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)
