The State of Markets: ‘China Fiscal Stimulus –> Size Still Unclear!’
US equities continued their march higher last week, closing on Friday at another record high (5,815). The S&P500 is now up 160% from its 23rd March 2020 pandemic lows, and 7.6x from its 2009 GFC lows. Reflecting that strength (and what has become perceived in markets as: ‘American Exceptionalism’), the forward PE multiple of the S&P500 has risen from around 10.0x in March 2009 to 21.5x forward consensus earnings (latest data – see chart).
That strength in US equities persisted last week, despite worse than expected macro data. That included a disappointing NFIB headline survey, a higher-than-expected core inflation reading, a jump in weekly jobless claims and a miss on Michigan sentiment (preliminary reading). Most other major global markets also moved higher (Nikkei +1.9% on the week; DAX +1.2%; Swiss market +1.3%). China, along with the UK, was a key exception. The Shanghai Composite was 1.0% lower, as it awaited the stimulus announcements coming out today (Saturday) – and as it gave back some of its significant gains of the prior few weeks.
That stimulus package was then announced earlier today in Beijing. At the very top level, it’s likely to be a disappointment for markets as it didn’t give any detail as to the size of the total package, simply a discussion of the intended programs:
“Finance Minister Lan Foan told a press conference Beijing will help local governments tackle their debt problems, offer subsidies to people with low incomes, support the property market and replenish state banks' capital, among other measures.”;
“Size of fiscal stimulus unclear, expected to unnerve markets.”
Source: Reuters, 12th October 2024, https://www.reuters.com/world/china/china-says-will-significantly-increase-debt-revive-economic-growth-2024-10-12/
This coming week, markets are likely to continue to focus on the US quarterly earnings season (which began in earnest on Friday). There is also an ECB policy meeting (with a 25bps rate cut expected), some US housing data (Thursday & Friday), and various key Chinese and UK macro data released this week (see ‘key events’ below for detail).
Key chart: S&P500 forward PE ratio (based on consensus 12m forward rolling EPS)
Upcoming important data/events this week:
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Events: |
ECB policy decision (Thurs, 1:15pm) followed by an ECB press conference hosted by Lagarde (1:45pm). |
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Monday: |
Chinese imports/exports & trade balance (Sept, 8am). |
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Tuesday: |
UK employment, jobless claims & average weekly earnings (Aug/Sept, 7am). |
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Wednesday: |
UK headline & core CPI (Sept, 7am). |
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Thursday: |
US retail sales (Sept, 1:30pm); US NAHB homebuilders index (Oct, 3pm). |
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Friday: |
Chinese new & used home prices (Sept, 2:30am); Chinese GDP (Q3, 3am); US housing starts & building permits (Sept, 1:30pm). |
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Key earnings: |
UnitedHealth, J&J, Bank of America, Goldman Sachs (Tues); Abbott Labs, Morgan Stanley (Wed); Netflix, Blackstone, Taiwan Semiconductor (Thurs); P&G, American Express (Fri). |
Key Research
Longview on Friday, 11th October 2024:
“The (Largely) Ignored Risks (that really could matter)”
Over the course of the next 3 - 4 weeks, there are at least three major political/geopolitical events* which all have the potential to disrupt global markets. That is, they are all ‘known unknowns’, and given that uncertainty (and the binary nature of some of the potential outcomes), markets are unable to efficiently price the related risk. Indeed, some markets seem remarkably complacent about at least two of them.
Those three events are as follows:
- The expected Israeli attack on Iran (which is purportedly imminent).
- The US Presidential election (Tuesday 5th November), which the market is currently assuming passes without incident (i.e. central case is a ‘divided Congress’).
- The UK Labour government’s budget later this month (30th October) – which while more local than international, has the potential to disrupt the UK, and therefore, international bond markets (more on that next week).
