News Recap • Week 41 2024

China pulls back with stimulus still in focus

China took a big plunge on Tuesday as the World Bank issued a cautionary statementabout the economy’s growth prospects for next year. Additionally, Chinese authorities failed to inspire further market confidence with their lack of details for upcoming stimulus measures.

Lastly, investors may just be taking home some profits after the past three weeks’ massive gains. The Hang Seng declined 9.4% on Tuesday and 6.5% for the week.

China did announce another stimulus initiative on Thursday though, when they launched a $71 billion swap facility to provide liquidity for institutional investors to buy stocks. This may have inspired some of the 3% rally we saw in the Hang Seng on Friday.

Next, China’s Minister of Finance Lan Fo’an said in a briefing on Friday that the central government has room for a “rather large” deficit increase but that nothing has been decided yet. He signaled that more stimulus is coming in the near future.

I’m sure we’ll hear more next week and I fully expect to see China in the headlines once again.

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CPI and PPI continue to cool

US CPI data came out Thursday, showing an annual inflation rate of 2.4% after a seasonally adjusted 0.2% increase in September. Economists had forecast 2.3% and 0.1% respectively.

Core CPI rose 0.3% in September and 3.3% on an annualized basis, both 0.1% above forecast as well.

Digging a little deeper, most of the increase in September came from 0.4% and 0.2% jumps in food prices and shelter costs. On the positive side, energy prices fell by 1.9%.

These numbers did show a slight uptick in annualized core inflation which was at 3.2% in both July and August. However, the headline number was at its lowest level since inflation skyrocketed in early 2021.

All in all, the trend is still clearly showing continued progress toward the Fed’s 2% target.

PPI came out on Friday, showing an annual inflation rate of 1.8% after no change in September. Economists had forecast a monthly rise of 0.1%.

Core PPI rose 0.2% for the month and 2.8% from a year ago, in line with expectations.

Market reactions were fairly muted but positive both Thursday and Friday.

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Fed minutes show divided Fed

Minutes from the Fed’s September meeting showed a divided committee with multiple members arguing for a 25 bps cut, although “a substantial majority of participants” favored the larger move.

Ultimately, the Fed cut rates by 50 bps with only Governor Michelle Bowman officially voting for a 25 bps cut.

Under normal circumstances, the Fed prefers to move in 25 bps increments. The last times the Fed cut by 50 bps were during Covid and the 2008 financial crisis.

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Earnings

Q3 earnings season was kicked off with PepsiCo reporting Tuesday, Delta Airlines Thursday, and JPMorgan, BlackRock, and Wells Fargo on Friday.

• PepsiCo beat on Q3 earnings but lowered their full-year revenue guidance.
• BlackRock beat expectations on both earnings and revenue. EPS came in at $11.46 vs $10.33 expected. Assets under management rose to a record $11.5 trillion last quarter.
• Wells Fargo reported earnings of $1.52 per share on $20.37 billion in revenue. EPS was a big beat.
• JPMorgan jumped 5% on Friday after an upbeat earnings report. Earnings came in at $4.37 a share vs $4.01 expected with revenue at $43.32 billion vs $41.63 billion expected.

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In other news

• Eurozone retail sales rose 0.2% in August from the previous month. This was in line with expectations according to a Reuters poll.
• The UK’s Halifax House Price Index showed British house prices rose in September at the fastest annual pace since November 2022.
• The 10-year treasury yield continued its rebound on Monday, surging back above 4%. The rise seems to be mostly a repricing of expectations after Friday’s strong jobs report lowered rate cut expectations over the coming months. Rising oil prices due to tensions in the Middle East and massive China stimulus are also reigniting the fears of higher inflation, which could further strengthen the case for fewer rate cuts ahead.
• Household spending in Japan fell 1.9% year-on-year in August in real terms. The decline was smaller than the 2.6% expected by economists polled by Reuters.
• Chinese consumers continued to show signs of caution during Golden Week.
• The Reserve Bank of India held rates steady but changed its stance from “withdrawal of accommodation” to “neutral”. The rate has been steady at 6.5% since the last hike in February 2023 but the new stance opens up for potential rate cuts.
  • This comes amidst early signs of a slowdown in the economy and an inflation rate of 3.65% in August, below the 4% target but above economists’ forecast of 3.5%.
  • Manufacturing and Services PMI slowed to eight- and 10-month lows respectively in September. Overall economic growth slowed to 6.7% in the June quarter. The RBI expects GDP growth of 7.2% in the current financial year (2024 - 2025).
• Initial filings for unemployment claims jumped to 258,000 for the week ended October 5, well above the forecast for 230,000. However, much of the increase could be attributed to Hurricane Helene and the big ongoing strike by 33,000 Boeing workers.
• South Korea’s central bank cut interest rates by 25 bps from 3.5% to 3.25%. This comes after South Korea’s inflation rate dropped to 1.6% in September.
• Tesla unveiled their upcoming self-driving taxis on Thursday. The stock plummeted 9% on Friday as Elon’s show failed to impress analysts.
• UK’s economy grew by 0.2% in August after two consecutive months of stagnation.
• University of Michigan’s Survey of Consumers showed consumer confidence at 68.9 in October. This was down 1.7% from September and below the forecast for 71 but still 8% higher than a year ago.
• New Zealand cut interest rates by another 50 bps on Wednesday, lowering it from 5.25% to 4.75%. This came despite inflation still being above target at 3.3%.
• The DOJ is considering breaking up Google after the recent monopoly ruling.
• AMD launched a new AI chip on Thursday in an attempt to rival Nvidia. The stock fell on the news though, while Nvidia rose 1%.
• Boeing announced plans to cut 17,000 jobs.
• Cullen Hoback aired Money Electric: A Bitcoin Mystery on HBO. He had claimed in advance to have unveiled Bitcoin creator Satoshi Nakamoto’s true identity but unsurprisingly provided zero evidence in the documentary.

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Markets

• US indices all rose more than 1% for the week. The S&P 500 and Nasdaq were both up 1.1%, slightly outpaced by the Dow which rallied 1.2%. Only the Nasdaq didn’t make a new ATH this week.
• STOXX 600 rose 0.7% in continued sideways action.
• FTSE 100 declined 0.3% and remains in tight multi-month range.
• DAX rallied 1.3% and now sits right below its ATH.
• C25 rebounded 1.4% after three straight weeks of declines, fueled by a 5.4% gain in Novo Nordisk.
• Nikkei 225 jumped 2.5% in continued bounce from the carry trade crash in early August.
• Hang Seng gave back 6.5% for the week but is still up 23% in the past four weeks.
• CSI 300 declined 3.3% for the week and 12.5% from its intraweek high on Tuesday.
• The VIX rose 6.5% as economic data sparked some volatility in the US market.
• The 10-year US treasury rallied another 3.4% to reclaim 4.1%. The 2-year lagged with a 0.9% gain to close at 3.96%.