End-of-week roundup: CPI anticlimax, China bulls get hard landing, Tesla futurism underwhelms again
By Joakim R?nning , Head of Global Markets, News Agency Direkt
I’ve emphasised before that further rate cuts are essential to sustain the rapid rally in global stock markets. To make that happen, we need to see a continued easing in inflation numbers, particularly the U.S. CPI. Everyone else's numbers will, by and large, follow suit.
Then came Thursday afternoon with a data release that raised some eyebrows.
U.S. inflation statistics revealed a concerning uptick in consumer prices. The CPI rose by 0.2 percent in September, exceeding the estimated 0.1 percent. Year-over-year, inflation increased by 2.4 percent, slightly above the anticipated 2.3 percent.
Following the data release, Fed official Raphael Bostic remarked that the outcome provides the Fed “greater room to act patiently” at the November meeting, and he’s “definitely open” to holding back on another rate cut after the significant cut of 50 basis points in September.
And, sure, as inflation rises, one might expect a diminished likelihood of another rate cut at the upcoming Fed meeting in November, right?
Not so fast, Raphael Bostic.
Labor market data released alongside the slightly hotter inflation figure, amusingly enough, showed signs of weakness. New unemployment claims rose by 33,000 last week to 258,000, while analysts had expected a figure of 230,000.
So, we have rising inflation reducing the likelihood of interest rate cuts, paired with weaker labor market data that raises the chances of cuts. The two figures more or less offset each other in the overall interest rate forecast.
Hawks have lost ground recently. Just a month ago, the market was split, forecasting a 25-basis-point rate cut in November as likely as a decision of unchanged rates. Now, futures markets indicate an 85 percent likelihood of a 25-basis-point cut, largely due to deteriorating economic conditions.
Consequently, it looks like we’re in for further rate-cuts, which I have highlighted as a necessity to provide a new leg to support other parts of the market besides the AI-driven stock surge we have seen primarily benefiting a handful of mega cap tech companies, NVIDIA et al, in 2024.?
The broader market in general has not had the same journey, and continuously needs support from lower capital costs to hum along with the present hype tune.
In Other News: As Expected, Tumbling China Bulls Gets a Hard Landing
Last week, while raging bullishness ripped Chinese stock markets higher, I cried out for a structural management of the structural weakness that still has China’s economy in trouble, predicting that the market rally would be short lived.?
As if on cue, first thing after the Golden Week holiday had ended and the trading week was about to commence on Tuesday this week, China's National Development and Reform Commission (NDRC) convened a press conference to demonstrate precisely this kind of structural management and fiscal policy “calibrations”.?
Maybe you thought it was time for that fiscal policy bazooka, in support of the monetary policy bazooka that was launched two weeks ago!
Great then, you might say. All must be fine and dandy! And the Chinese stock markets surely continued to surge this week as confidence in structural measures takes shape and liquidity is restored in markets, increasing the likelihood of China’s still substantial GDP growth targets of a staggering 5 percent are being met?
Think again!
NDRC's announcement, as it came out, was almost laughably weak compared to what the markets had expected. The only concrete figure was a ￥100 billion (around $15 billion) of increased government spending. Then PBoC, the central bank, came out announcing it set up a ￥500 billion ($75 billion) swap facility to support the Chinese stock market.
These numbers sound like an awful lot, don't they? In reality, though, it isn’t much when it comes to Beijing’s state finances.
As a reference, take the accrued estimated negative impact that the real estate market has had on the households and corporates balance sheet, equivalent of $10,000 billion. In other words, compared to the vastness of the real estate sector crisis, NDRC’s and PBoC’s support measures were as useful for its purpose as a pebble in the South China Sea.
The Hang Seng, Hong Kong's large-cap index, plunged by 10 percent.
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Another press conference was hastily announced on Wednesday morning, and speculations again started to circle. The press conference is scheduled for Saturday, and another one aimed at introducing support measures to strengthen enterprises, so we’ll see. It’s a not so wild guess that the Finance Ministry will fix NDRC’s mistake and try to cover up the embarrassment that has followed. But, nonetheless, confidence in the Chinese government’s efforts is steadily weakening.
Do note, though, that the short stock market hype two weeks ago also resulted in one great thing for the Chinese stock market. Creating a rally like the one that started after the monetary bazooka launch has rooted out the large number of short bets on Chinese stocks. That’s also a likely reason behind the historic intensity in the stock market fury of the week after the monetary policy bazooka.
Not that this was the only reason for the rate cuts and liquidity infusion – it wasn’t worth it – and without a meaningful structural response to the underlying problems that surround the economy, shorters will be back in no time.
Explainer: Robotaxi day another futuristic Tesla hype event failing to impress
The electric car manufacturer Tesla showcased a few long-anticipated prototypes on Thursday evening. Among them was the robotaxi Cybercab, which is expected to (also read as: probably won't) go into production in 2026 and be sold for under $30,000.
CEO Elon Musk has a long history of overly optimistic time frames, which he brought up himself during the event. The analyst community mostly expressed skepticism after the two months delayed half-hour long event that started one hour late.
Elon Musk rolled into the event in California in a Cybercab lacking both steering wheel and pedals, to give the illusion of a level of self-driving capability that it doesn’t actually have.
No technical details were provided on how Tesla plans to advance its driver assistance systems towards fully self driving capability, which are supposed to progress from "fully self-driving under supervision" to being fully autonomous without requiring the driver's attention.
In terms of self-driving development, Tesla has reportedly reached level 2 autonomy on the internationally accepted development scales. This means the company has fallen behind in the race within the industry, which has been going on over the past decade.
While Tesla is at the stage requiring "partial automation, driver assistance with two or more functions," Google's Waymo has reached level 4, where "full automation in specific environments" is required. The ultimate goal is level 5, with full autonomy under all conditions.
Several analysts expressed skepticism after the event about the promised capabilities being feasible given the high regulatory safety hurdles that must be overcome with widespread testing of the self-driving systems.
As mentioned, there are several previous examples of how Tesla's CEO has overestimated the rollout of self-driving capabilities and similar taxi services that the robotaxi is supposed to offer. Promises have been made that there would be autonomous vehicles able to take a passenger from Los Angeles to New York "by the end of 2017," and that there would be "a million robotaxis on the roads by 2020." None of this has materialised.
One analyst expressed that the event was also a disappointment due to a lack of details regarding Tesla's short-term product plan. Nothing was done to address the unclear medium-term earnings forecast.
Some had expected that the Robocab presentation would be followed by a Model 2 introduction, a smaller and lower-priced compact car that has been widely discussed as a potential renewal for Tesla's now-aging product portfolio. The Model 2 was not mentioned at all during the event.
Instead, the crowd at the event were served drinks and mingled with Tesla's robot model, Optimus.
Musk referred to the robots as "the greatest product ever of any kind" and shared visions of how Optimus will be useful in all kinds of assistance in daily life and the workplace in the future. I’m not sure that it will do more to society than the wheel or the printing press, but Tesla is in need of a game changer.
From the watch tower: Time for Q3 earnings season!
Next week, the earnings season will kick off in earnest. At the time of writing, the first U.S. bank reports, traditionally seen as the start of the quarterly reporting flood, are just about to be released. This means that the macroeconomic landscape will face a bit more competition for attention.
Attention on further military actions in the Middle East will continue, with particular focus on its impact on the oil market (see last week's issue). We will also, if it hasn’t been clear from the above, see significant focus directed on Beijing's actions to resolve the country's economic crisis.
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