Global Market Trends – Recent Economic Shifts

Market News – This article on Global Market Trends delves into the recent economic shifts shaping the European, US, and Chinese markets.

FTSE100 Leads Amid Global Tensions

Bloomberg – European markets just about managed to eke out a gain yesterday, but it was hard going. The FTSE100 outperformed vastly due to outperformance in health care.

With diplomatic efforts ongoing in the hope of preventing a further escalation of the crisis, the news that President Biden is going to Israel later this week means it’s unlikely that we’ll see Israel mount an incursion into Gaza in the short term. That said, the horrific bombing of the Gaza hospital overnight has complicated matters, with several leaders canceling their meetings with the US President amidst claims and counters as to whose responsibility the blast was, sending oil prices sharply higher.

Resilient US Markets Defy Yield Surge

US markets finished a choppy session largely unchanged. They initially opened sharply lower and then rebounded despite a sharp move higher in yields after retail sales in September came in well above expectations, rising 0.7%. The August sales numbers were also revised.

Despite the rise in yields, which saw the US 2-year yield move above 5.2% for the first time since 2006, investors took the view that, with rates at current levels and the US consumer still looking resilient, the prospect of another rate hike, probably isn’t the end of the world, thus limiting the downside for US markets.

China’s Economic Outlook

This morning’s European open looks positive, with Asia markets having to absorb China’s latest economic numbers.

The last three months have seen little indication that the Chinese economy would see a significant improvement on its Q2 GDP numbers of 0.8%, given the direction of travel of industrial production and retail sales data, both of which have struggled over the quarter, particularly consumer spending.

Today’s Q3 GDP numbers would appear to contradict that, reinforcing skepticism about the accuracy of Chinese economic numbers, especially GDP; if recent trade data has been any guide, there is little doubt that a slowdown is hitting the Chinese economy in global market trends and domestic demand.

China’s Q3 GDP came in at 1.3%, well above expectations of 0.9%. Q2 was revised lower to 0.5%. September retail sales rose by 5.5%, beating expectations of 4.9%, and industrial production came in at 4.5%.

This morning’s industrial production numbers were pretty much in line with previous months’, remaining steady. However, there was a modest improvement in retail sales, which runs counter to the narrative from many high-profile retail companies that Chinese demand for luxury goods has been waning in recent months.

Consumer spending has been where the real weakness lies sharply down from Q2; Q3 has seen retail sales slow sharply, with gains of 2.5% and 4.6% in July and August, rounded off by 5.5% in today’s September numbers. While today’s numbers suggest a modest improvement in Q3, the extent of the rebound does raise questions, given the weakness of recent trade data and PMIs.

Global Market Trends – Recent Economic Shifts

As we look toward today’s data releases, we have the September UK CPI and the EU CPI’s final readings.

Starting with the UK, the Bank of England caught many people off guard when it decided by a narrow majority to keep interest rates unchanged at 5.25% last month.

The main reason why they decided to call a halt to 14 successive rate rises may well have been the sharp slowdown in core CPI that we saw in data released the day before, as well as concern that the UK economy has yet to feel the full effects of the previous rate hikes, and that more time is needed to assess the full pass-through effects.

Given the challenges facing the UK economy, it’s about time this penny dropped, and it’s good that the MPC has finally woken up to this. However, MPC members have differing views regarding how much has trickled down, with archive Swathi Dhingra arguing that only 25% of the impact has been felt.

In August, core CPI slowed from 6.9% to 6.2%, while headline CPI slipped to 6.7% when most people expected an increase. This trend of slower inflation is expected to continue today, with September CPI inflation set to slow to 6.6% and core inflation forecast to slow to 6% from 6.2%.

One of the major leading indicators in recent months of a slowdown in inflation has been the slowdowns in the headline PPI numbers since the start of the year, although there is evidence that these are starting to bottom out and pick up again.

Nonetheless, input and output prices have been in negative territory over the last two months, which ought to bode well for further weakness in CPI inflation going forward, although higher fuel prices are likely to keep underlying inflation sticky.

Further evidence of slowing inflation should make life easier for the Bank of England when they meet in just over two weeks’ time. In terms of keeping rates on hold, with new forecasts due at the November meeting, we could well find that the central bank is done. From here on in, the main question will be how long rates are likely to stay at current levels.

The EU CPI for September is expected to be confirmed as slowing to 4.3% from 5.2% in August, while core prices are expected to slow to 4.5% from 5.3%. This will reinforce the idea that the ECB is done with further rate hikes.

• FTSE 100 is expected to open 10 points higher at 7,685.
• DAX is expected to open 8 points higher at 15,259.
• CAC40 is expected to open unchanged at 7,029.