Week ending 27th September 2024.

This week, global markets soared as Chinese stocks experienced their best performance since 2008, driven by optimism surrounding newly announced stimulus measures from Beijing. The Shanghai Composite Index surged by 12.8%, while Hang Seng Index in Hong Kong saw a 13% rise, reflecting widespread market enthusiasm following China’s economic interventions.

The People’s Bank of China (PBOC) played a pivotal role in fuelling this week’s market rally. It announced significant policy measures, including a 50-basis-point cut to banks’ reserve requirement and reductions in key short-term policy rates.

These moves, designed to inject liquidity and support China’s struggling economy, were further complemented by mortgage rate cuts and a reduction in down payment ratios for second homes.

Chinese leaders also pledged fiscal support to stabilise the property market and maintain the country’s 2024 growth target of around 5%. While specifics on fiscal spending were not provided, the strong commitment from China’s top policymakers has boosted confidence in the market, lifting hopes for sustained economic recovery. The central bank’s governor Pan Gongsheng said further easing of reserve requirements was possible this year.

Across the Atlantic, US stocks followed suit with a robust performance, particularly in the technology sector. Reports of a potential Intel takeover and news that NVIDIA’s CEO had halted his share sales contributed to the surge in tech stocks. On the macroeconomic front, US inflation data provided further support for markets. The core Personal Consumer Expenditures (PCE) price index, the Federal Reserve’s preferred inflation gauge, rose by just 0.1% in August—below expectations. On a year-over-year basis, the index increased by 2.2%, just shy of the Fed’s target of 2%. This moderation in inflationary pressures has strengthened the case for a cautious approach to future rate hikes by the Fed, adding to the week’s positive sentiment.

In Europe, stocks also rose, with luxury and industrial sectors leading the gains. Hopes that China’s stimulus measures would boost domestic consumption sparked a rebound in luxury stocks, which had been under pressure earlier in the year. Despite a slight dip in eurozone business confidence, markets remained buoyant, with optimism over China’s recovery outweighing concerns about weaker sentiment in the industrial sector.

On the domestic front in the UK, retail sales showed signs of recovery in September. The Confederation of British Industry (CBI) reported a modest uptick in sales volumes, ending a three-month decline. Strong online demand helped drive this improvement, with digital sales seeing their fastest growth since June 2023. However, sales levels remained below seasonal expectations, highlighting ongoing challenges for retailers as they navigate the impact of inflation on consumer spending.

Looking ahead, global markets remain optimistic, with China’s sweeping stimulus measures providing a much-needed boost to investor sentiment. Data wise next week we can expect Chinas PMI on Monday before China’s close for the week on Tuesday in observance of the Golden Week national holiday. Final UK GDP for Q2 and eurozone inflation. Towards the end of the week US non-farm payrolls and unemployment rate.

Kate Mimnagh, Portfolio Economist

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