Market Report.
📊 China’s central bank (PBOC) unveiled its biggest stimulus package since the pandemic to boost the slowing economy and pull it back towards the official growth target, including cutting RRR (Reserve Requirement Ratio) and interest rates. The moves come after disappointing August data and after the Fed’s large rate hike, allowing the PBOC to ease without putting too much pressure on the yuan. Property crisis support by cutting mortgage rates and downpayment requirements, as well as new PBOC tools to fund share purchases. The stimulus includes lowering borrowing costs on up to $5.3 trillion in mortgages and easing rules for second-home purchases.
🇯🇵 The Japanese also seem to be relieved by the Fed’s rate cut. The Fed’s rate cut generates a similar effect to the BoJ raising rates by adjusting USD/JPY swaps. The Bank of Japan governor signaled the central bank can take time to observe markets and overseas economies before raising rates further. He noted the yen’s “one-sided declines” have reversed since August, lowering risks of an inflation overshoot by easing import price rises. The governor stressed the need to closely monitor volatile markets and overseas risks like potential U.S. recession impacts. This would suggest that the BOJ’s shifting focus from inflation risks to slowing growth and yen volatility impacts on Japan’s export-reliant economy.
📉 A key German business sentiment indicator, the Ifo institute’s business climate index, fell for a fourth straight month in September and by more than expected. The current assessment index, measuring firms’ views of current conditions, fell more sharply to 84.4 from 86.4. The outlook index, measuring expectations for the coming six months, also fell further, to 86.3 from 86.8. The data shows Germany’s economy is on the edge of a downward spiral, suggesting it may shrink again in Q3 after contracting 0.1% in Q2. This would meet the definition of a recession as two consecutive quarters of declining output. Our reports have been warning of this scenario for months.
🛢️ Crude oil has risen more than 2.5% since yesterday. The financial media are attributing this move to two reasons: first, the escalation of war in the Middle East, with Israel launching massive bombing raids on Lebanon and roads overflowing with fleeing people. The second is China’s announcement of measures yesterday, including a powerful monetary stimulus that should revive consumption and production in the country, increasing demand for crude oil. However, it is important not to lose perspective, the Brent barrel is still down 17.50% from the highs reached in April of this year, currently trading at $75.80 after holding last week at the $68 support zone.
Market View:
📈 Mini S&P 500 futures continue to hold at 5770. The new resistance barrier is 5800 points. The Nasdaq 100 also fails to break above 20,000 points, currently trading at 19,890 points. Apple’s falls yesterday did not help either, with more than 2% after some recommendations to reduce exposure in this company and after the disappointment of not including artificial intelligence in its new iPhone, which could weigh on its sales.
💱 The dollar index DXY remains above 100 points, but it does not go any further and its nearest resistance now stands at 102 points. The EURUSD is at 1.1125 after being almost 1.12 last week.
🇪🇺 In Europe, the market has managed to advance, with the Euro Stoxx 50 rising more than 1% during this session, possibly motivated by the stimulus announced by China, which has caused its stock markets to rise sharply, removing fears of a global economic slowdown. Paradoxically, the Dax 40 remains practically at highs, very close to 19,000 points, despite the fact that today we have learned with the IFO surveys that the country is probably in a technical recession, as we have explained above.
🥇 Gold has reached the highs we targeted of 2650 points and is even surpassing them in the last few hours. Bitcoin has also shown strength over the last two days, but is currently holding above 63,450 points.
Geopolitics:
🌍 According to Western media, armaments experts who have examined satellite photos of the launch site claim that Russia appears to have experienced a “catastrophic failure” in a test of its Sarmat missile, a crucial weapon in the upgrading of its nuclear arsenal. A crater measuring roughly 60 meters in width is visible in the photos taken by Maxar on September 21 near the launch silo of the Plesetsk Cosmodrome in northern Russia. Pictures shot earlier in the month did not show the extent of the destruction that they expose.
