A Look at the Day Ahead in European and Global Markets

Introduction

By Stella Qiu

Overview of the Week

What a week it’s been for Beijing. China’s leadership appears to finally acknowledge the challenging economic landscape and is responding with measures that markets anticipated: RRR cuts, rate cuts, enhancements to bolster share markets, and increased fiscal support.

Market Performance

Beaten-down Chinese shares are poised for their best week since 2008, with blue-chips up 3.6% on Friday and on track for a 15% weekly gain. Hong Kong’s Hang Seng index is set for a nearly 13% rise, marking its most substantial weekly increase since 1998.

Related Markets

Most markets correlated with China have also thrived:
– An index of mainland Chinese property stocks surged 20% for the week.
– Iron ore prices climbed back above $100 per metric ton.
– Copper exceeded the critical $10,000 per ton mark.
– Gold reached another record high, while silver hit a 12-year peak.

However, questions remain about the sustainability of this rally, as China’s A-share market has historically disappointed investors, with the benchmark CSI300 remaining stagnant since 2007, while the S&P 500 has skyrocketed by nearly 300%.

Upcoming Events

Investors should note that the China markets will pause for a week-long public holiday after today. A shift in investor sentiment could occur if Chinese consumers do not increase their spending, hindering economic revival.

Japan’s Leadership Contest

Amid the closing week, Japan’s ruling party is embarking on a leadership contest described as one of the most unpredictable in decades. The yen has been volatile, hitting a three-week low at 145.56 per dollar on Friday. Sanae Takaichi, the minister overseeing economic security, who believes the BOJ raised rates prematurely, is a leading candidate. Her victory could result in a further decline of the yen due to reduced expectations of imminent rate hikes, currently priced at around 30%.

Results from the first-round voting within the Liberal Democratic Party are anticipated at 14:20 JST (0720 GMT), with a probable run-off between the top two candidates around 15:30 JST (0830 GMT).

U.S. Economic Indicators

Also on the agenda is the U.S. core personal consumption expenditures (PCE) price index, the Federal Reserve’s key inflation gauge. Predictions suggest a modest monthly rise of 0.2%, with risks leaning bearish. A favorable outcome could pave the way for a significant half-point rate cut from the Fed in November, contingent upon the forthcoming payroll report next week.

Key Developments for Friday

• Japanese leadership contest
• France CPI for September
• Germany’s unemployment rate
• U.S. PCE data

By Stella Qiu; Editing by Edmund Klamann