Market Report.
🚀 Chinese stocks extended their remarkable rally for a 9th straight day. The gains came after measures from Beijing including relaxing homebuying rules and lowering mortgage rates as part of a new stimulus package. The optimism spread globally with funds selling US tech and buying mining stocks on China’s stimulus hopes. Iron ore prices jumped on expectations the measures will boost demand from China, the top consumer.
📉 China’s economic stimulus seems to have come in time to reduce the impact of its poor manufacturing data. China’s manufacturing PMI fell to 49.3 in September, the lowest since July 2021, missing forecasts and indicating contraction. New orders declined significantly both domestically and abroad, with the latter falling the most since August 2021. Exports have been a bright spot but new foreign orders cooled as US tariffs rose and EU may impose EV duties. Companies also lowered headcount at the fastest rate in 5 months on reduced workloads and costs concerns.
🌪️ Japan’s factory output fell 3.3% in August, worse than forecasts, driven by typhoon disruptions to auto production and weak US sales. Weak US auto sales may have also hit output, and chipmaking machinery exports to Taiwan declined sharply. Uncertainty remains over a bright future outlook given overseas factors like China and US growth concerns. Retail sales in August rose 2.8% from a year ago and 0.8% from the previous month, supported by steady wage growth.
📈 Iron ore futures surged as much as 10.6% in Singapore to a seven-month high of $112/ton as traders gathered for an industry meeting. Copper also rallied to its highest since June on the LME as China’s stimulus spurred risk appetite in metals markets. Iron ore had been one of the worst performers in 2022 as China’s economy slowed, damaging steel demand. Steel mills have been sharply cutting output given the slump in property, traditionally a key sector. Supply is expected to remain ample as Brazilian and Australian miners lift production. In previous reports we mentioned what has been called the new oil. And it is the copper rush in the midst of an energy transition, where an electricity-based economy will need more copper for wiring. Similarly, a failure, as we have seen, in this regard, with falling EV sales, could be a setback for these metals.
📊 German annualised inflation data will be released today. It is expected to be 1.7%. Again, this would be positive if the German economy would show good economic activity ratios, but Germany is facing its second quarter of contraction, so low inflation may unfortunately be the result of lower economic activity.
🇫🇷 The French government is weighing new taxes on large corporations and stock buybacks to reduce the budget deficit. Measures reportedly include an 8.5% temporary levy on companies over €1 billion in revenue and an 8% tax on share buybacks. Personal taxes would remain stable while public spending would be cut under the proposals. Prime Minister Barnier will lay out objectives in a policy speech on Tuesday ahead of the 2025 budget bill. The deficit has widened more than expected, exceeding 6% of GDP, requiring tough action.
Market View:
📊 The rise in Chinese markets continues. The Shanghai Stock Exchange (SSEC) and the Hong Kong Stock Exchange (HSI) are approaching 25% cumulative gains. S&P 500 futures, however, remain cautiously below 5800 after temporarily breaching it last week. The Nasdaq 100, which was trading above 20,300 points, is now trading at 20,018 points. The Russell 2000 has regained some ground at 2,225 points, which could once again indicate a redistribution across sectors in US equities.
💵 The dollar index (DXY) seems to be losing its support at 100.50 points. The EUR/USD has moved back up towards the 1.12 area, where it is now. The US 2-year bond is stabilising around the 3.50% area.
🏦 In Europe, the DAX 40, which came close to a new record high in the 19,500-point area, is now down to 19,390 points. The EuroStoxx 50 managed to reach 5,000 points last Friday, and despite some pullbacks, it still remains above those levels.
💰 Bitcoin broke above $65,000 and reached over $66,000, where it met resistance and pulled back to $63,800. Gold, which reached $2,700 per ounce last Thursday, is now at $2,670 per ounce. Brent has fallen sharply, now trading at $71.70 a barrel.
Geopolitics:
🌍 Austria’s far-right Freedom Party has won the national election but faces challenges forming a government. Led by Herbert Kickl, the party finished first with 29.2% of the vote, ahead of the ruling conservatives and Social Democrats. The victory follows a trend of far-right populists performing strongly in countries like the Netherlands and Germany. These parties seem to be gathering the vote of a majority of citizens who are dissatisfied with the foreign policy of the European Union (Ukraine war) as well as with the migration policy imposed on member states under penalty of fines.
🔥 Israel has killed Hezbollah leader Sayyed Hassan Nasrallah in a major airstrike on the group’s headquarters in Beirut. Over 1,000 Lebanese have been killed and 1 million displaced by ongoing Israeli attacks since last week. Hezbollah has vowed to continue fighting Israel in support of Palestinian groups like Hamas. The escalation has increased fears of a wider regional conflict drawing in Iran. Both the US and Russia have called for de-escalation through diplomatic means.
🚀 Yemen’s Houthi rebels claim to have targeted Ben Gurion Airport in Israel with a ballistic missile on Saturday. The alleged attack was timed to coincide with Prime Minister Netanyahu’s arrival at the airport. A Houthi spokesman said attacks will not stop until Israeli aggression ends in Gaza and Lebanon. In response, Israel bombed Yemen’s ports and fuel depots for the second time this year.
