Week in Review: Mixed news out of China

In October, China experienced a return to deflation, underscoring the ongoing challenge of boosting growth through domestic demand. According to the National Bureau of Statistics, consumer prices declined by -0.2% (-0.1% expected) last month, following a near-zero trend in the preceding two months. Concurrently, producer prices continued their decline for the 13th consecutive month, registering a 2.6% decrease, slightly less than the estimated 2.7% decline.

Benefiting from multiple rounds of fiscal and monetary stimulus, China saw an upward revision in its economic growth projections for 2023 and 2024 by the International Monetary Fund. The IMF anticipates that growth will surpass China's 5% target for 2023, reaching 5.4% this year. However, it is expected to moderate to 4.6% in the following year due to subdued external demand and ongoing weaknesses in property markets. The revisions were made despite the backdrop of challenges, including a 6.4% decline in exports for October, marking the sixth consecutive monthly decrease, and the first decline in foreign direct investment since 1989.

Bank of England (BoE) Governor Andrew Bailey, addressing a central bank conference in Ireland, remarked that it was premature to discuss interest rate cuts. His comments followed BoE Chief Economist Huw Pill's observation that financial markets anticipating an initial rate cut in August next year "doesn't seem entirely unreasonable." In other news, UK gross domestic product (GDP) in the third quarter matched the BoE’s forecast for zero growth, after expanding by 0.2% in the prior three months.

In the U.S., Jerome Powell cautioned markets last week, stating that the Federal Reserve is ready to implement further tightening measures as needed. He expressed a lack of confidence in the current policy stance, emphasizing the challenge of reaching the 2% inflation target. In response, market conditions tightened, resulting in higher bond yields and a stronger dollar, accompanied by a decline in equities. The market now anticipates the first rate cut by the Fed to happen in July of 2024 instead of June. There were very few economic data releases last week, and most were in line with expectations.

As of the latest data, almost 92% of the S&P 500 Index constituents have reported their Q3 2023 results. Blended earnings per share, which combines reported figures with estimates for yet-to-report companies, indicate a 4% increase compared to 2022’s corresponding quarter, as reported by FactSet. Additionally, year-over-year sales growth stands at 2.2%.

The major global indexes finished mixed for the week. The Nasdaq (+2.37%), the S&P 500 (+1.31%) and the Dow Jones ended the week higher, with upside earnings surprises from some technology-oriented firms providing support to growth indexes. The Euro Stoxx 50 managed a +0.54% gain after European Central Bank President Christine Lagarde said the ECB will not start cutting rates “in the next couple of quarters.”

In the UK, the FTSE 100 dropped by -0.77%. Chinese equities rose as investors remained broadly unmoved by weak economic data, with the Shanghai Composite Index rising +0.27%. Japan’s Nikkei 225 rose by 1.93%, buoyed by robust corporate earnings, the government's commitment to further economic stimulus, and ongoing currency tailwinds. Brent oil prices declined by -4.12%, while gold dropped by -2.72%.

Chart of the Week

The consumer price index slipped into deflation in July and has been teetering on and off the edge of negative year-on-year growth. While the People’s Bank of China said in August that prices would rebound from the summer rough patch, the latest data shows that assessment is overly optimistic. Source: Bloomberg

?We are pleased to share our review of the week's top global economic and capital markets news summarised by our in-house research team. If you would like more information, we’re here to help you. Contact us at?[email protected]?to start your conversation.