The Week Ahead
Further quarterly earnings and the Fed’s Beige Book (Wed) could shed more light on the health of the US economy this week. We also have the IMF-World Bank meeting (Mon-Sat), the BRICS summit (Tue-Thu). With only two weeks until the US presidential elections we expect the market to be volatile.
Later today the US Conference Board Leading Index is due. US existing home sales come out on Tuesday and we also have Boeing, Tesla and Deutsche Bank earnings. HCOB PMI prints for the eurozone and UK, and US S&P Global Manufacturing and Services PMIs will garner market attention on Thursday. US durable goods, and the University of Michigan consumer sentiment readings end the week.
In terms of central bank rhetoric, we will hear from the Fed’s Logan, Schmid and Kashkari today. ECB President Lagarde speaks on Tuesday, while the BOE’s Bailey, Klass, Knot Holzmann, Greene and Breeden, and ECB’s Centeno, Rehn and Galhau give their views. Bailey and Lagarde speak again on Wednesday, and we will also hear from the ECB’s Lane Cipollone, and Knot. The Fed’s Hammack and the ECB’s Lane speak at an inflation conference, on Thursday.
Last week, the yield on the UST 10-year close marginally lower at 4.08%, while the S&P Index rallied a further 0.85% hitting an all-time high. Meanwhile, the dollar strengthened against G10 currencies last week, not due to higher US rates, but because of falling rates in other countries; increasing the US rate premium over several nations. The upcoming US election is adding uncertainty, with a potential Trump victory seen as initially dollar-positive due to proposed tariffs, though the long-term impact remains debatable.
Brent crude fell 7.57% last week due to demand concerns highlighted in OPEC's latest report. The organisation’s (2%) downward revision of global crude oil demand forecasts, particularly in China, coupled with doubts about the effectiveness of China's economic stimulus measures, put pressure on oil prices throughout the week.
A mixed US economic picture gave markets food for thought. The September Empire manufacturing print unexpectedly fell. Next US import prices fell 0.4% in September, the largest drop in nine months, signalling benign inflation and supporting further Fed rate cuts. Core import prices remained stable, suggesting muted inflationary pressures. Industrial and manufacturing production both fell below expectations, as did building permits and housing starts in September. Retail sales were, however, robust, boosted by increased spending at restaurants and bars due to lower gas prices, and indicate strong economic growth in the third quarter.
Elsewhere, the ECB reduced rates by 25bp, as anticipated, following a lower September inflation figure (1.7%) and weaker survey data. The October statement maintained the cautious elements present in the previous one. It upheld the view that rates still need to remain restrictive, and that any decision will remain data dependent.
China's economic landscape experienced significant volatility last week, with equity markets initially cautious but improving by Friday due to swift policy implementation. The People's Bank of China introduced new financial facilities and hinted at potential RRR cuts and interest rate reductions to combat deflation. The real estate sector saw new stimulus measures, including urban village revamps and increased credit support. Despite these efforts, China's Q3’24 GDP growth slowed to 4.6%yoy, with external demand contributing significantly to overall growth. However, September showed signs of economic stabilisation, and recent stimulus measures are expected to boost domestic demand. Analysts anticipate Q4 growth to exceed 5%, potentially bringing full-year growth closer to the target. The outlook for 2025 has been revised upward, though renewed pressure on the RMB due to the "Trump trade" resurgence remains a concern. This morning, we heard that China's banks reduced their benchmark lending rates following the central bank's easing measures in late September. This move is part of broader efforts to stimulate economic growth and address the housing market downturn. The one-year loan prime rate was cut from 3.35% to 3.10%, while the five-year rate was reduced from 3.85% to 3.60%. These reductions align with the upper range of market expectations.
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