A look at the day ahead in U.S. and global markets from Mike Dolan
With U.S. Treasury markets closed on Monday, Wall Street stocks are set to cruise on higher into the unfolding corporate earnings season – but may first have to take early direction from China’s weekend stimulus update.
The Colombus Day holiday closes Federal offices and the bond market but the New York Stock Exchange and Nasdaq remain open and stock futures are higher first thing, building on the S&P500’s latest charge to new record highs.
Financials led the way on Friday as the early burst of big bank and asset manager earnings was cheered – with 3-6% share price gains on Friday for the likes of JPMorgan, Wells Fargo and BlackRock.
On Monday, however, China’s markets struggled for direction as Saturday’s much-heralded press conference on fiscal measures to accompany the recent frantic monetary easing turned out to be a bit of a damp squib.
A little short on the sort of details investors had been betting on, Finance Minister Lan Foan reiterated Beijing’s broad plans to revive the ailing economy, with promises made on increases to government debt and support for consumers and the property sector.
Chinese mainland stocks gyrated initially and eventually ended more than 1% higher. But Hong Kong’s Hang Seng ended 0.75% in the red. The offshore yuan weakened slightly against a red-hot dollar.
Depending on who you talk to, you’ll get a different readout on Beijing’s rescue plans. But what’s not in doubt is that they are badly needed.
The latest economic news from China shows the country still flirting with outright price deflation through September, as headline annual consumer prices fell below forecast to just 0.4% and annual factory gate price inflation continued to slump a whopping 2.8% rate during the month.
What’s more, China’s exports missed too – growing at the slowest pace in five months in September and suggesting manufacturers are no longer rushing out orders ahead of tariffs from trade partners. But at a paltry 0.3%, annual imports growth slowed too and were a third of expectations.
While some banks such as Goldman Sachs have nudged up next year’s real GDP forecasts due to the stimulus measures, the price picture raises questions about nominal growth and still suggests the government’s 5% growth targets will be hard to hit.
And the geopolitics doesn’t help much. China’s military launched a new round of war games near Taiwan on Monday, saying it was a warning to the “separatist acts of Taiwan independence forces” – drawing condemnation from the Taipei and U.S. governments.
Taiwan’s giant chipmaker TSMC, the main producer of advanced chips used in artificial intelligence applications, reports earnings on Thursday and is expected to show a 40% leap in third-quarter profit thanks to soaring AI-related demand.
Oil prices weakened on the latest sweep of Chinese data and policy details, with some of the weekend premium on Middle East concerns dissipating on Monday too.
Speculation over how Israel will respond to recent Iranian rocket attacks continues to simmer, however, with attention on Monday focussing on a U.S. decision to send both U.S. troops and anti-missile systems to Israel
Even though last week’s U.S. inflation numbers ran a bit hotter than forecast, the energy price picture remains relatively contained and annual U.S. crude prices have now been falling at a 10%-plus pace for more than six weeks.
In Europe, markets are shaping up this week for the third European Central Bank interest rate cut of the year on Thursday. European stock were flat – warily eyeing both the muddy Chinese picture as trade tensions between Brussels and Beijing jar, but also likely further credit easing at home.
LVMH, Hermes, Kering and other French luxury stocks exposed to China fell between 1.4% and 3.6% on Monday.
The euro ebbed slightly into the ECB decision, with another quarter point cut in the official deposit rate to 3.25% now more or less fully priced.
French debt markets and risk spreads shrugged off Friday’s decision by Fitch credit ratings firm to lower the outlook on France’s sovereign rating following the country’s latest deficit-cutting budget plan last week.
In Britain, Prime Minister Keir Starmer will vow to scrap regulation that holds back growth and investment when he hosts some of the world’s biggest businesses on Monday at a conference designed to boost Britain’s appeal.
Back stateside, a relatively quiet Monday is likely as a result of the semi holiday. The earnings season resumes in earnest on Tuesday with updates from Goldman, Bank of America, Citigroup, State Street, Johnson & Johnson and others.
Politics also gets more intense as the November 5 election nears.
Although national opinion polls and those in swing states still show little between Democrat Kamala Harris and Republican Donald Trump, betting markets are making Trump slight favorite again for the first time since July.
Key developments that should provide more direction to U.S. markets later on Monday:
* Federal Reserve Board Governor Christopher Waller and Minneapolis Fed President Neel Kashkari speak
(By Mike Dolan, editing by Gareth Jones; mike.dolan@thomsonreuters.com)