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Sheldon Macdonald and Nathan Sweeney talk about the topics driving the markets in their weekly Monday update.
Monday Espresso Podcast - 14th October 2024
[00:00:00] Scott Truter: It's Monday the 14th of October. I'm Scott Truter, an assistant portfolio manager in the multi asset investment team. And today I'm joined by Alex King, one of our analysts covering Asia and emerging market equities, as well as alternative investments. Good morning, Alex.
[00:00:15] Alex King: Good morning, Scott.
[00:00:16] Scott Truter: So Alex, let's jump straight in. So how did markets perform last week?
[00:00:20] Alex King: Well, broadly fixed income markets were flat or slightly negative for the week. Most investors are slightly waiting on some key data points, but there were some thoughts that rate cuts might not continue as quickly as expected due to a stronger than expected jobs report in the US.
[00:00:36] Alex King: In a similar way, equity markets were broadly flat, though the exception was China, which saw a meaningful pullback.
[00:00:42] Scott Truter: And China's probably a good place to start. There's been a lot of focus on that market because of the stimulus measures that have been announced, and it was discussed on the podcast a couple of weeks ago as well.
[00:00:52] Scott Truter: So, what else has been happening?
[00:00:54] Alex King: Yes, I came on the podcast a couple of weeks ago after the stimulus measures prompted a strong rally. But despite the rally, economists and investors seem to be in agreement that more needed to be done, to get the economy going again.
[00:01:06] Alex King: Now on Tuesday, the National Development and Reform Commission held a press conference, which was highly anticipated to include specific policies to supplement the measures announced in late September.
[00:01:17] Alex King: However, no such policy plans were revealed, which disappointed investors, and Chinese stocks suffered their worst fall in 27 years, tumbling 8% on Wednesday alone.
[00:01:26] Scott Truter: Okay, so it sounds like the catalyst to boost the Chinese economy may not have been announced yet then. So what do you think could be the turning point in respect of China?
[00:01:34] Alex King: Yeah, I think the answer does lie in stimulus. Now, any measures require approval of the National People's Congress, which next holds a committee meeting in late October, and this will be closely watched by analysts for signs of further stimulus measures. Without such measures being introduced, it's doubtful that China can push GDP forecasts above their target of about 5%, or boost inflation to a more controllable 2% in the foreseeable future.
[00:01:58] Scott Truter: Yeah, that's really interesting. And just because you mentioned inflation there, I think clearly the other big news was the US CPI print. always hotly anticipated by the market, you know, to give an idea of what's happening in the world's largest economy. So the figure came in at 2.4%. So inflation is slowing.
[00:02:15] Scott Truter: We've had that slowing for the sixth consecutive month now, and it's the lowest level since February, 2021. It was expected to be 2.3%. So it came in a little bit higher, but you can see from where we were even, you know, 12 months ago, it is moving in the right direction. I think markets may expect the Fed might still cut next month, but there is some uncertainty if inflation is still a little bit stickier than we maybe thought.
[00:02:39] Scott Truter: But I suppose close to home as well, there was some data out in the UK.
[00:02:42] Alex King: Yeah, that's right. So UK GDP came in at 0.2%, which was in line with expectations.
[00:02:49] Scott Truter: Yeah, and we've had a couple of months where we had zero growth. So those month on month figures at 0%. So it's pleasing to see that that has ticked up even though it's just marginal.
[00:02:59] Scott Truter: But I think again, it fits in with this message that we've been talking about. Of things have been a little bit better than expected where you see the US economy has been a bit better and the same for the UK as well. So it still fits the narrative of this sort of soft landing so that growth does slow but inflation continues to come down It allows central banks to cut rates and you know, we don't have that severe fallout or recession so everything's sort of moving in line with those expectations still. So yeah, we've had a lot of news as we've already covered from last week, but I suppose what's happening for the week ahead?
[00:03:31] Alex King: Yeah, so for the week ahead we have UK CPI data out on Wednesday, we have CPI for Europe out on Thursday as well as anticipated euro rate decision on the UK, we have UK unemployment coming out as well as in the US initial jobless claims and retail sales, China GDP figures come out on Thursday, and on Friday we finish the week with some inflation data from Japan.
[00:03:57] Scott Truter: Thanks, Alex. So yeah, obviously seeing what the CPI looks like for the UK and Europe, is it following a similar trajectory to the US? And also that China GDP one, are they getting close to that 5% target as you mentioned earlier. So yeah, lots of things to watch for. But that's it for this week. If you have any questions on that news or anything you've heard or you want further information, do get in touch. But for now, thank you.