Global stocks gain on China stimulus hopes and strong US economic data

The New York Stock Exchange. US retail sales rose 0.4 per cent in September. EPA

Most global equities rose on Friday, buoyed by a rally in Chinese stocks following the announcement of stimulus measures and strong US economic data.

US retail sales rose 0.4 per cent in September, driven by lower gasoline prices that increased consumer spending at restaurants and bars, indicating continued economic growth in the third quarter. Last month's increase followed an unrevised 0.1 per cent rise in August.

Economists surveyed by Reuters had predicted a 0.3 per cent increase in retail sales, which primarily consist of goods and are not adjusted for inflation. On a year-on-year basis, retail sales grew by 1.7 per cent in September.

US Federal Reserve Chairman Jerome Powell. The Fed is scheduled to meet on November 6 and 7. EPA

The Federal Reserve Bank of Atlanta increased its estimate for US GDP growth in the third quarter to an annualised rate of 3.4 per cent, up from the prior forecast of 3.2 per cent. In the April-June quarter, the economy expanded at a 3 per cent rate.

“The week drew to a close with fresh highs for the S&P 500 … while US earnings continued on its impressive path,” said Zain Vawda, market analyst at Oanda. “As markets digest US earnings, rate cut bets in the US remain steady from a week ago. Markets are still pricing in around a 92.3 per cent chance of a 25 [basis point] cut from the Federal Reserve in November, up from 89.5 per cent last week.”

The Fed is scheduled to meet on November 6 and 7. In September, the central bank lowered interest rates by half a percentage point to protect the labour market and signalled further reductions in the coming months.

Meanwhile, the European Central Bank (ECB) lowered its interest rates by 25 basis points on Thursday in a widely expected move. The bank's president Christine Lagarde said inflation is being brought under control.

She cautioned that a brief sharp rise may occur, but expects inflation to stabilise at target levels by next year, while the eurozone is unlikely to face a recession.

“It was rather a dovish cut,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank. “The bank’s confidence that inflation is being tamed, and the morose economic data boost the probabilities of further rate cuts from the ECB in the coming meetings,” she said.

On Wall Street, the Dow closed 0.1 per cent higher. The benchmark S&P 500 added 0.4 per cent, while the tech-heavy Nasdaq Composite rose 0.6 per cent.

In Asia, Tokyo’s Nikkei 225 index settled 0.18 per cent higher, while Hong Kong’s Hang Seng closed up 3.6 per cent. The Shanghai Composite index climbed 2.9 per cent and Taiwan's Taiex ended Friday 1.88 per cent higher.

However, the Korea Composite Stock Price Index recorded a decline of 0.59 per cent.

China stimulus

Investors are closely watching Chinese government efforts to revive the country’s economy, which is grappling with weak consumer spending, a property sector downturn, and a manufacturing slowdown.

Apartment blocks in Beijing. China's central bank has unveiled a major economic stimulus package that includes lowering rates on existing home loans. EPA

Last month, China’s central bank unveiled its largest economic stimulus package since the Covid-19 pandemic, including a reduction in its key short-term interest rate, a lowering of mortgage rates for existing housing loans and a one trillion-yuan ($140 billion) liquidity injection.

The country's finance ministry held a briefing last Saturday but did not specify the size of the coming fiscal stimulus.

“To reduce deflationary pressures and stabilise the economy on a sustainable basis, the imbalances in the Chinese economy need to be addressed, which requires measures that go beyond a short-term stimulus boost and also include structural reforms,” said Sophie Altermatt, economist at Julius Baer.

“To address the demand issue in the economy and increase household propensity to spend, more direct support for household incomes will be necessary in our view,” Ms Altermatt said.