The government also stated that it would deploy fiscal spending so that growth targets could be met, although details on the scale were not outlined. Investors reacted positively to the stimulus announcements across the week. The Shanghai Composite surged 12.8%, while the CSI 300 added 15.7% in its best weekly performance since November 2008. Meanwhile Hong Kong’s Hang Seng climbed 13% in its strongest week since October 1998.
Improved sentiment on the stimulus was not just restricted to China. Wall Street gained, with the Dow Jones Industrial Average ending at a new closing high, up 0.6% and the Nasdaq Composite rising 1%. The S&P 500 added 0.6%, with materials one of the best performing sectors on hopes of a pick-up in Chinese demand. This did not carry across to oil prices which declined, overshadowed by news that Saudi Arabia was preparing to increase production in December. Friday saw the release of the Federal Reserve’s preferred inflation measure, the personal consumer expenditures (PCE) price index, which eased to 2.2% year-on-year in August, from 2.5% in July. Nevertheless, Treasury yields ended the week little changed.
The pan-European STOXX 600 was up 2.7% for the week, boosted by China as well hopes for further interest rate cuts given weaker economic data from the region. The eurozone composite Purchasing Managers’ Index dropped into contractionary territory in August, with the effect of the Paris Olympics dropping out. Meanwhile, both German business and consumer sentiment weakened, but this did not stop the DAX index rising 4%. Switzerland’s SMI added 2.5%, with the Swiss National Bank cutting its policy rate by 25 basis points to 1%.
Japanese equities also saw a strong week, with the Nikkei 225 up 5.6%. Comments from Bank of Japan governor, Kazuo Ueda, following last week’s meeting where rates were left unchanged, were viewed as dovish, putting pressure on the yen. Ueda indicated that the central bank could afford to take time in assessing economic developments before making any more policy moves. The Tokyo core consumer price index increased 2% year-on-year in September, easing from August’s 2.4% pace. On Friday, former defence minister Shigeru Ishiba won the Liberal Democratic Party’s leadership contest, beating economic security minister Sanae Takaichi.