Market Update – 9th October 2024.

9th October 2024

Stocks have exhibited mixed performance thus far this week. Chinese stocks have been on quite the rollercoaster. Following a surge spurred by the People’s Bank of China’s stimulus announcement, the mainland markets were closed for the Golden Week holiday, allowing traders a moment to pause. However, when trading resumed on Tuesday, volatility returned with a vengeance as investors quickly began to cash in on their recent gains, creating a mixed bag of outcomes across the indices. While the Shanghai Composite managed to bounce back, climbing higher, the Hong Kong index took a significant hit, dropping 9%.

This profit-taking reflects a shift in investor focus back to fundamentals amid uncertainty about additional stimulus measures. Disappointment lingered on Tuesday after a lack of new initiatives from China’s National Development and Reform Commission, leaving many to wonder what the next steps will be.

Despite the fluctuations in the stock market, there have been reports indicating that Chinese households significantly increased their spending during the Golden Week holiday, reflecting enhanced consumer confidence across various sectors, including travel and retail. Notably, the real estate market showed signs of recovery, especially in cities like Beijing and Guangzhou, where there were substantial increases in new home transactions.

Oil prices slowed their upward momentum this week as concerns about potential supply interruptions from the escalating conflict between Israel and Iran began to ease. Additionally, fears surrounding the impact of a hurricane in the Gulf of Mexico on oil production have also subsided.

UK and European shares slipped into negative territory on Tuesday, weighed down by weakness in the likes of drinks, luxury goods, and commodities sectors. The drop in luxury and mining stocks was driven by growing doubts about China’s ability to deliver effective stimulus measures. Investors had hoped these measures would boost demand for luxury goods and raw materials from China. However, the uncertainty around the stimulus has dampened these expectations.

Meanwhile, over in the UK, retail sales have painted a positive picture. According to the British Retail Consortium, September saw a robust 1.7% year-on-year growth, marking the fastest increase in six months, thanks to a notable uptick in clothing purchases. With autumn in the air, shoppers are gearing up by updating their wardrobes with cozy coats, boots, and knitwear. There was also a last-minute scramble for computers and clothing ahead of the new academic year, highlighting consumer resilience.

On the other side of the Atlantic, the US trade deficit made headlines by narrowing significantly in August, buoyed by record-high exports. Exports increased 2%, reaching a record high, while imports dropped by 0.9%. This development suggests that trade is unlikely to hamper economic growth in the third quarter. The report of a smaller than expected trade gap, coupled with positive labour market and consumer spending data, paints a robust picture of the economy.

As investors hold their breath for the key minutes from the Federal Reserve’s last meeting in September, due later today—where interest rates were cut by 50 basis points- markets are eager to glean insights into the future trajectory of monetary policy. Initially, the rate cut sparked excitement, leading many to speculate about the potential for further reductions this year. It’s essential to remember that policymakers remain data dependent and cautious in their decision making. The latest jobs report paints a picture of resilience in the labour market, even amidst the pressures of high interest rates. This has prompted investors to recalibrate their expectations, scaling back bets on additional rate cuts in the near term.

This week, we can look forward to US inflation data, UK GDP for August, US Producer Price Index (PPI), and the University of Michigan consumer sentiment index. Additionally, we can expect Chinese inflation data over the weekend.

Kate Mimnagh, Portfolio Economist