War between Israel and Hezbollah affects global stock markets: Asian shares drag by Nikkei, China continues to rise

The influx of stimulus helped outweigh the weak industrial sector survey results and push the CSI300 index (.CSI300) up another 3.0%, after already gaining 16% last week. The Shanghai Composite Index (.SSEC), opens a new page, gained 4.4%, compared to last week’s gain of 13%.

Continued Israeli strikes in Lebanon increased geopolitical uncertainty, although oil prices remained constrained by the risk of increased supply.

The week is packed with important U.S. economic data, including a payrolls report that could determine whether the Federal Reserve makes another too-big interest rate cut in November.

The Nikkei (.N225), turning over a new page, started early action with a 4.1% decline as investors eagerly awaited further guidance from new Prime Minister Shigeru Ishiba, who has been critical of the Bank of Japan’s easy policies in the past.

But his voice was more conciliatory over the weekend, saying monetary policy “must remain accommodative” given the state of the economy.

This helped the dollar rise 0.2% to 142.52 yen, after falling 1.8% on Friday from a high of 146.49.

“Ishiba supported the BoJ’s intention to normalize monetary policy, although it left uncertainty on the pace and timing,” said HSBC economist Jun Takazawa.

“The implementation of additional stimulus measures would also likely reinforce the trend of recovery in spending, thus strengthening the BoJ’s confidence in gradually raising interest rates,” he added. “To sum up, we continue to see a constructive outlook for Japan.”

In China, the central bank said it would order banks to reduce interest rates on existing home loans by the end of October, probably by an average of 50 basis points.

This follows a series of monetary, fiscal and liquidity support measures announced last week as part of the largest stimulus package for Beijing since the pandemic.

“We believe the risk of deflation is now being taken more seriously,” said Christian Keller, director of economic research at Barclays. “At the same time, the Politburo suggests that there is likely a consensus in Beijing that fiscal stimulus and central government leverage are necessary to stem the downturn.”

“This is an important change in a market that has been looking for more than just the bare minimum.”

China’s rally helped MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS), opening up 0.3% after rising 6.1% last week to a seven-month high.

Wall Street also had a spirited week, helped by a mild U.S. core inflation reading on Friday that left the door open for another half-point rate cut by the Fed.

Futures indicate about a 53% chance that the Fed will ease interest rates by 50 basis points on November 7, although the presidential election two days earlier remains a major unknown.

Multiple Fed speakers will weigh in this week, led by Chairman Jerome Powell late Monday. There will also be data on job vacancies and private employment, as well as ISM research on production and services.

EUROSTOXX 50 futures FTSE futures were little changed in early trading. S&P 500 futures were flat on Monday, while Nasdaq futures fell slightly. Turning a new leaf, the S&P 500 Index (.SPX) is up 20% year-to-date and is on track for its best January-September performance since 1997.

In currency markets, the dollar index was unchanged at 100.41 after weakening by 0.3% last week. The euro was trading at $1.1167, having rebounded on Friday following a report of mild US inflation.

The euro zone will publish inflation data this week, as well as producer prices and unemployment. German inflation and retail sales will be announced on Monday when European Central Bank President Christine Lagarde addresses parliament.

A weaker dollar combined with lower bond yields will help the zloty reach a record high of $2,685 per ounce. It last traded at $2,656 per ounce and is on track for its best quarter since 2016.

Oil prices rose amid tensions in the Middle East, allaying concerns about possible increased supply from Saudi Arabia.

Brent rose 61 cents to $72.59 a barrel, while U.S. crude rose 44 cents to $68.60 a barrel.