A look at the day ahead in European and global markets from Wayne Cole.
The latest batch of economic data from China surprised by beating forecasts, but was unfortunately overshadowed by fears of a widening conflict in the Middle East following the Gaza hospital blast.
Chinese GDP growth slowed to “only” 4.9% in the third quarter, when analysts had looked for 4.4%. Perhaps more importantly retail sales and industrial output for September topped estimates, which might mean Beijing’s stimulus steps were finally bearing fruit after months of disappointment.
Yet the property sector remains a millstone for the economy and the initial market reaction was muted, with Chinese blue chips still modestly in the red.
The mood had been dour right from the start as Israeli and Palestinian authorities traded blame for the blast that killed hundreds at a Gaza hospital, complicating U.S. President Joe Biden’s already fraught trip to the region.
The episode highlighted the casualties that could be caused should Israel go ahead with a ground invasion of Gaza, and the risk the conflict could widen to include Iran.
That in turn would threaten access to the Strait of Hormuz and the 15% to 20% of the world’s oil supplies that transit the narrow waterway. Oil prices duly jumped around 2%, with Brent again testing resistance around $92 a barrel.
The implications for inflation were another headache for bonds, which were still smarting from Tuesday’s red-hot U.S. retail sales report.
JPMorgan responded by ramping up its forecast for U.S. third quarter GDP growth to an annualised 4.3%, implying nominal growth of more than 7%. No recession to be seen here.
Markets still see less than a 10% chance of the Fed hiking rates in November, but that rises to more than 40% by January and futures now imply just 56 basis points of policy easing for all of 2024.
Even the shorter end of the Treasury curve was unable to maintain its recent calm and two-year yields spiked to their highest in 16 years at 5.24%, breaking a major bulwark at 5.20%.
Bonds across Asia felt the aftershocks, forcing the Bank of Japan into an impromptu operation to buy JGBs and limit the rise in yields.
Equities, at least, are hoping for better news from Netflix later in the day as its efforts to restrict sharing of accounts could lead to a pick-up in subscriber growth. Tesla also reports and, while price cuts could hurt margins, the faithful just do not seem to care about such trivialities as profits.
Key developments that could influence markets on Wednesday:
– Riksbank governor and deputy governor both speak, along with the governor of the Norges Bank
– Appearances by Fed’s Waller, Williams, Bowman, Harker and Cook
– EU releases final inflation data for Sept, Fed releases its Beige Book assessment of the economy
(By Wayne Cole; Editing by Jacqueline Wong)
