European equities lead the way in a positive week for equities. The TPP weekend update.

London stocks closed higher on Friday as investors digested a slowdown in the Federal Reserve’s preferred inflation measure.

The FTSE 100 gained 0.43% to close at 8,320.76 while the more domestically focused FTSE 250 climbed 1.1% to finish at 21,240.56.

In currency markets, sterling was last down 0.15% on the dollar, trading at $1.3395, and was relatively flat against the euro trading at €1.2005.

“Yet another fiscal stimulus by the People’s Bank of China, which lowered its reserve requirement ratio by 50 basis points, the second reduction this year, provoked a 3% rally in the Shanghai stock index and stoked global risk-on sentiment,” said Axel Rudolph at IG.

On London’s equity markets, shares of Prudential rose 2.7% on Friday after the company announced a long-term strategic bancassurance partnership with Bank Syariah Indonesia.

The deal, which would allow Prudential to sell its products through BSI’s network, came at a time when it was benefiting from China’s recent stimulus measures, boosting its stock throughout the week.

Luxury fashion house Burberry gained 1.75%, continuing its upward trend as positive sentiment around China's economic prospects bolstered demand expectations.

PureTech Health advanced 2.66% following news that a schizophrenia treatment it developed, and later sold to Bristol Myers Squibb, had been approved by US regulators. The approval triggered a $29m payment to PureTech and opened the door to potential future royalties.

Rightmove edged up 1.02% after urging shareholders to take no action on a fourth takeover bid from Rupert Murdoch’s REA Group, valuing the property portal at ￡6.2bn.

In economic news, the UK private sector activity remained in expansionary territory for the 11th month running. The Flash UK PMI Composite Output Index registered 52.9, down from 53.8 in August. Inflation, as measured by prices charged, eased across the economy to a 42-month low. A PMI reading of more than 50 indicates growth.

Europe

Business activity in the eurozone unexpectedly shrank in September due to a marked fall in new orders. An initial PMI reading of the seasonally adjusted HCOB Eurozone Composite PMI Output Index fell to 48.9 from 51.0 in August

Business morale worsened in Germany in September, while consumer confidence stabilized at a low level, adding to signs that the economy could have tipped into recession. The IFO Institute said its business climate index dropped to 85.4 in September from 86.6 in August. Sentiment fell in all sectors of the economy, except construction. Separately, the consumer sentiment index published by GfK and the Nuremberg Institute for Marketing Decisions ticked up to -21.2 going into October versus -21.9 the month before.

Despite poor economic news out of Europe stocks still had a positive week with the STOXX Europe 600 Index rebounding, ending 2.69% higher. China unveiled a package of measures to stimulate its economy which was enough to lift sentiment across all major stock markets.

There hasn’t been a great deal of good news out of Germany for a while yet the DAX surged 4.03%, France’s CAC 40 Index climbed 3.89, and Italy’s FTSE MIB added 2.86%. These moves are just more proof that local economic climates are not relevant when China and America are buying.

US

In the US some benign inflation data helped spur an early rally Friday. Before trading opened, the Commerce Department reported that the Federal Reserve’s preferred inflation gauge, the core (less food and energy) personal consumer expenditures (PCE) price index, rose only 0.1% in August, a tick below expectations. On a year-over-year basis, the index climbed only 2.2%, close to the Fed’s 2.0% long-term inflation target and the least since February 2021. Meanwhile, personal incomes and spending both surprised on the downside in August, further suggesting a moderation in inflationary pressures.

This news pushed the Dow Jones Industrial Average to record highs.

However, stocks had pulled back somewhat early Tuesday on news that the Conference Board’s index of U.S. consumer confidence fell sharply in August, putting it back near the bottom (98.7) of its range over the past two years, according to its chief economist. The index of consumers’ perception of labour market conditions fell to 81.7, not far from the threshold of 80 that has historically predicted a recession.

The yield on the benchmark 10-year U.S. Treasury note ended little changed for the week. (Bond prices and yields move in opposite directions.) According to our traders, it was a busy week in the primary market for municipal bonds, which limited activity in the secondary market. The new issues experienced strong demand, with multiple deals seeing oversubscription.

Asia

Japan’s stock markets gained over the week, with the Nikkei 225 Index rising 5.6% and the broader TOPIX Index up 3.7%. The latest commentary from the Bank of Japan (BoJ), perceived as dovish, weighed on the yen, providing a favourable backdrop. Optimism also came from China’s stimulus announcements detailing various support mechanisms in response to the country’s sluggish economic growth and weak housing market. Given the share of Japanese exports that go to China and Japan’s sensitivity to Chinese purchasing managers’ index and other economic data, the stimulus announcements boosted the many Japanese companies that are direct or indirect China beneficiaries.

