By Stella Qiu

SYDNEY (Reuters) – Chinese stocks raced toward their best week since 2008, significantly lifting Asian shares to 2-1/2-year highs following a major stimulus package from Beijing aimed at economic revival. The sharp decline in oil prices suggests a positive trend for global disinflation.

The Japanese yen fell 1% to three-week lows as markets predicted Sanae Takaichi, the economic security minister opposing interest rate hikes, may win the leadership contest for Japan’s ruling Liberal Democratic Party on Friday.

European share markets are forecasted to open slightly higher, with EUROSTOXX 50 futures up 0.2% and FTSE futures climbing 0.1%. Wall Street futures remained largely flat.

MSCI’s broadest index of Asia-Pacific shares outside Japan climbed 0.5%, reaching its highest level since February 2022 earlier in the day, and is on track for a weekly gain of 5.3%, buoyed by a significant rebound in Chinese shares.

China’s blue chips surged 3.5%, bringing the weekly increase to 14.6%, marking the largest rise since November 2008. Hong Kong’s Hang Seng index also rose 1.9%, up 11.2% for the week, its best performance since 2009.

“Beijing seems finally determined to roll out its bazooka stimulus in rapid succession… Beijing’s recognition of the severe situation of the economy and lack of success in a piecemeal approach should be valued by markets,” said Ting Lu, chief China economist at Nomura.

“But ultimately, it is still crucial for Beijing to introduce well-thought-out policies to address various deep-rooted issues, especially in stabilizing the property sector, which is now facing its fourth year of contraction.”

As indicated, the People’s Bank of China on Friday lowered the banks’ reserve requirement ratio by 50 basis points and reduced the 7-day reverse repo rate by 20 bps, also cutting the 14-day reverse repo rate by another 20 bps—marking the second reduction this week.

Reuters reported China intends to issue special sovereign bonds worth about 2 trillion yuan ($284.43 billion) this year as part of a new fiscal stimulus strategy.

Commodities surged this week following the Chinese stimulus announcement. Iron ore prices climbed back above $100 per metric ton, with copper surpassing the significant $10,000 a ton threshold, while gold reached a new record and silver rose to a 12-year high.

Conversely, oil prices faced significant weekly losses, as reports surfaced indicating Saudi Arabia plans to abandon its unofficial price target of $100 per barrel for crude to prepare for increased output. Oil futures for Brent fell 0.4% to $71.31 per barrel, down 4.2% for the week, potentially favorable for global disinflation as central banks accelerate rate cuts and aim for increased consumer spending.

YEN SKIDS

Results from Japan’s Liberal Democratic Party’s first-round balloting indicated that economic security minister Sanae Takaichi, 63, and former defense minister Shigeru Ishiba garnered the most votes, qualifying for the second round, expected to conclude at 0630 GMT.

Markets are betting on Takaichi—who vocally criticized the Bank of Japan’s attempts to raise interest rates—winning, as swaps implied only a 30% chance that the central bank might lift rates again by year-end.

Following the first round of balloting, the dollar rose by 1% to 146.23 yen. The Nikkei index soared by 1.8%, marking a 5% increase for the week, bolstered by the weakening yen.

“Risks of the BOJ being pushed to the dovish side are weighing on the yen now, but it’s crucial to remember that the narrowing yield differentials—key for the yen—will likely remain driven by Fed actions and favor the yen,” stated Charu Chanana, head of currency strategy at Saxo.

Treasury yields remained stable in Asia, having increased overnight following low U.S. weekly jobless claims, leading markets to reduce the chances of another significant half-point rate cut from the Fed in November to 51%, down from 57% a day earlier.

Investors await the core personal consumption expenditures (PCE) price index, the Fed’s preferred inflation measure, set to be released later today, with forecasts anticipating a modest monthly rise of 0.2%. Market speculation is divided regarding the expected size of the Fed’s rate cut in November.

Two-year Treasury yields climbed 6 bps this week to 3.6348%, while 10-year yields increased 7 bps to 3.789% during the week.