sentiment and weaken the dollar against growth-sensitive currencies. The dollar index, which measures the U.S. currency against six rivals, was slightly lower at 100.82, close to the one-year low of 100.21 reached last week. The euro edged 0.3% higher to $1.1141, after dropping about 0.5% on Monday due to weak business activity reports in the euro zone, raising expectations for further rate cuts by the European Central Bank.