IMF Warns China's Stimulus Insufficient; Japan as Exception

During the Asian trading session on Friday (October 25), U.S. Treasury bonds and major stock indices showed an upward trend, with Japan being the exception. The strengthening of the yen put pressure on the local stock market.

Chinese stocks rose along with those in Australia and South Korea. The decline in the Japanese stock market was offset, thereby keeping the MSCI Asia Index stable.

U.S. stock index futures saw little change, following a 0.2% increase in the S&P 500 and a 0.8% rise in the Nasdaq 100. Tesla Inc.'s stock price soared by 22%, reflecting these trends, due to strong earnings and expectations.

On Thursday, both the U.S. stock and bond markets rose, with U.S. economic data showing that new home sales exceeded expectations, the number of initial jobless claims decreased, and business activity expanded at a steady pace.

"Fundamentally in line with expectations, 'lukewarm' data is the best outcome for the continued rebound of the stock and bond markets," claimed The Sevens Report analyst Tom Essaye.

As traders reassess expectations for U.S. interest rate cuts and the risks of the upcoming presidential election, U.S. Treasury yields fell for two consecutive days. The yields on Australian and New Zealand bonds also decreased. The U.S. dollar remained stable, on track for a fourth consecutive week of gains.

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The currency market currently expects a roughly 85% chance of a 25 basis point rate cut by the Federal Reserve next month, with a total reduction of about 135 basis points by the end of 2025.

"Investors witness the resilience shown by the economy and employment, forcing the Federal Reserve to be 'slow-footed' in cutting rates," said Sam Stovall of CFRA, who expects two 25 basis point rate cuts in 2024.

The sharp rise in Treasury yields earlier this week led to increased market risk aversion, with traders reducing expectations for rate cuts by the Federal Reserve.

"After the election, we still expect the U.S. Dollar Index to decline, as we believe that regardless of who wins the election, the Federal Reserve will further implement rate-cutting measures," global market strategist Carie Li said on a Bloomberg television program.In the foreign exchange market, the yen's gains against the US dollar on Thursday were sustained, with weekend elections potentially leading to the ruling coalition in Japan losing its majority in the House of Representatives for the first time since 2009. Strategists believe that this outcome could weaken the yen and put pressure on Japanese stocks.

In Japan, Bank of Japan Governor Haruhiko Kuroda stated that the central bank will not raise interest rates next week, with almost all central bank observers expecting no policy changes this month.

In other parts of Asia, a senior official from the International Monetary Fund (IMF) noted that a series of fiscal measures recently introduced by China are insufficient to counter the risk of deflation. IMF Asia-Pacific Director Krishna Srinivasan claimed that the central government "must increase spending" to address the collapse in the real estate sector and alleviate price pressures.

For TSMC, a positive signal is that the yield rate of its first factory in Arizona during early production has exceeded similar levels at its domestic factories.

In the commodity market, oil rose after falling on Thursday, as concerns over oversupply outweighed the risk of Israel potentially launching retaliatory strikes against Iran. After rising on Thursday, gold experienced a slight decline on Friday.