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Daily Macro markets update 08/10/2024

Market Report:

📈 Chinese stocks surged 11% at the start of trading on Tuesday as markets reopened after a week-long holiday, but gains faded throughout the day as a key policy meeting failed to deliver more major stimulus. Investors were disappointed by the lack of major stimulus announcements from a key policy meeting. Officials reiterated investment and support plans but some analysts want to see fiscal stimulus and economic reforms to sustain the rally. More major economic reforms are needed this year for the rally to continue through year-end. The rally in the last few days after the announcement of China’s stimulus plan was spectacular, but we have already mentioned in our reports, that it was similar to those made in May, and unfortunately deflated in the following weeks. In this case, the Hang Seng Index HSI fell by more than 10%.

🏎️ Conversations at recent finance events in Singapore like the Formula 1 race and Milken Institute summit centered around concerns over China’s prospects as an investment destination. While stimulus fueled stock market rallies, skepticism remains on whether Beijing’s policies will substantially boost the real economy which faces challenges like the property sector downturn. Geopolitical risks from US-China rivalry and tensions over Taiwan raise questions about foreign access and regulatory certainty for multinationals operating in China. Asset managers in a Bloomberg article, suggest they see the stimulus response as tactical and will monitor further policy actions and economic data before increasing China weightings.

📉 St. Louis Fed President Musalem said he supports further gradual interest rate cuts over time as economy moves on a healthy path. Strong September jobs data called into question how aggressive further Fed rate cuts may need to be given the strong labor market. Musalem argued for cautious pace of cuts given risks of easing too much and said costs of easing too little are less than easing too soon, preferring a slower and more gradual approach. Musalem sees no conflict between rate cuts and ongoing balance sheet reduction program.

💷 Think tanks have urged the UK Chancellor to introduce an “exit tax” on wealthy individuals leaving the UK to raise up to £500 million annually and discourage departures. Data shows £5.1 billion in shareholder value left the UK in the last year as nationals moved overseas, representing £500 million in lost capital gains tax. Similar proposals have come from the IFS and Resolution Foundation to help close a £22 billion mid-year deficit without scaring off entrepreneurs. Some wealthy individuals are considering leaving due to planned tax changes, which could reduce UK’s share of millionaires. The Chancellor hasn’t ruled out a capital gains tax increase in the upcoming budget to rebuild public services. Tax advisors say some clients will try to leave the UK before any exit tax takes effect.

🇮🇹 Fiscal tightening or growth? Italy’s central bank and budget watchdog said the government’s 1% GDP growth target for 2022 will be harder to reach after recent downward revisions. Acquired growth at the end of Q2 was revised down from 0.6% to 0.4%, meaning zero growth in Q3-Q4 would yield 0.4% full-year growth. Italy is targeting a 2022 budget deficit of 3.8% of GDP, down from 7.2% last year which was the highest in the eurozone. The deficit is set to decline to 3.3% in 2023 and 2.8% in 2026, below the EU 3% ceiling. The government estimates a lower deficit of 2.9% of GDP in 2025 and 2.1% in 2026, allowing spending/tax leeway. Maintaining a steadily declining debt-to-GDP ratio was emphasized as a fiscal priority.

Market View:

📊 The Mini S&P 500 futures continue to sideways move in price, staying in the 5765 area at the moment and reaffirming the 5800 area as resistance. The Nasdaq 100 has risen close to 200 points since Monday, but has yet to break through the 20,000 point barrier lost last week.

💵 The dollar remains strong above 102 points on the DXY index. EURUSD, which fell to 1.0950, has bounced 30 pips higher and is currently at 1.0980. US 2-year bond yields remain close to 4%; during yesterday’s session it was above this level.

📈 The DAX 40 remains positive during today’s session, approaching the 19,100 point area, just over 300 points away from its all-time highs. The Eurostoxx 50, on the other hand, failed to regain 5,000 points and remains in negative territory.

🛢️ Crude oil, whose Brent crude oil price rose above $81 a barrel yesterday, has fallen back to $79.40, a drop of more than 2% since yesterday. The reason could be the nuclear deterrent posed by the possibility of Iran’s atomic weapons, causing Israel to reconsider its attacks. Gold remains above $2,650 and below its high of $2,700. Bitcoin, which was close to $64,500 yesterday, has fallen back to $62,500 in recent hours.

Geopolitics:

🌍 One year after the Hamas attack on Israel, nothing has changed. More than 40,000 civilians have been killed, and Gaza has been reduced to rubble for the most part, but the attacks between Hamas and Israel continue. IDF said they struck over 110 Hezbollah targets in Lebanon in response to 135 rockets fired at northern Israel. They also intercepted a missile from Yemen. We could say that the situation has even worsened for Israel, as it has more open threats than when the conflict started. It is now attacked by Hamas, Hezbollah, Yemen and Iran. Displaced people in Gaza and Lebanon are seeking shelter as fighting continues across multiple borders.

🇷🇺 Russian forces entered the outskirts of the eastern Ukrainian city of Toretsk, according to Ukraine’s military. Capturing Toretsk would bring Russia closer to its goal of seizing the entire Donbas region in eastern Ukraine. The town has been on the frontlines for 10 years and is a key anchor in Ukraine’s fortifications. Taking Toretsk would let Russia obstruct logistical routes for Ukrainian forces in the area. President Zelenskyy has ordered Ukraine’s forces to do all they can to slow Russia’s advance. The fall of Toretsk would further Russia’s gains after capturing Vuhledar last week.

🇸🇰 Slovak Prime Minister Robert Fico declared that if the war in Ukraine ends during his term in office, he will work to renew economic ties with Russia. Fico recognises Slovakia’s economic interest in maintaining access to cheaper Russian energy to avoid difficulties such as those faced by Germany. Slovakia faces fiscal deficits due in part to high energy costs, and disagreements over tax hikes to address them. Sanctions have pushed Russia to reorient its economy, reducing the EU’s importance for mutual cooperation. Recall that Robert Fico suffered an assassination attempt for his refusal to continue sending funds and arms to Ukraine.

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