The State of Markets: ‘Has The Dragon Awoken?’
It was a week dominated by the policy actions of the Chinese authorities.
Earlier in the week, the PBOC announced a variety of new policy actions including interest rate and RRR cuts, measures to support house prices and housing activity, as well as efforts to stabilize the equity market. Later in the week (overnight Thursday) further details emerged – with reported discussions at an ‘unscheduled Politburo meeting’ of a bank recapitalization plan (i.e. a $142 billion capital injection into the banking system), as well as suggestions of (further) ‘forceful interest rate cuts’ and ‘needed fiscal spending’. Those measures (Tuesday & Thursday, both actual & discussed) added to the strength of the classically cyclical areas of the global stock market including European luxury stocks (LVMH +18.8%; Hermes +15.6%; Richemont +17.5% this week), Chinese equities (+13.8% this week, i.e. the China A50 index), and commodity plays (copper +6.1% on the week; Glencore +12.8%; Rio Tinto +10.5%). US cyclicals also outperformed the defensive area of the market (as bond yields backed up).
With China’s policy actions adding to the strength in US equity markets (along with the Fed’s 50bps cut earlier this month), the key question for October is whether US equities can continue their upward momentum, especially as on some metrics they are starting to look stretched (see chart below). We’ll be examining that question in detail in this week’s forthcoming ‘Tactical Equity Asset Allocation’ publication, due out mid-week. This product assesses the outlook for US equities relative to cash (& bonds) on a ‘1 – 4’ month timeframe.
Next week, the focus will shift away from China given it’s their ‘Golden Week’ holiday (Tuesday to Friday, with Chinese markets closed as a result). The focus will turn principally to US macro data (& Powell’s speech on Monday), given it’s the first week of the month (and, as such, ISM manufacturing, ISM services and non-farm payrolls data is released over the course of the week). Key data and events next week are shown below.
Key chart: Proportion of US S&P500 stocks at 52-wk highs* less those at 52-wk lows
*Defined as within 3% of their 52-week high or low.
Upcoming important data/events this week:
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Events: |
Speech by the ECB’s Lagarde in EU parliament (Mon, 2pm); speech by the Fed’s Powell at NABE (Mon, 6pm); market holidays in China on account of National Day (Tues – Fri). |
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Monday: |
Chinese NBS & Caixin manufacturing & service sector PMIs (Sept, 2:30am & 2:45am); US Chicago PMI (Sept, 2:45pm). |
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Tuesday: |
Eurozone headline & core CPI (September first estimate, 10am); US JOLTS job openings (Aug, 3pm); US ISM manufacturing (Sept, 3pm). |
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Wednesday: |
Eurozone unemployment rate (Aug, 10am); US ADP employment change (Sept, 1:15pm). |
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Thursday: |
US Challenger job cuts (Sept, 12:30pm); US ISM services (Sept, 3pm). |
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Friday: |
US nonfarm payrolls, hourly earnings & unemployment (Sept, 1:30pm). |
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Key earnings: |
Nike, Paychex (Tues); Tesco, Constellation Brands (Thurs). |
Key Research
The SHORT VIEW (& market positioning), 24th September 2024:
“Copper: Uptrend Ongoing (for now)”
Overnight China has surprised markets with a new round of stimulus.
In particular: (i) the PBoC has cut key policy rates, including the RRR (by 50bps) and the 7 day reverse repo rate (by 20bps), while mortgage rates have also been re-priced lower (by 50bps for existing mortgage borrowers); (ii) housing policy has been loosened, with the deposit rate for second home purchases cut from 25% to 15% (the same deposit needed for first home purchases) and with more support for the ‘property destocking’ program (the PBoC will now cover 100% of bank loans, used by state owned firms to buy unsold property, i.e. up from 60%); and (iii) various facilities, designed to support the stock market (and broader corporate sector), have been announced.
