Market Report:

📈 China’s economic planning agency disappointed markets by only announcing $28 billion in accelerated spending, far less than expected stimulus. Stocks plunged after surging on hopes for a large fiscal package, losing half their gains as monetary easing wasn’t matched. Markets forecast $28-100 billion in stimulus but the NDRC offered few specifics, seen as inadequate given growth challenges. The property downturn poses risks, and more support may be needed to stabilize the critical housing sector. Beijing wants to balance stimulus with debt risks from local governments hurt by real estate woes. The Shanghai composite index SSEC has fallen more than 10% from its highs.

📊 German exports rose 1.3% in August compared to the previous month, defying market expectations of a decline. Demand was particularly strong from the United States and United Kingdom. The foreign trade surplus broadened to €22.5 billion in August from €16.9 billion the prior month. However, the inflation-adjusted trade surplus is still on track to decline in Q3 due to a large fall in July. Once again, the trade surplus jump was mainly boosted by a sharp 3.4% fall in imports on the month, which is not exactly good news for the German economy.

🇫🇷 France’s government is seeking to reduce its large budget deficit and is putting pensions back on the agenda as an area for savings. A proposal to delay a pension increase until mid-2025 would save €4 billion but faced strong opposition. France spends nearly 14% of GDP on pensions, far above the 8% OECD average, due to earlier retirement ages and longer lifespans. Politicians fear angering pensioner voters, leaving meaningful reforms politically difficult. To keep things in perspective, according to the French Ministry of Defence, France would have sent an estimated 6.8 billion euros to Ukraine since the war started.

🏦 Several ECB policymakers argued for another 25 basis point interest rate cut at the October 17 policy meeting to accelerate policy easing. The deposit rate has already been cut twice this year to 3.5% and markets expect more cuts given weak growth and low inflation. French and Greek central bank chiefs said cuts should continue until rates reach a highly restrictive level around 3%. Finland, Latvia and Portugal’s central bank governors also supported an October cut. However, Belgium’s representative said geopolitical tensions have pushed up energy costs, creating opposing forces. Most analysts predict another 25 basis point cut in December following an October reduction.

📅 A former BOJ executive director sees January as the most likely timing for the next interest rate hike. Key factors the BOJ will watch include the US election, autumn service inflation, and next year’s wage talks. These could shift the timing up or back from January to December or March. The new PM Ishiba’s remarks won’t change the BOJ’s approach, which has been to normalize policy gradually. Rates are expected to rise about every 6 months until reaching 1% by January 2026.

💼 Fed Vice Chair Philip Jefferson said the 0.5 percentage point rate cut in September was aimed at keeping the strong labor market intact while inflation eases. He noted inflation has come down substantially from its peak of 6.5% to the Fed’s 2% target of 2.2% in August. Jefferson expects inflation will continue trending toward the Fed’s 2% goal. Maintaining the strong job market was a key reason for front-loading rate cuts last month.

🛢️ The unacknowledged concern of central bankers now is whether oil could cause inflation again. The oil market is caught between two crosscurrents. On the one hand, possible economic weakness in China could be the cause of lower demand for crude oil, which has been pushing down prices in recent months. On the other hand, the escalating war in the Middle East creates inflationary risks for oil.

Market View:

📈 US Mini S&P 500 futures are gaining strength and heading towards 5800 resistance ahead of this afternoon’s FOMC minutes. Tomorrow’s US inflation data could also influence the market, as well as industrial production prices due on Friday. Meanwhile, the Nasdaq 100 has managed to break through the 20,000 point barrier and is currently trading at 20,125 points.

💵 The dollar index DXY continues to press the 102.50 level and looks set to break through resistance if the data is favourable. In which case, the EURUSD would fall below 1.0950, where it is currently making support.

📊 On the European bourses, the DAX 40 is trading above 19,000 points. The Eurostoxx 50 is trying to recover the 5,000 points lost in recent days and is trading at 4,953 points.

🛢️ The price of crude oil has fallen from 81 dollars per barrel of Brent to 77 dollars at the moment. Everything seems to indicate a change of plans by Israel in its attack on Iran. Gold has also retreated and is below support at $2,650, trading at $2,638. Bitcoin appears to be making support at 62,000, but the charts show a possible correction towards 59,000.

Geopolitics:

🌍 Iran warns that if the Gulf states (Emirates and Saudi Arabia) allow Israel or the US to use their airspace to attack Iran, then Iran will retaliate against all of them.

🗓️ El viaje a Washington del ministro israelí de Defensa, Yoav Gallant, fue aplazado hasta que el Gabinete del país confirme un plan de respuesta a Irán, según informa un funcionario israelí a NBC News.

☎️ The Washington Post citando a un funcionario israelí: Netanyahu intenta en vano contactar directamente con Biden.

🛡️ The United States has suggested imposing additional new sanctions on Iran over its purchase of S-400 anti-aircraft defence systems from Russia.