Fed Hopes, Weak PMIs and Xi Supremacy

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Geoffrey Smith — Xi Jinping spooked Chinese markets with a brutal consolidation power, which distracted attention from a third quarter growth figure that was well below Beijing’s target (but ahead of expectations). European business surveys point to an economic slowdown that is becoming more severe. However, the pound continues to strengthen as the risk of a divisive return by Boris Johnson diminishes. Stocks are expected to open higher, although Tesla is having trouble following reports of a price cut by China. Oil prices react badly to the data from Europe and China. Here are the top financial market news stories for Monday, 24 October.

1. Xi may be the one they will never forget

Chinese stock markets and sold off sharply after President Xi Jinping’s consolidation of power at the National People’s Congress sparked fears of a fresh campaign against the country’s biggest Internet companies and richest businessmen.

The Tech index fell over 8% on its worst day, and individual stocks like Tencent (HK) and Alibaba (HK) fell even more. 

China finally released its third quarter data last week. The annual growth figure of 3.9% was better than consensus forecasts of 3.3% but clearly below the Communist Party’s own 5.5% target, a testament to the headwinds from the ongoing real estate crisis, Xi’s Covid-zero policy and, increasingly, the slowdown in its key export markets in North America and Europe.

2. PMIs point at Europe’s Q4 contraction

The extent of the economic slowdown was clearly evident in the release of purchasing managers indices for the Eurozone (UK) and U.K. These indices put GDP on track to contract in the fourth quarter.

The Eurozone flash fell to 47.1, its lowest since December 2020, while the fell to 47.2, as the universal pressures of inflation and supply chain problems were compounded by an avoidable political crisis.

Sky-high energy prices continue to cloud the economic outlook. Warmer weather conditions for Europe this week and near full storage levels across the EU have driven natural gas prices down to a four-month low Monday. However forward contracts for next Year still predict a price that will likely have a devastating effect on industrial profits.

3. Stocks rise in open market on Fed pivot 

The U.S. stock exchanges are expected to open higher on Friday after the Federal Reserve announced that it had flagged the start of a policy shift through The Wall Street Journal. The WSJ reported that the Fed was set to discuss slowing down the pace of rate increases at its November meeting, but it will likely do one more 75 basis first.

At 6:20 ET (10.20 GMT), they were up 102 point, or 0.3%. Meanwhile, were up 0.3% and were down 0.1%. On Friday, the WSJ reported that the three main cash indices had all risen by more than 2%.

Tesla (NASDAQ:) will be the stock in focus later. This stock was down 3.5% in premarket following reports of a Chinese price cut. Earnings are due after the bell from – among others – Cadence Design (NASDAQ:), Alexandria RE (NYSE:) and Discover (NYSE:). 

The day’s macro highlights include the Chicago Fed’s monthly business survey and Janet Yellen’s speech.

4. U.K. markets buoyant following Johnson’s withdrawal, Sunak in pole position

U.K. markets responded to the weak U.S. close, and signs that Rishi sunak will replace Liz Truss as Prime Minster, by posting sharp rises despite the PMI news.

Boris Johnson (former Prime Minister) withdrew on Sunday from the race after it became apparent that many Tory Party lawmakers who had defeated him in the summer over ethical issues would not allow him to return.

Sunak had raised taxes sharply when he was Chancellor of the Exchequer to cover Johnson’s more centrist spending plans. He is one the few remaining party figures with market credibility. He warned Truss in the summer leadership race that her plans for unfunded taxes would be punished by markets.

The pound rose despite markets reducing their expectations of Bank of England rate increases in the context of a more prudent fiscal strategy. Yields on and benchmark Gilts declined by 29 and 19 basis point, respectively, while the rose 0.2%.

5. Oil slumps because of weak Chinese and European data

Crude oil prices fell after the severity of China’s growth problems and Europe’s concerns about the outlook for global demand prompted by fears.

At 6:35 ET futures were down 1.0% at $84.19/barrel, while futures were down 0.8% for $90.62/barrel

There was little sign of the geopolitical premium on oil rising from reports over the weekend that Russia’s Defense Ministry had tried – unsuccessfully – to convince western counterparts that Ukraine was about to deploy a “dirty bomb” and put the blame on Russia. The U.K.’s Ministry of Defense noted that Russia’s attempts to mislead the West before its invasion had left it with little credibility.

Ukraine’s government claimed that Moscow was trying to construct a pretext for its own use of tactical nuclear weapons to cover an increasingly urgent retreat from the southern city of Kherson.

News Source and Credit

Stocksak Editorial

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