Asia shares pulled higher by Nikkei surge, China GDP beats

Asian markets advanced, led by Japan's Nikkei on expectations of a pro-stimulus prime minister, while China's Q3 GDP and industrial output surpassed forecasts despite ongoing property sector weakness, prompting hopes for further stimulus. U.S. inflation data is not anticipated to deter the Federal Reserve from widely expected rate cuts this month and in December, which has underpinned bond yields and pressured the dollar. Meanwhile, high expectations surround the Q3 earnings season, particularly for the tech sector, as gold continued its surge on strong demand, and oil prices eased due to ample supply.

Analysis

Asian markets saw broad gains, with Japan's Nikkei surging 2.8% on expectations of a pro-stimulus prime minister, a factor positive for equities but negative for the yen. China's Q3 GDP grew 1.1% and industrial output rose 6.5%, both topping forecasts, yet annual growth of 4.8% was the slowest in a year, with the property sector remaining a significant drag. These mixed signals from China reinforce expectations for further stimulus.

U.S. monetary policy remains dovish, with markets fully pricing in a quarter-point Fed rate cut this month and another in December, despite core inflation holding at an expected 3.1%. This outlook has underpinned bond markets, with 10-year yields falling 14 basis points to 4.011%. Q3 earnings season carries high expectations, with S&P 500 companies projected to achieve 8.8% earnings growth, led by a 20% surge in the tech sector and Nvidia (NVDA) contributing a quarter of total EPS growth.

The prospect of Fed rate cuts pressured the dollar, which dipped against European and higher-yielding currencies, while the yen weakened as Bank of Japan rate hike expectations were scaled back. Gold continued its strong rally, jumping almost 6% last week and trading at $4,266 an ounce, with long-term projections of $5,000 by 2028 due to structural demand shifts. Oil prices eased due to ample supplies.

Key Decisions for Investors

• Consider increasing exposure to Japanese equities given the pro-stimulus political outlook, while monitoring potential yen weakness.
• Factor in the high probability of further Fed rate cuts, which should continue to support bond prices and potentially pressure the dollar.
• Focus on Q3 earnings reports, especially in the tech sector where strong performance from companies like Nvidia (NVDA) is crucial to justify current market valuations.
• Evaluate increasing gold allocations given its strong demand, recent price surge, and positive long-term outlook from analysts.
• Monitor Chinese policy announcements for further stimulus measures, as the property sector remains a significant economic drag despite better-than-expected GDP and industrial output.