Market Report.
📈 Stock markets continue to be fuelled by the announcement of China’s stimulus plan. As we mentioned yesterday, the measures announced by China have a stimulus effect on stock markets. It is important to highlight several key points: the first is that this is the second attempt to resuscitate the Chinese stock markets with a stimulus plan so far this year. At the beginning of the year a battery of measures was announced whose aim was not only to stimulate China’s economy but also to revive its stock markets, and the measures worked for a while. The second is that the measures have been implemented before. The reduction of RRRs and the easing of mortgage lending have been in place since 2023. In addition, cuts have been made in the benchmark lending and repo rates. In other words, generating liquidity and fuel to minimise frictions in the economy. Let’s hope that this time they mean a more permanent result.
💶 Dutch ECB governing council member Klaas Knot said yesterday that the European Central Bank (ECB) will likely keep lowering interest rates, at least through the first half of 2025, to a range between 2% and 3%. In an interview with the Dutch TV show Nieuwsuur, Knot stated, “I would expect us to continue to gradually reduce interest rates in the coming time, also in the first half of 2025.” “It is unlikely that rates will rise to the exceptionally low levels observed prior to the epidemic. They will probably arrive at a bit more organic level. I’m not sure precisely where, but somewhere that begins with a two,” he said. Money markets now imply around a 60% chance of a 0.25 percentage point rate cut in October, up from around 20% last week. German 2-year yields are at the lowest since late 2022. Unless data clearly improves, the ECB is likely to speed up the pace of rate cuts to consecutive meetings in October and December.
🇯🇵 Last week We mentioned to you as an important event the election of the new leader of the ruling Liberal Party in Japan. This leadership contest in Japan could act as a trigger for equity inflows into Japanese stocks. Whoever wins is expected to signal that the Bank of Japan should slow the path to higher interest rates, a message the BOJ governor already seems to be taking on board. This makes it likely that the October policy meeting will see no rate hike, with December looking unlikely as well. A slower pace of policy tightening by the BOJ will help limit yen appreciation versus other currencies. However, the dollar-yen may still trend lower due to Fed rate cuts and China stimulus boosting risk appetite, and in fact, as we have already announced, reducing the need for further rate hikes due to differentials with the dollar.
⚖️ Remember Caroline Ellison, CEO of Alameda Research girlfriend of FTX CEO Sam Bankman-Fried? She was sentenced to 24 months in prison yesterday for her role in the massive $10 billion FTX fraud. Ellison had asked to avoid prison given her co-operation. As Alameda CEO, Ellison helped hide the fact that FTX was borrowing billions from customers and loaning funds to executives.
Market View:
📊 Mini S&P 500 futures continue to accumulate closer and closer to the 5800 level. This tends to indicate increased buying pressure and therefore we could be looking at an imminent breakout to the upside at this level. Similarly, the Nasdaq 100 is pressing the 20,000 level and is likely to break higher in the coming hours.
💸 The dollar index DXY lost the 100.50 level in the last hours. It is believed that one of the causes could be the weak consumer confidence data released yesterday in the US, which came in at 98.7 versus 103.9 expected and 105.6 in the previous period, showing a faster deterioration in consumer confidence and therefore could impact the economy, which may require a more urgent loose monetary policy. EURUSD has approached 1.12, currently at 1.1190.
🇪🇺 In Europe, there is not as much optimism in equities as in the US. The Dax 40 has fallen again after forming a double top at 19,000 points; however, it is still close to its all-time highs. Recall once again that German macroeconomic data points to a possible recession in Q3.
🛢️ Crude oil, which has been climbing over the past few days after touching a low of $68 a barrel Brent crude has been falling back in the past few hours after breaking above $75, currently trading at $74.70. Gold continues to push for new bullish records, yesterday almost reaching $2700 an ounce, and now stands at $2680 oz. Meanwhile, bitcoin continues to push the $65,000 barrier with increasing frequency, which is likely to be reached and surpassed in the coming hours.
Geopolitics:
🌍 Iran’s new President Masoud Pezeshkian made his global debut at the UNGA, warning that Israel’s attacks on Lebanon “cannot go unanswered” while urging a return to the Iran nuclear deal. Iran’s restraint is partly due to its desire for sanctions relief, which requires diplomacy rather than escalating tensions through military responses.
🕊️ Ukrainian President Zelenskyy told the UN Security Council that Russia can only be forced into peace through action, not talks alone. His peace plan, in other words, is to defeat Russia. He called for supporting Ukraine’s “victory plan” to end the war. The US Secretary of State accused China of aiding Russia’s war effort by providing machine tools and other items to rebuild its military capabilities. China rejected such accusations. Russian Foreign Minister Lavrov criticized the UN for ignoring alleged excesses by Ukrainian forces during their recent incursion into Russia’s Kursk region, including bombing homes and social institutions.
