Market Report.
📉 In Eurozone, as we have been warning for months, business activity contracted sharply again in September, with the Composite PMI falling below 50. The services PMI sank below expectations to 50.5 from 52.9, with the dominant sector flatlining. Manufacturing activity declined further, with its PMI dropping to a 29-month low of 44.8 from 45.8. Demand fell at the fastest rate in 8 months as new orders plunged. The downturn appeared broad-based, with Germany and France both seeing steeper declines. The ECB recently cut rates further and signaled more reductions as growth falters and inflation slows.
💼 British finance minister Rachel Reeves pledged “no return to austerity” and promised long-term growth despite previous warnings of a tough budget. She confirmed taxes were likely to rise in the Oct 30 budget to fix a £22 billion hole but spending would also grow. Reeves said the budget will prioritize stability for businesses/families and focus on healthcare, investment. She defended cutting winter fuel payments for some pensioners as a “difficult” decision. While an optimistic tone was struck, critics say Labour took an overly gloomy view that hit consumer confidence.
🇫🇷 In France, likewise, PM Barnier opened the door to taxing wealthy individuals and large companies to help repair France’s massive budget deficit. He wants to avoid raising taxes on the middle class and workers, emphasizing the need for collective effort on spending cuts. However, parties on both the left and right have threatened to bring down the new government. France’s debt exceeds €3 trillion and it pays €50 billion in annual interest, said Barnier during an interview, “A lot of our debt is on international markets — we must preserve France’s credibility”. The budget deficit could reach 6% of GDP this year without new measures, above the 3% EU limit. The key will be how to reduce public spending without generating discontent among the left-wing parties that have supported his government and how this process could affect the Euro.
💰 Now that the Fed has started cutting rates, there is more than 2.6 trillion of savers’ cash from early 2022 that will start to move into other asset classes as bank deposits become less attractive. It would be interesting to start analysing strategic sectors of inelastic demand, such as basic consumption or the health sector.
Market View:
📈 We start the week with static markets after last week’s closing rallies. The S&P 500 futures have not broken through the levels reached on Thursday, when they approached 5800 points, and are currently trading in the 5770 point area. The Nasdaq 100 does not seem to be able to break 20,000 points either, and is currently trading at 19,860 points.
💱 The dollar is still in a tug of war. A few hours ago it broke above 101 points on the DXY index, but is now back down a few tenths of a point. The EURUSD, which approached 1.12 last week, is down about 70 pips.
🇪🇺 The European market is paralleling the US market. The Dax 40, which managed to reach 19,000 points last week, today trades with a low profile in the 18,800 point area.
🛢️ Crude oil is holding on to last week’s gains; Brent crude is close to $75 a barrel. Gold reached the $2,650 target we set weeks ago. Bitcoin has overcome its resistance, trading above $64,000 in the last hours. The next target is $66,000.
Geopolitics:
🌍 After Israel’s technological sabotage of its neighbours, the consequences for the technology sector are beginning to manifest themselves. The US Commerce Department is proposing to prohibit Chinese software/hardware in connected and autonomous vehicles on US roads due to national security concerns. It represents a significant escalation in restrictions on Chinese vehicles, software and components. The proposal aims to address concerns over data collection by Chinese companies on US drivers/infrastructure. The rules would take effect in 2027 for software and 2029/2030 for hardware.
🇦🇹 The next Austrian government will face growing pressure to diversify its energy supply away from dependence on Russian gas, as the EU has committed to phasing out Russian gas imports by 2027 due to the invasion of Ukraine. Austria currently derives around 83% of its gas imports from Russia, compared to around 15% for the EU as a whole now. This high dependence leaves Austria vulnerable economically and from an energy security perspective. Rapid diversification poses economic challenges as replacing Russian gas imports will likely increase costs in the short-term, potentially slowing the economy further after two years of contraction. Key uncertainties include whether gas transit through Ukraine to Austria can continue after 2024 without a new Russia-Ukraine deal, and potential energy shortages in the transition period before new import capacity and storage are built up. A new government will emerge from the ballot box next Sunday, and we will see where it stands.
🛡️ European defence enters a bureaucratic war between the future defence committee (SEDE) and ITRE on defence industrial matters that continues to haggle over packages of measures and competences.
