Well China finally gave the Chinese markets what they have been looking for – a mass stimulus package. Can it last! Get my take in this week’s market round-up!
WEEKLY SOUND BITES!
Markets moved higher with S&P and the DOW moving to record highs as investors appeared to celebrate new stimulus measures in China. The week’s U.S. economic calendar also appeared to drive sentiment as equities pulled back somewhat early Tuesday on news that the U.S. consumer confidence fell sharply in August. The Commerce Department reported on Wednesday that new home sales declined 4.7% in August, while building permits data were revised lower.
Some benign inflation data helped spur an early rally on Friday as we saw the Federal Reserve’s preferred inflation gauge, the core personal consumer expenditures (PCE) price index, rose only 0.1% in August, a tick below expectations. On a year-over-year basis, the index climbed only 2.2%, close to the Fed’s 2.0% long-term inflation target and the least since February 2021. Meanwhile, personal incomes and spending both surprised on the downside in August, further suggesting a moderation in inflationary pressures.
Business activity in the eurozone unexpectedly shrank in September due to a marked fall in new orders. The PMIs compiled by S&P Global showed the PMI Output Index fell to 48.9 from 51.0 in August. Services activity came close to stalling as the boost from the Paris Olympics faded, while manufacturing contracted at a faster pace. Business morale worsened in Germany in September, while consumer confidence stabilized at a low level, adding to signs that the economy could have tipped into recession.
The latest commentary from the Bank of Japan (BoJ), perceived as dovish, weighed on the yen, providing a favorable backdrop pushing the markets higher. Optimism also came from China’s stimulus announcements detailing various support mechanisms in response to the country’s sluggish economic growth and weak housing market. Shigeru Ishiba won the Liberal Democratic Party’s leadership contest—he will therefore be Japan’s next prime minister and is viewed as more hawkish so he may resist the BOJ efforts to normalize monetary policy. BoJ Governor Kazuo Ueda said that the central bank has enough time to assess market and economic developments before adjusting monetary policy again suggesting that it is in no rush to raise rates further in the near term.
Chinese stocks surged after Beijing unveiled a slew of measures to shore up the economy. The PBOC cut its reserve requirement ratio by 50 basis points for most banks, its second cut in banks’ required reserves this year, and reduced its seven-day reverse repo rate—a key short-term policy rate—by 20 basis points to 1.5%. It also cut the medium-term lending facility rate by 30 basis points to 2%, marking the largest-ever cut to the monetary policy tool since the central bank began using it to guide market rates in 2016, according to Bloomberg. Other measures unveiled by the PBOC included a rate cut for existing home mortgages and slashing the nationwide down payment ratio for second home purchases to 15% from 25%. China’s top leaders vowed to take action to stabilize the country’s property market and make real estate prices “stop declining,” according to state media. The readout from the 24-man Politburo included a statement that China would deploy the necessary fiscal spending to meet its 2024 growth target of around 5%. China also plans to issue special sovereign bonds worth about USD 284.4 billion this year as part of the fiscal stimulus plan. Longer term, however, the stimulus isn’t large enough to sustainably free China from its weaker growth trajectory
Enjoy This Weeks Market Round-Up
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