Asian Markets Brace for Pause as China Stimulus Euphoria Fades, Global Outlook Dims

Asian markets appear poised for a breather on Thursday as the afterglow of China’s recent stimulus measures begins to fade and global economic uncertainties resurface. A combination of factors, including a lackluster performance on Wall Street, rising U.S. bond yields, and a strengthening dollar, is likely to weigh on investor sentiment.

Adding to the cautious mood, the global growth and policy outlook remains murky. Weak U.S. consumer confidence figures have rekindled fears of a sharper-than-expected economic slowdown, while the Eurozone grapples with mounting signs of sluggish growth and softening inflation. Economists at HSBC have significantly downgraded their forecasts for the European Central Bank (ECB), now anticipating a series of rate cuts through April 2025 as the region confronts economic headwinds.

The potential for weakness in the Eurozone has raised concerns about spillover effects on China, given the strong trade and financial linkages between the two economies. While Chinese stocks initially rallied on the back of Beijing’s stimulus announcements, reaching a two-month high on Wednesday, they have since pared gains, suggesting that the boost may be short-lived.

Similarly, Hong Kong stocks, which have experienced an impressive 15% surge over the past two weeks, and the broader MSCI Asia ex-Japan index, currently at its highest level since February 2022, could be due for a pullback.

Meanwhile, the U.S. dollar has regained some lost ground, bolstered by rising bond yields and the euro’s decline. The dollar index posted its most significant daily gain in a month on Wednesday, reversing earlier losses that had pushed it near a 14-month low.

However, the greenback’s performance against emerging market currencies has been more subdued. Notably, the Chinese yuan has continued its impressive ascent against the dollar, reaching its strongest point since January 2022. This sustained rally, now in its sixth consecutive day, highlights the resilience of the Chinese currency despite ongoing economic challenges.

Key Economic Indicators and Events to Watch:

• Bank of Japan minutes from its July 30-31 policy meeting
• Singapore industrial production figures for August
• Hong Kong trade data for August

These releases, along with the Reserve Bank of Australia’s Financial Stability Review, will provide further insights into the health of the regional economy and shape investor expectations for future monetary policy actions. As the initial euphoria surrounding China’s stimulus measures subsides, market participants will be closely monitoring these indicators for signs of sustainable economic recovery in the face of mounting global headwinds.