Key points:

  • A significant rise in Asian stock indices was driven by stimulus measures from the Chinese government.
  • Chinese stock indices showed substantial growth in response to the stimulus.
  • Japan’s Nikkei index reached a multi-week high.

The Asian stock index posted solid gains on Tuesday, reaching its highest level in two and a half years. This surge was fueled by large-scale stimulus measures introduced by the Chinese government. At the same time, investors responded optimistically to expectations of further interest rate cuts in the U.S., increasing their appetite for riskier assets and putting pressure on the U.S. dollar.

China eases monetary policy

Chinese financial regulators, during a much-anticipated press conference, announced a series of measures aimed at stimulating economic growth. Key decisions included a 50-basis-point reduction in the reserve requirements for commercial banks and lower mortgage rates. These measures, designed to boost economic activity, sparked a positive reaction in financial markets.

Chinese stock indices experienced significant growth. The CSI300 index, which tracks China’s largest companies, rose by 2.4%, and the Shanghai Composite also increased by 2.38%. Hong Kong’s Hang Seng index jumped by over 3.2%, reaching a four-month high.

The positive trend in China spread throughout the Asia-Pacific region. The broadest index of regional stocks, the MSCI, rose by 0.92%, reaching levels not seen since April 2022.

Kyle Rodda, senior financial market analyst at Capital.com, described the measures as “quite bold.” In his view, these actions aren’t a large-scale stimulus for the economy but rather aimed at stabilizing financial markets and supporting the banking system. Nonetheless, investors reacted optimistically to these decisions.

Japan’s Nikkei at three-week high

The Japanese stock market also showed positive momentum, with the Nikkei index reaching a nearly three-week high, gaining 0.8%. Simultaneously, the Japanese yen weakened against the U.S. dollar, hitting 144.11.

The Bank of Japan, meanwhile, kept its key interest rate unchanged, signaling its intention not to rush tightening monetary policy. Bank of Japan Governor Kazuo Ueda, speaking to business leaders in Osaka, emphasized that raising rates would become relevant if inflation develops in line with the central bank’s forecasts.

Meanwhile, U.S. stock markets saw moderate gains as investors continued to analyze the effects of the Federal Reserve’s decision to cut interest rates by 50 basis points. Fed policymakers actively justified the need for this move.

The Reserve Bank of Australia, as expected, kept interest rates unchanged, stressing the need to maintain a tight monetary policy. This decision contrasts with the actions of the Federal Reserve, which has shifted to easing monetary policy. The Australian dollar strengthened by 0.35%, reaching a 2024 high, buoyed by China’s stimulus measures and the Reserve Bank of Australia’s hawkish tone.