Chinese Stocks Surge, Fueling Regional Market Rally

Chinese stocks surged, lifting regional markets and supporting risk-sensitive currencies, while Brent crude remains near a three-week high. U.S. economic data weakened the dollar, raising chances of a significant Fed rate cut. Mainland Chinese blue chips and Hong Kong's Hang Seng saw significant gains, invigorating regional indexes.

Chinese stocks surged on Wednesday, lifting regional markets and aiding in the extension of a stimulus-fueled global rally. This surge also supported risk-sensitive currencies, while Brent crude hovered near a three-week high.

The dollar weakened after disappointing U.S. macroeconomic data boosted the argument for a substantial interest rate cut by the Federal Reserve in its next meeting. Gold hit a new all-time peak. Mainland Chinese blue chips advanced 3.1% as of 0230 GMT, following a 4.3% rise in the prior session. Hong Kong's Hang Seng climbed 2.2%, building on Tuesday's 4.1% increase.

This strong start for Chinese stocks invigorated other regional indexes, with Taiwan's benchmark up 1.3% and South Korea's Kospi gaining 0.1%. MSCI's broadest index of Asia-Pacific shares outside Japan rallied 1%.

Japan's Nikkei rose 0.3%, lifted by a retreat in the yen, a traditional safe haven. The People's Bank of China followed wide-ranging policy easing announcements on Tuesday with a cut to medium-term lending rates to banks on Wednesday. Beijing's broad-based stimulus—the most significant since the pandemic—also includes steps to bolster China's stock market and support the struggling real estate sector.

"The focus in Asia remains very much on China," wrote UBS analysts in a note to clients. "The debate remains intense on whether there are legs to this rally, though the desk is seeing investors opting to buy/short cover first and ask questions later."

The yen retreated about 0.17% to 143.47 per dollar, reversing earlier gains amid dollar weakness. The euro ticked up to $1.11915 and reached a monthly high of $1.1194.

Sterling edged up to $1.3417, hitting a new high since March 2022 at $1.3430. Data showed U.S. consumer confidence unexpectedly fell to 98.7, the largest drop since August 2021. The odds of another 50-basis point Federal Reserve rate cut in November jumped to 60.4% from 53% the previous day according to CME Group's FedWatch Tool.

Australia's dollar initially scaled its highest since February of last year at $0.6908 but slipped back to $0.68915 after inflation data showed some cooling, possibly setting up an earlier rate cut by the Reserve Bank.

"The fall in the underlying measures of inflation is an unexpected and welcome surprise," said Tony Sycamore, an analyst at IG. If the cooling trend continues in quarterly price data next month, "it sets up a dovish pivot from the RBA," leading to a potential rate cut in December, Sycamore added.

Gold rose 0.2% to $2,662.50 per ounce, hitting a new record peak at $2,665.10. Brent crude futures slipped 19 cents to $74.98 a barrel, while U.S. West Texas Intermediate crude lost 22 cents to $71.34 per barrel.

(With inputs from agencies.)