Key North American macro data & events:
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Events: |
Speeches by the Fed’s Powell at NABE (Mon, 6pm), Bostic in conversation with Lisa Cook (Tues, 4pm), Bostic, Barkin & Collins in a panel discussion at the Technology-Enabled Disruption conference (Tues, 11:15pm), Hammack, Musalem & Bowman at the Community Banking Research Conference (Wed, 2-4pm), Barkin on the Economy (Wed, 5:15pm) & Kashkari with Bostic on inclusive Economy (Thurs, 3:40pm). |
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Monday: |
US Chicago PMI (Sept, 2:45pm); US Dallas Fed manufacturing activity (Sept, 3:30pm). |
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Tuesday: |
US S&P manufacturing sector PMI (September final estimate, 2:45pm); US construction spending (Aug, 3pm); US JOLTS job openings (Aug, 3pm); US ISM manufacturing (Sept, 3pm); US Dallas Fed services activity (Sept, 3:30pm). |
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Wednesday: |
US ADP employment change (Sept, 1:15pm). |
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Thursday: |
US Challenger job cuts (Sept, 12:30pm); US weekly jobless claims (1:30pm); Canadian S&P service sector PMI (Sept, 2:30pm); US S&P service sector PMI (September final estimate, 2:45pm); US durable goods orders (August final estimate, 3pm); US ISM services (Sept, 3pm); US new vehicle sales (Sept, 3pm). |
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Friday: |
US nonfarm payrolls, hourly earnings & unemployment (Sept, 1:30pm). |
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Key earnings: |
Nike, Paychex (Tues); Constellation Brands (Thurs). |
Fig B: US ISM manufacturing (index)
Key European macro data & events
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Events: |
Speeches by the ECB’s Lagarde in EU parliament (Mon, 2pm), Guindos in Frankfurt (Tues, 8am), Nagel at Bundesbank conference (Tues, 8am), Rehn on monetary policy (Tues, 9am), Schnabel in Frankfurt (Tues, 4:30pm), Guindos, Kazaks & Simkus in Riga (Wed, 8:15am – 10:45am), Lane in Frankfurt (Wed, 10:30am), Elderson in Dublin (Wed, 12pm), Holzmann in Vienna (Wed, 3pm), Schnabel in Freiburg (Wed, 5:45pm), Villeroy in Paris (Fri, 7:30am), Simkus, Kazaks & Muller in Vilnius (Fri, 7:35am), Centeno, Escriva at La Toja conference (Fri, 8am); Riksbank minutes from September meeting (Tues, 8:30am). |
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Monday: |
Italian core CPI (September first estimate, 10am); German headline CPI (September first estimate, 1pm). |
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Tuesday: |
HCOB manufacturing sector PMIs for Italy (8:45am), France (8:50am), Germany (8:55am) & Eurozone (9am) – all September final estimates apart from Spain & Italy; Eurozone headline & core CPI (September first estimate, 10am); Italian new car sales (Sept, 5pm). |
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Wednesday: |
Spanish unemployment change (Sept, 8am); Italian unemployment rate (Aug, 9am); Eurozone unemployment rate (Aug, 10am). |
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Thursday: |
HCOB service sector PMIs for Italy (8:45am), France (8:50am), Germany (8:55am) & Eurozone (9am) – all September final estimates apart from Spain & Italy; Eurozone PPI (Aug, 10am). |
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Friday: |
French industrial & manufacturing production (Aug, 7:45am); Spanish industrial production (Aug, 8am); Italian retail sales (Aug, 11am). |
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Key earnings: |
N/A |
Fig C: Eurozone headline & core CPI (Y-o-Y %)
Key UK macro data & events
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Events: |
Speeches by the Bank of England’s Pill at the Q3 Confederation of British Industry Economic Growth Board (Tues, 3pm) & again at the ICAEW annual conference (Fri, 8:55am); Bank of England publishes FPC summary (Wed, 10:30am). |
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Monday: |
Lloyds business barometer (Sept, 12:01am); Nationwide house prices (Sept, 7am); GDP (Q2 final estimate, 7am); Net consumer credit, mortgage approvals & M4 money supply (Aug, 9:30am). |
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Tuesday: |
BRC retail prices (Sept, 12:01am); S&P manufacturing sector PMI (September final estimate, 9:30am). |
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Wednesday: |
N/A |
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Thursday: |
S&P service sector PMI (September final estimate, 9:30am). |
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Friday: |
New car sales (Sept, 9am). |
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Key earnings: |
Tesco (Thurs). |
Fig D: UK M4 money supply growth vs. M4 lending growth (Y-o-Y %)
Key Asia-Pacific macro data & events
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Events: |
BOJ releases summary of opinions for September meeting (Tues, 12:50am); speech by the BOJ’s Noguchi in Nagasaki (Thurs, 2:30am); market holidays in China on account of National Day (Tues – Fri). |
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Monday: |
Japanese industrial production & retail sales (August first estimate, 12:50am); Chinese manufacturing & service sector PMIs (Sept, 2:30am); Australian private sector credit (Aug, 2:30am); Chinese Caixin manufacturing, service & composite sector PMIs (Sept, 2:45am); Japanese housing starts (Aug, 6am); Australian home value (Sept, 3:01pm). |
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Tuesday: |
Australian Judo Bank manufacturing sector PMI (September final estimate, 12am); Japanese jobless rate (Aug, 12:30am); Japanese Tankan manufacturing & service sector PMIs (Q3, 12:50am); Japanese Jibun Bank manufacturing PMI (September final estimate, 1:30am); Australian building approvals & retail sales (Aug, 2:30am). |
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Wednesday: |
Japanese money supply (Sept, 12:50am); Japanese ESRI consumer confidence (Sept, 6am). |
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Thursday: |
Australian Judo Bank service sector PMI (September final estimate, 12am); Japanese Jibun Bank service sector PMI (September final estimate, 1:30am); Australian imports/exports & trade balance (Aug, 2:30am). |
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Friday: |
Australian household spending (Aug, 2:30am); Australian home loans value (Aug, 2:30am). |
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Key earnings: |
N/A |
Fig E: Chinese Caixin manufacturing & service sector PMIs (index)
Last week:
Longview on Friday, 27th September 2024:
“The Global Investment Puzzle (& the ‘Hidden Gems’)”
Monthly Global Asset Allocation No, 50, 25th September 2024:
“Chinese Equities: Bear Market Rally a.k.a. A Trade Not An Investment”
Quarterly Asset Allocation No. 59, 25th September 2024:
“Cheap Markets with Earnings Growth”
The SHORT VIEW (& market positioning), 24th September 2024:
“Copper: Uptrend Ongoing (for now)”
Prior week:
Longview on Friday, 20th September 2024:
“US economy – Rapid Re-acceleration?”
Quarterly Asset Allocation No. 59, 20th September 2024:
“US Recession Risk (relatively) Low”
The SHORT VIEW (& market positioning), 17th September 2024:
“GOLD: SELL Case Brewing”