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Asian stocks extended last week’s rally led by Chinese stocks on talk that all of Beijing’s small policy moves could be a real stimulus at some point. The next step is expected to relax restrictions on property buyers.
Land Paradise’s 3.9 billion yuan ($537 million) offshore debt extension was largely relieved by the deal with creditors. As a result, China’s blue chips posted another 1.2% gain on last week’s 2.2% rally.
Japanese stocks have also been doing well, with the Topix hitting a 33-year high following data showing repeated profits by Japanese companies and setting a record in the second quarter. Companies hold a staggering 555 trillion yen ($3.80 trillion) in reserves, which is more than the total market capitalization of 447 trillion yen.
That’s one reason Topix trades at a low PE ratio of just 14, compared to 23 for the S&P 500 and 29.5 for the Nasdaq.
Stocks were still celebrating the July US payrolls report which seemed to be for everyone.
The household survey highlights a massive 736,000 jump in the labor force, which swallowed 222,000 jobs and pushed the unemployment rate higher.
That expansion in labor supply could ease wage pressures, even as hiring remains strong, a real golden lock for the Fed.
Accordingly, futures indicate a 93% chance of no hike this month, and around 63% once the tightening cycle is over. From 90 basis points early last week, the market is forecasting a 107 basis point meltdown next year.
Interestingly, however, Treasuries still sold off on Friday, and long-term yields are higher as the curve progresses. Treasuries were closed today but futures were down another 5 ticks, which may dampen market debt ahead of a wave of corporate issuance this week.
There may be some sticker shock on the budget deficit, which the Washington Post reported this morning is forecast to hit $2 trillion in the year to the end of September, and that’s a strong economy.
Most analysts expect the economy to slow into 2024 and unemployment to rise, so the risk should be for a bigger deficit in 2023/24. And of course, the Fed is a seller of debt, not a buyer, to pump the market into more new paper in the coming months.
If the central banks of Japan or China choose to sell some Treasuries to support dollar intervention, things could get very ugly.
Key developments that could impact the market on Monday:
– Speeches by ECB President Christine Lagarde and Board Members Frank Alderson, Philip Lane and Fabio Panetta
– Germany reported trade data for July
($1 = 146.1600 yen)
(Reporting by Wayne Cole; Editing by Edmund Kelman)