Global stocks notch new highs on China stimulus, Fed easing bets

China’s big stimulus steps and benign US inflation data pushed global stocks to all-time highs on Friday, while the yen firmed sharply against the dollar after Japan’s former defence minister Shigeru Ishiba looked set to become the next prime minister.

Europe’s benchmark STOXX 600 index rose 0.5% to touch a record high, with the German DAX, France’s CAC 40 and Britain’s FTSE 100 rising between 0.3% and 1.2%.

Futures signalled the S&P 500 was set to build on gains after notching a record high on Thursday. Data showed the personal consumption expenditures (PCE) price index - the Federal Reserve’s preferred measure of inflation - pointed to a further cooling of price pressures in August.

Traders in turn added to bets that the Fed will deliver a second 50-basis-point interest rate cut in November.

The dollar weakened by as much as 1.5% to 142.60 against the yen, reversing earlier gains of about 1% when traders were bracing for hardline nationalist Sanae Takaichi, a vocal opponent of rising borrowing costs, to become Japan’s premier.

Ishiba, who won a closely fought contest in his fifth attempt to lead the ruling Liberal Democratic Party, has said the Bank of Japan (BOJ) is on the “right policy track” by ending negative rates.

“Ishiba’s victory is a relief for the BoJ as he generally supports the BoJ’s policy normalisation,” said Min Joo Kang, senior economist for South Korea And Japan at ING.

“Moreover, his fiscal policy should focus on reviving the regional economy, which should also support sustainable inflation and growth. We believe that the upcoming inflation results and the Fed’s interest rate actions will be the key to gauge the BOJ’s next move.”

The dollar was last down 1.4% against the yen at 142.84 yen, while futures tracking the Nikkei stock index dropped about 5%.

MSCI’s world stocks index rose 0.4%, also touching a new high, thanks to a big turnaround in Chinese shares as Beijing ramped up pledges to revive sputtering economic growth.

China’s blue chips jumped 4.5%, bringing their weekly rise to 15.7%, the most since November 2008. Hong Kong’s Hang Seng index also gained 3.6% and was up 13% for the week, its best performance since 1998.

“We think there is further upside but a lot will depend on the specific details in the coming days around the fiscal stimulus,” said Kiran Ganesh, multi-asset strategist at UBS Global Wealth Management.

“If this is something more about stabilisation, then maybe it doesn’t have as big a global economic impact. But if this is a long-term measure to increase the amount of fiscal spending the government is doing, then that could be positive for global growth.”

They see a further upside of close to 10% in Shanghai stocks.

China’s central bank lowered interest rates and injected liquidity into the banking system, and more fiscal measures are expected to be announced before week-long Chinese holidays starting on Oct. 1.

Commodities have had a good week on the back of the stimulus. Iron ore clambered back above $100 a metric ton and copper broke above the key $10,000 a ton mark.

Oil was set for heavy weekly losses on a report that Saudi Arabia was preparing to abandon its unofficial price target of $100 a barrel for crude as it gets ready to increase output.

Brent futures dipped 0.1% to $71.50 a barrel, and are down 3.9% for the week. That should be good for global disinflation as central banks ramp up rate cuts, and bullish for consumer spending.

The euro fell as much as 0.5% to $1.1125 after data showed French consumer prices rose less than anticipated in September and Spain’s European Union-harmonised 12-month inflation fell to 1.7% - the lowest reading since June 2023.

However, broad dollar losses following the U.S. data helped the euro bounce off its lows, and it was last trading flat at $1.1186.

Money markets priced in an 80% chance of an ECB rate cut in October from around 20% early this week and 60% before the data.

“The trend of more rate cuts than investors may have expected is something to position for,” said UBS’ Ganesh.

U.S. Treasury yields pulled back, having risen overnight on low U.S. weekly jobless claims data. Two-year Treasury yields slipped 3.3 basis points (bps) to 3.5878%, while 10-year yields also dropped around 3 bps to 3.7563%.

 Wall Street stocks edged higher early Friday, extending a strong period for equities following benign US inflation data that boosts the odds of further Federal Reserve interest rate cuts.

The personal consumption expenditures (PCE) price index was up 2.2 percent from a year ago in August, down from 2.5 percent in July. The report also showed a 0.1 percent rise in August in real consumer spending.

The data suggests inflation “will continue to fade over the coming months,” said Oxford Economics, which also sees “solid” consumer spending amid a still- steady job market.

About 15 minutes into trading, the Dow Jones Industrial Average was up 0.4 percent at 42,324.58.

Agencies