So far, it’s been a mixed week for markets as investors digest Q3 corporate earnings and economic data.
Chinese stocks remained volatile this week, reacting to disappointing September trade data. Exports grew just 2.4% year-over-year, well below the expected 6%, marking the slowest growth since April. While this is the fifth consecutive month of export growth, it is still the slowest rate since April, affected by a base effect—exports had previously declined by a revised 8.55% during the same month last year. Imports rose only 0.3%, missing the forecast of 0.9%, which reflects weak domestic demand.
Investor optimism was dampened by uncertainty over future stimulus. This week, local media reported an additional 6 trillion yuan ($850 billion) from special treasury bonds over three years to stimulate the economy. This comes after finance ministry’s proposal to significantly increase debt, with a lack of detail, however, on further stimulus measures leaving markets seeking more clarity.
US markets fell on Tuesday, taking a breather after their recent rally. A sharp selloff in chip stocks led the decline, following Dutch chip-equipment maker ASML’s warning of weaker sales next year. ASML shares dropped 16%, pulling down major chipmakers like Nvidia, Intel, AMD, and Broadcom. Energy stocks also weighed on markets as oil prices retreated after US officials confirmed that Israel wouldn’t target key Iranian oil facilities. However, banking stocks fared better, buoyed by robust earnings reports from Bank of America and Goldman Sachs.
During a key investment summit in London, Prime Minister Keir Starmer outlined his vision for boosting the UK economy through significant international investments and regulatory reforms. Starmer highlighted £63 billion in international investments in sectors like renewable energy and AI as part of a long-term vision for the UK. He also pledged to remove investment barriers and urged regulators to prioritise growth, aligning with global banks and firms declaring it’s “time to invest in Britain.”
In the UK this week, labour market data revealed that average regular earnings grew by 4.9% between June and August 2024, down slightly from 5.1% in the prior three months. Unemployment unexpectedly dropped to 4%, although the labour force survey remains complex, suggesting caution when interpreting fluctuations. While pay growth has slowed from its 2023 peak of nearly 8%, it still outpaces inflation, with real wages rising 2.6% in the three months to August when adjusted for CPI.
This data has increased market expectations for a Bank of England (BoE) rate cut at its November meeting. The Bank paused rates at 5% during its last meeting in September, following a 25-basis point cut in August. Recently, BoE Governor Andrew Bailey suggested that rate cuts could be “more aggressive” if the data justifies such action, intensifying speculation about a potential cut in November.
This morning’s UK inflation data delivered a pleasant surprise for markets, showing a sharper-than-expected slowdown in price growth. The annual headline rate fell to 1.7% in September, marking its lowest level in three and a half years. Core inflation, which excludes volatile categories like food and fuel, eased to 3.2%, while services inflation dropped to 4.9%. Lower airfares and a 10.4% year-on-year drop in petrol and diesel prices drove the slowdown, pushing inflation below the Bank’s 2% target and bolstering expectations of a potential interest rate cut in the coming months.
Still to come this week, the European Central Bank (ECB) will meet on Thursday to discuss interest rates. Following the Federal Reserve’s 50-basis point cut last month, ECB policymakers may consider further reductions due to recent weak economic indicators suggesting easing inflationary pressures. The market expects a 25-basis point cut, which would be the third reduction this year, offering relief to consumers and businesses.
We can also expect Eurozone inflation data, UK and US retail sales, US industrial production, Japanese inflation, and Chinese industrial production and retail sales.
Kate Mimnagh, Portfolio Economist
