Asia open: Sentiment still buoyed by a double dose of stimulus

Asian investors are heading into the final trading day of the quarter, buoyed by the double dose of stimulus from both the U.S. Federal Reserve and China. But with the start of a new month, the focus quickly shifts to something familiar: a slew of crucial U.S. macro data that will likely set the tone for the markets.

The centrepiece of this week? Payrolls, of course. Economists expect to see around 146,000 jobs added in September. If the numbers align with that forecast (assuming no significant revisions), the three-month average for non-farm payrolls would land at 126,000—well below the level required to replace jobs. However, as we know, revisions often tell a more significant story, and they could end up being more crucial than the headline number when it comes to shaping expectations around Fed policy.

Regardless of how you interpret the labour market’s state, job growth is slowing. The question now is whether that deceleration will be enough to justify a series of half-point rate cuts from the Fed in the coming months or if the data will stay strong enough to keep policymakers cautious.

Meanwhile, China continues to roll out its stimulus measures. Following last week's bold fiscal and monetary actions that ignited a stock market rally, the People's Bank of China has now instructed banks to cut mortgage rates for existing home loans by the end of October, potentially trimming rates by 50 basis points on average. It’s part of Beijing’s broader effort to stabilize its housing market and keep the economic recovery on track.

Conversely, Japan might face market turbulence as investors digest Shigeru Ishiba's appointment as the next prime minister. Ishiba, previously known for criticizing the Bank of Japan's aggressive monetary easing, softened his tone on Sunday, likely tempering any overwrought hawkish sentiment. He emphasized that accommodative policies must remain in place to support Japan’s fragile recovery. These comments, along with recent musings from the BoJ, point to no immediate shift in monetary policy.

However, don’t get too comfortable just yet. If Japan rolls out a sizable fiscal package post-election, expectations could shift toward an earlier rate hike. Keep an eye on this, as it has the potential to shake things up sooner than anticipated.

Ultimately, much will depend on the speed and scale of the Federal Reserve’s rate cuts and how U.S. economic data pans out—especially with Friday’s Non-Farm Payrolls report looming large. The yen’s path forward may well hinge on how these pieces fall into place.

Week in review

"Disinflationary rate cuts from elevated levels are a boon for equities, and this cycle is unfolding as expected."

Equity markets extended gains last week, supported by the clear easing path many global central banks are taking, reinforcing hopes for a soft landing. The S&P 500 climbed 0.6%, led by materials and consumer discretionary sectors, while energy lagged due to falling oil prices. WTI crude dipped below $70, hinting at a potential market-share battle, which further supports the positive inflation outlook for equities.

The mix of declining inflation and resilient growth continues to fuel stocks. As noted before, disinflationary rate cuts from elevated levels are a boon for equities, and this cycle is unfolding as expected. U.S. core PCE inflation hit a comfortable 2.7% year-on-year, or 2.1% annualized over the last three months, while Q2 GDP growth was revised upward to a solid 3.0%. Strong productivity is boosting earnings, which saw a robust 10.8% year-on-year rise, mirroring the strength reported by S&P 500 companies.