China announced a broad package of stimulus measures last week, ahead of the national holidays beginning tomorrow. The initiatives are aimed at getting the economy back on track to meet the 5% annual growth target. The package included monetary and fiscal measures, as well as changes to government policy.
The RBA held the cash rate and ruled out any near-term decrease. However, a downside surprise in monthly CPI sparked optimism that a rate cut could happen earlier than the Board currently
anticipates.
The BEA issued significant upward revisions to American economic activity metrics. There was also a slight downside surprise in PCE inflation. However, consumer confidence remained subdued.
The Chinese PMIs are all due out later today. Australian retail sales, eurozone inflation, the ISM surveys and the US labour report all follow later this week.
Last week kicked off with some disappointing flash PMI surveys before global equity markets were lifted by the most significant Chinese stimulus measures since the pandemic. The package aims to put the flailing economy back on track to this year’s 5% growth target and was announced ahead of the weeklong national holiday that begins tomorrow.
On Tuesday, the PBOC tried to spur lending by cutting the 7-day and 14-day reverse repo rates by -0.2% and -0.1%, respectively, and reduced the Reserve Ratio Requirement (RRR) of major banks from 10.0% to 9.5%. In addition, commercial banks have been directed to cut the interest rate on existing mortgages by -0.5%, and the minimum downpayment for second home buyers will be dropped from 25% to 15%. The Chinese central bank also announced additional funding measures for commercial banking loans to state-owned enterprises, and for funds, insurers, and brokers to buy stocks, as well as measures to promote mergers, acquisitions and reorganisations.
It is unusual for the September monthly Politburo meeting to focus on the economy. However, according to Reuters, the policy body followed the PBOC by promising the “necessary fiscal spending” to meet the growth target and issuing guidance to the government to support consumers and stabilise the troubled real estate market. The news agency cited sources suggesting that China would also issue about 2 trillion yuan (US$284.4 billion) of bonds to back the measures.
Economists are divided on whether the measures will durably overcome the demographic and deflationary headwinds the Chinese economy faces. However, Capital Economics estimates that as much as +0.4% could be added to this year’s GDP growth, while Bloomberg Economics suggests that the increase might be a more modest +0.2%.
The MSCI World (developed market) index rose by +1.3% in US dollar terms over the week. The MSCI Emerging Market index advanced by +6.15%, as the Chinese CSI300 and Hang Seng indices surged by +15.7% and +13.0%, respectively.
Industrial commodities also made gains. Iron ore was up +8.9% per tonne, while copper added +5.0%. In contrast, the Brent Crude price fell by -3.4%, even as Israel intensified strikes against Hezbollah targets in Lebanon.
The Australian dollar strengthened by +1.4% against the US dollar on the back of the commodity gains and relatively tight monetary policy. The RBA kept the cash rate on hold at 4.35% on Tuesday. The Board did not consider an increase, but the governor also stated that no cuts are likely this year.
The following day, the ABS’ monthly CPI series lifted hopes that a rate cut might come sooner than the RBA currently anticipates. Headline CPI dropped from an annual increase of +3.5% in July to +2.7% due to lower fuel prices and the impact of the electricity subsidies. It was the lowest reading since August 2021. The RBA had already stipulated that it would focus on the trimmed mean measure, excluding the short-term subsidies, as a better predictor of future inflation. The trimmed mean series fell from +3.8% yoy to +3.4% yoy, moving closer to the RBA’s 2% - 3% target band and below the RBA’s August forecast of +3.5% yoy for the end of 2024.
A slight downside surprise in US PCE inflation allowed global bond yields to dip on Friday. The annual headline figure of +2.2% was down from +2.5% last month and below consensus expectations of a +2.3% yoy increase. As widely anticipated, the Core PCE figure rose from +2.6% yoy in July to +2.7% yoy.
Personal Income (+5.6% yoy) and Spending (+5.2% yoy) also continued to moderate in August. However, there were significant annual upward revisions to both series. The BEA revisions included the third estimate of American Q2 growth figures. Second quarter GDP growth was maintained at an annualised +3.0% yoy. But real gross domestic income (GDI) was revised +2.1% higher to an annualised +3.4% due to a significant increase in the estimate of corporate profits. Consequently, the average of real GDP and real GDI, often cited as a more reasonable estimate of economic activity, added +3.2% (annualised), a substantial upward revision of +1.1% from the previous estimate. Nevertheless, the Conference Board’s September Consumer Confidence reading slipped by much more than expected.
The S&P500 is currently trading at a historical high not seen since 2021 according to Bloomberg.
Elsewhere, the Swiss National Bank and the Swedish Riksbank cut the policy rates by -0.25% to 1.00% and 3.25%, as expected.
In stock news, the share prices of Woolworths (-4.4%) and Coles (-5.7%) dropped after the ACCC announced legal action over allegedly misleading pricing claims, while the beleaguered Star Entertainment price tumbled -44% as a four-week trading halt was lifted and it reported a $ -1.69 billion annual loss.
This week's highlights will be the US labour report and ISM surveys, eurozone inflation, and Australian retail sales. The official and Caixin Chinese PMIs will all be released later this morning.
Significant Upcoming Data:
| Monday | Tuesday | Wednesday | Thursday | Friday |
Australia | Private Sector Credit | Ret. Sales; Private Sector Houses; Building Approvals; CoreLogic Home Values; Judo Bank Manuf. PMI (F)
|
| Trade; Judo Bank Serv. & Comp. PMI (F)
| Household Spending; Home Loans |
US | MNI Chicago; Dallas Fed. Manuf. Activity | ISM Manuf. Survey; JOLTS Job Openings; Constr. Spending; Dallas Fed. Serv. Activity; S&P Global Manuf. PMI (F); Wards Total Vehicle Sales
| ADP Employment; Challenger Job Cuts | ISM Serv. Index; Factory & Durable Goods (F) Orders; S&P Global Serv. & Comp. PMI (F); Weekly Jobless Claims
| Labour Report |
Europe | German, Irish & Italian CPI; German, Swedish, Finnish & Irish Ret. Sales; UK Money Supply & Nationwide House Prices; Swiss KOF Leading Indic. Danish Unempl.; UK & Spanish Curr. Acc.; Swedish Non-Manual Wages; Austrian PPI
| EZ, Dutch & Austrian CPI; 2nd Tier Manuf. PMIs; Swiss & Dutch Ret. Sales
| EZ, Spanish, Italian, Belgian & Irish Unempl.; French Budget Bal. | EZ PPI; 2nd Tier Serv. & Comp. PMI Swiss CPI; UK DMP 1yr & 3yr CPI Exp.
| Italian Ret. Sales & Deficit-to-GDP; French & Spanish Ind. Prod.; Swiss Unempl.; Germany HCOB & UK S&P Global Constr. PMI |
Japan | Ret. Sales; Ind. Prod.; Housing Starts
| Tankan Survey; Jobless Rate; Job-to-Applicant Ratio; Jibun Bank Manuf. PMI (F)
| Monetary Base; Cons. Conf. | Jibun Bank Serv. & Comp. PMI (F)
|
|
China | Official & Caixin PMIs; BoP Curr. Acc.
| National Holiday |
|
|
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