Key North American macro data & events:
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Events: |
Speeches by the Fed’s Kashkari on fiscal deficits, monetary policy and inflation (Mon, 2pm), Waller on the Economic outlook (Mon, 8pm), Kashkari in Fireside chat (Mon, 10pm), Daly at an event hosted by the NYU Stern School of Business (Tues, 4:30pm), Kashkari moderates panel event (Fri, 3pm) & Waller on decentralised finance (Fri 5:10pm); market holiday in Canada on account of Thanksgiving Day (Mon). |
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Monday: |
US New York Fed 1 year inflation expectations (Sept, 4pm). |
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Tuesday: |
US Empire manufacturing (Oct, 1:30pm); Canadian headline & core CPI (Sept, 1:30pm); Canadian existing home sales (Sept, 2pm). |
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Wednesday: |
Canadian housing starts (Sept, 1:15pm); US New York Fed services business activity (Oct, 1:30pm); US import & export prices (Sept, 1:30pm). |
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Thursday: |
US retail sales (Sept, 1:30pm); US Philadelphia Fed business outlook (Oct, 1:30pm); US weekly jobless claims (1:30pm); US industrial & manufacturing production & capacity utilisation (Sept, 2:15pm); US business inventories (Aug, 3pm); US NAHB homebuilders index (Oct, 3pm); US total net TIC flows (Aug, 9pm). |
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Friday: |
US housing starts & building permits (Sept, 1:30pm). |
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Key earnings: |
UnitedHealth, J&J, Bank of America, Goldman Sachs, Progressive, Charles Schwab, Citigroup, PNC Financial (Tues); Abbott Labs, Morgan Stanley, Prologis, Lam Research, U.S. Bancorp, CSX, Kinder Morgan, Crown Castle, Las Vegas Sands, Discover, Equifax, PPG Industries (Wed); Netflix, Blackstone, Intuitive Surgical, Elevance Health, Marsh McLennan, Truist Financial Corp, Travelers, Tractor Supply (Thurs); P&G, American Express, Schlumberger, Fifth Third (Fri). |
Fig B: US NAHB homebuilders index vs. housing starts (millions)
Key European macro data & events
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Events: |
ECB policy decision (Thurs, 1:15pm) followed by an ECB press conference hosted by Lagarde (1:45pm); speeches by the ECB’s Villeroy in Paris (Mon, 8am), Nagel on the digital Euro (Tues, 7:15am); ECB bank lending survey (Tues, 9am); ISTAT publishes data on poverty in Italy (Thurs, 9am); ECB survey of professional forecasters (Fri, 9am). |
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Monday: |
N/A |
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Tuesday: |
German wholesale price index (Sept, 7am); French headline & core CPI (September final estimate, 7:45am); Spanish headline & core CPI (September final estimate, 8am); German & Eurozone ZEW survey – expectations & current situation (Oct, 10am); Eurozone industrial production (Aug, 10am). |
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Wednesday: |
Italian headline & core CPI (Sept, 9am). |
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Thursday: |
Eurozone trade balance (Aug, 10am); Eurozone headline & core CPI (September final estimate, 10am). |
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Friday: |
ECB current account (Aug, 9am); Eurozone construction output (Aug, 10am). |
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Key earnings: |
Louis Vuitton (Tues); ASML Holding (Wed); EssilorLuxottica, Danone, Pernod Ricard (Thurs). |
Fig C: Eurozone ZEW survey – expectations (index)
Key UK macro data & events
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Events: |
Speeches by the Bank of England’s Dhingra on a panel in India (Mon, 7:30am) & Wood at the annual City banquet at Mansion House (Thurs, 9pm). |
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Monday: |
Rightmove house prices (Oct, 12:01am). |
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Tuesday: |
Employment, jobless claims & average weekly earnings (Aug/Sept, 7am). |
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Wednesday: |
Headline & core CPI, RPI & PPI (Sept, 7am); UK Land Registry house prices (Aug, 9:30am). |
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Thursday: |
N/A |
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Friday: |
Retail sales (Sept, 7am). |
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Key earnings: |
Rio Tinto PLC (Tues); Legal & General (Fri). |
Fig D: UK services & goods CPI (Y-o-Y %)
Key Asia-Pacific macro data & events
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Events: |
Speech by the RBA’s Hunter at the Citi Australia & New Zealand Investment Conference (Tues, 11pm); speech by the BOJ’s Adachi in Kagawa (Wed, 2:30am); market holiday in Japan on account of National Sports Day (Mon). |
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Monday: |
Chinese imports/exports & trade balance (Sept, 8am). |
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Tuesday: |
Japanese industrial production & capacity utilisation (August final estimate, 5:30am). |
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Wednesday: |
Australian Westpac leading index (Sept, 12:30am); Japanese machinery orders (Aug, 12:50am). |
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Thursday: |
Japanese imports/exports & trade balance (Sept, 12:50am); Australian employment data (Sept, 1:30am). |
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Friday: |
Japanese headline & core CPI (Sept, 12:30am); Chinese new & used home prices (Sept, 2:30am); Chinese GDP (Q3, 3am); Chinese activity data (industrial production, retail sales, fixed asset, property investment & unemployment rate – Sept, 3am). |
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Key earnings: |
Taiwan Semiconductor (Thurs); China Mobile, Zijin Mining Group (Fri). |
Fig E: China real GDP (Q-o-Q %, annualised)
Last week:
Longview on Friday, 11th October 2024:
“The (Largely) Ignored Risks (that really could matter)”
Longview ‘Tactical’ Alert No. 85, 10th October 2024:
“SELL Signals: A Full House a.k.a. Remain Cautious”
Monthly Global Asset Allocation No. 51, 7th October 2024:
“Oil Prices: Rangebound in 2025 A.k.a. Sideways Trend in Global Oil Inventories”
Prior week:
Longview on Friday, 4th October 2024:
“Tactical Equites, OIL, & Strategic AA Update”
Tactical Equity Asset Allocation No. 249, 3rd October 2024:
“Five Key Reasons for (Tactical, Near Term) Caution”
Quarterly Asset Allocation No. 59, 30th September 2024:
“All Change”