After Japan’s markets closed on Friday, Shigeru Ishiba won the Liberal Democratic Party’s leadership contest—he will therefore be Japan’s next prime minister. This news hit the Nikkei hard after its close to it will be interesting to see if those losses are realised on Monday morning.

Chinese stocks surged after Beijing unveiled a slew of measures to shore up the economy. The Shanghai Composite Index climbed 12.8%, while the blue-chip CSI 300 soared 15.7%. In Hong Kong, the Hang Seng Index gained 13%, according to FactSet. The rally marked the biggest weekly gain for the benchmark CSI 300 since 2008 when Beijing unveiled a massive stimulus package during the global financial crisis.

The People’s Bank of China (PBOC) cut its reserve requirement ratio by 50 basis points for most banks, its second cut in banks’ required reserves this year, and reduced its seven-day reverse repo rate, a key short-term policy rate, by 20 basis points to 1.5%. It cut the medium-term lending facility rate by 30 basis points to 2%, marking the largest-ever cut to the monetary policy tool since the central bank began using it to guide market rates in 2016, according to Bloomberg. The moves were part of a sweeping stimulus package announced last Tuesday at a rare press conference by PBOC Governor Pan Gongsheng that aims to jumpstart China’s ailing economy. Other measures unveiled by the PBOC included a rate cut for existing home mortgages and slashing the nationwide down payment ratio for second home purchases to 15% from 25%.

On Thursday, China’s top leaders vowed to take action to stabilize the country’s property market and make real estate prices “stop declining,” according to state media. The readout from the 24-man Politburo included a statement that China would deploy the necessary fiscal spending to meet its 2024 growth target of around 5%. The Politburo statement contained no specifics on fiscal spending. However, China plans to issue special sovereign bonds worth about RMB 2 trillion (USD 284.4 billion) this year as part of the fiscal stimulus plan, Reuters reported, citing unnamed sources. The package will include RMB 1 trillion of special sovereign debt focused on boosting domestic consumption, which has flagged since pandemic lockdowns ended.

The Week Ahead

Next week’s macroeconomic calendar is set to be dominated by job market data from the US, while another gross domestic product reading is due in the UK.

Friday brings both non-farm payroll data and unemployment figures from the US, with the readings coming as markets mull over the size of the Federal Reserve’s next interest rate cut.

Non-farm payrolls, having sent global markets into turmoil in early August after undershooting expectations, are anticipated to have fallen further to 130,000 from 142,000 throughout September.

Given these signals of how many jobs are added to the US economy each month, August’s below-forecast reading had raised concerns of impending recession for the US economy.

A string of data since has allayed fears of a recession, leaving the figures more likely to provide clarity over expectations for another Fed rate cut in November, after this month’s 0.5% reduction.

As for unemployment, markets are expecting the figure to climb from August’s 4.2% to 4.3% in September.

“If the US economy adds 100,000 jobs or fewer and the unemployment rate exceeds 4.3%, it could reignite concerns that the Fed is falling behind and strengthen expectations for a second consecutive 50 bp rate cut in November,” IG analysts noted.

Back in the UK, a final estimate for economic growth over the second quarter is due on Monday, with markets forecasting an unchanged reading of 0.9%.

UK house price and shop price inflation data is also due throughout the week, while Tuesday will bring inflation figures from the Eurozone.

In markets, Tesco and Wetherspoons are set to feature next week as several big-name firms line up to report.

Monday will see cruise operator Carnival lead the way with its latest update, as investors hope for another period of smooth sailing after a record second-quarter performance.

Greggs is due to follow on Tuesday, with investors waiting to hear whether the bakery chain has kept up a solid run of growth, as Nike is also set to report in the States.

JD Sports then features on Wednesday alongside Topps Tiles, ahead of Tesco’s report on Thursday, and finally Wetherspoons on Friday.

On our platform this week:

It was a relatively quiet week on the TPP platform this week. The trackers were tracking, and made a profit. Many of our Long or Flats found 1-2 profitable opportunities over the course of the week where they swooped into the market after a retracement, watched the markets bounce back and then exited with profit. Finally, the active strategies, were relatively hedged, until taking profit on the BUY side, meaning they entered the weekend with a SELL?bias. We would expect more volatility this coming week, and we hope our strategies can take advantage.

Have a great weekend and more from us next week.