Hong Kong, China stocks in front of global rally on reports of more stimulus measures from Beijing

European stock markets rallied on Thursday following gains in Asia as China’s political leaders signalled further fiscal support to boost the economy. China stocks rallied strongly, extending their rally this week in the wake of the PBoC stimulus bazooka. Property stocks leapt as the politburo said it would step up efforts to support the sector. Hong Kong’s benchmark Hang Seng index rallied 4% to hit a one-year high. The Shanghai Composite closed up 3.61% and is now in the green year-to-date. China stocks are ~10% higher this week as of early Thursday.

In Europe, Paris led the way with a big rally for luxury stocks on the China news. Kering and LVMH both up 6% to lift the CAC up 1.5% early doors. Luxury stocks had been well beaten down this year — they are ripe for a rebound on any positive catalyst.  

Germany’s DAX index also rallied more than 1% and the FTSE 100 added about 0.5% — mining stocks are up 4% or so but have smaller weightings in the index than oil majors BP and Shell, which are both down around 3% early on lower crude prices and worries about future pricing/supply. In addition to the miners, other China exposed stocks in London did well — Prudential led the gains with a rise of 5% and Diageo rallied 4% with its AGM today. Burberry caught some relief too.  

Treasury yields tick up, sterling stabilises after yesterday’s drop

Treasury yields ticked up after a bout of supply of fresh 5-year notes. The 2-year had hit a fresh two-year low but has climbed back to 3.58% from 3.512%. Later today – Federal Reserve chair Powell and ECB president Lagarde are both due to speak, as well as a raft of Fed speakers. Also watch US final GDP (3%) weekly unemployment claims (224,000), and core durable goods orders (+0.1% MoM).

In the UK – it looks like the OECD has green-lit a big increase in capital spending in the Budget, calling on Britain to rethink “short-termist” fiscal rules. Chancellor Rachel Reeves recently gave more details of Labour’s investment plans at the party conference. This could have an impact on gilts.  

Sterling has stabilized today after dropping a big figure yesterday after it got vertigo at $1.34292. GBPUSD trades around 1.3342 this morning.

Oil prices drop on reports of Saudi abandoning $100 price target

Oil prices dropped amid reports that Saudi Arabia would abandon its $100 price target, setting the scene for a production ramp to recapture market share. There are also signs of a revival of Libyan production. Any China stimulus boost is being tempered by fears that production is going to be unleashed.  

OPEC+ delayed a planned unwinding of output restraint but will press on come December, with the Saudis keen to avoid ceding more market share, as per the reports in the FT. Non-OPEC+ oil production, particularly from Brazil, Guyana, Canada, and the US, is expected to rise next year and the Saudis are prepared to accept lower-for-longer prices.  

Meanwhile, geopolitical tensions appeared to have cooled a touch this morning, with Israel PM Netanyahu ordering an easing of Lebanon strikes due to talks, after calls led by the US for a 21-day ceasefire.  

Spot WTI fell for a second session after hitting a three-week high.

The Swiss franc strengthened a bit as the SNB cut rates by 25 basis points — they had maybe considered a bigger cut but held onto an easing bias and did signal further cuts could become necessary.  

Markets look to faster ECB rate cuts, quarterly moves may be abandoned

Markets are now expecting the European Central Bank (ECB) to reduce rates faster with back-to-back cuts on the way — the gradual approach of quarterly cuts may be abandoned. Sources on the wires this morning suggest doves will fight for a cut next month and that the October meeting is now wide open.  

Not only are the growth risks skewed to the downside with some horrible data coming out of Germany, but inflation pressures are also clearly easing. Notably, an ECB bulletin this week notes that wage growth pressures are easing. “We are now at a point in the disinflation process where the upward pressure coming from wage drift is easing,” says the ECB. Negotiated wage growth slowed to 3.55% in the second quarter from 4.74% three months earlier, hitting its lowest level since late 2022. The ECB has long stressed how important the negotiated wage data is to its policy outlook.  

And as for yesterday’s chart — NDX has cleared the shoulder.

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