China revives stocks rally, traders await US inflation test

By Ankur Banerjee

SINGAPORE (Reuters) -Chinese stocks resumed their rally on Thursday, fanned by expectations a briefing from finance officials this weekend would deliver anticipated fiscal stimulus, while the dollar lingered near a two-month high before a U.S. inflation report.

Mainland shares got a lift early in the Asia session as China's central bank kicked off its 500 billion yuan facility to spur capital markets, a plan it announced late September as part of a series of stimulus measures.

China's blue-chip CSI300 index rose about 3%, partially reversing the previous day's 7%, which was triggered by some investor concern about the lack of details in the stimulus package. Hong Kong's Hang Seng surged over 4%, after slipping 1.3% on Wednesday and is up 26% this year.

That left MSCI's broadest index of Asia-Pacific shares outside Japan 1.25% higher, with futures indicating European bourses were due for a slightly higher open.

The market's attention is now firmly on a finance ministry press conference on Saturday that will provide details of the fiscal stimulus plan. The theme of the news conference is "intensifying countercyclical adjustment of fiscal policy to promote high-quality economic development."

"We believe the consensus is expecting around 2 trillion to 3 trillion yuan in size of fiscal stimulus measures," said Richard Tang, China strategist at Julius Baer.

Tang expects more announcements of additional fiscal measures in the coming weeks.

It's been a volatile week for Chinese markets.

Mainland shares rallied to two-year highs on Tuesday after the long National Day holiday but quickly lost steam as the lack of details on stimulus measures dealt a blow to market enthusiasm.

Benchmark indexes in China notched their biggest daily losses on Wednesday since the COVID-19 pandemic began.

Overall, the CSI300 index is up 26% and the Shanghai Composite index is up 22% since the measures were first announced on Sept. 24.

"We believe the recent policy pivot marks a step change in the level of policy support, and that meaningful fiscal support is likely to follow," said Nicholas Yeo, head of China equities at abrdn.

"For the rally to sustain, the government needs to deliver on fiscal stimulus."

US CPI LOOMS

Overnight, the S&P 500 and the Dow closed at record highs after the release of Federal Reserve meeting minutes and ahead of September inflation data. [.N]

The minutes showed a "substantial majority" of Fed officials at the September meeting supported beginning an era of easier monetary policy with an outsized half-point rate cut.

However, there appeared even broader agreement that the initial move would not commit the Fed to any particular pace of rate reductions in the future, the minutes showed.

Markets are pricing in an 82% chance of a 25 basis point cut next month, CME FedWatch tool showed, with investors scaling back expectations for aggressive rate cuts after last week's strong U.S. jobs report.

Investor focus will be on inflation data on Thursday in the form of the consumer price index (CPI) for insight into the Fed's rate path, while the corporate earnings season kicks off with bank earnings on Friday.

September's CPI is likely to show core inflation holding steady at a 3.2% year-on-year clip, according to economists polled by Reuters.

"A hotter-than-expected core inflation number would see yields extend their recent gains and for traders to scale back further expectations for a Fed rate cut in November," Tony Sycamore, market analyst at IG said.

"A scenario that is likely to raise questions around the current Goldilocks narrative and unnerve equity markets."

The shifting U.S. interest rate expectations have boosted the dollar, with the dollar index, which measures the currency against six key rivals, steady after climbing to the highest since Aug. 16 overnight. [FRX/]

In commodities, oil prices rose as investors contended with rising tensions in the Middle East and its impact on oil supply, as well as a spike in demand as a major storm barrelled into Florida.

Brent crude futures was 0.78% higher at $77.18 a barrel, while the U.S. West Texas Intermediate (WTI) futures rose 0.83% at $73.85 a barrel. [O/R]

(Reporting by Ankur Banerjee in Singapore, additional reporting by Suzanne McGee in New York; Editing by Muralikumar Anantharaman and Sam HolmesTo read Reuters Markets and Finance news, click on https://www.reuters.com/finance/markets For the state of play of Asian stock markets please click on: 0#.INDEXA)