On Friday, the stock market struggled to find a clear direction as traders weighed concerns about the sluggish economic recovery in the wake of the pandemic and signs of deflationary pressure. Simultaneously, government bonds gained traction amid expectations of increased stimulus measures to rejuvenate the economy. During the midday recess on Tuesday, the blue-chip CSI 300 Index inched up 0.2%, while the Shanghai Composite Index dipped 0.1%. Hong Kong’s Hang Seng Index and the Hang Seng China Enterprises Index both experienced a 0.1% decline. Reflecting a broader trend of lackluster global equities, Asian stock markets faced a potential end to a nine-week winning streak.
The U.S. dollar was poised for its most robust weekly gain since mid-July, as traders adjusted their expectations regarding the likelihood of an aggressive rate cut by the Federal Reserve. Goldman Sachs commented on China’s macroeconomic landscape, noting a consistent pattern of sluggish near-term economic growth momentum with limited concrete easing measures over the past month.
Specifically, shares in artificial intelligence and defense security sectors declined by more than 1%, whereas financials and property developers saw gains of approximately 1%. In Hong Kong, tech giants experienced a 1.1% drop, with e-commerce giant Alibaba down 3%.
Despite expectations of rate cuts supporting bond prices, stock markets faced a decline, reflecting weak sentiment. Yields on the benchmark 10-year government bond reached 2.525%, the lowest since April 2020, showcasing an inverse relationship with bond prices.
Goldman Sachs anticipated policy adjustments by the People’s Bank of China (PBOC), projecting rate cuts in the first and third quarters of the year by 10 basis points each, along with reserve requirement ratio (RRR) cuts in the second and fourth quarters by 25 basis points each.
