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Chinas’ central bank cuts lending rates, as monetary policy and earnings season remain center stage this week

Today, the People's Bank of China lowered its key interest rates to stimulate the economy. This week, more central bank decisions and company earnings dominate the market landscape. The Federal Reserve will publish its summary of economic evidence, the so-called Beige Book, and some Fed members might offer potential clues on future US monetary policy. Additionally, the Bank of Canada will announce its interest rate decision on Wednesday. PMI surveys and the Ifo’s German business climate indicator will shed a light on economic conditions in the US and Europe.

Date
Auteur
Alessandro Fezzi, LGT Research Content & Publications
Temps de lecture
5 minutes

China flag and currency
© Shutterstock

Asia-Pacific markets were mixed on Monday, as investors evaluated China's central bank decision to cut its one-year loan prime rate to 3.1% and the five-year rate to 3.6% on Monday, aiming to ease monetary conditions. This move follows statements from the People’s Bank of China governor Pan Gongsheng last week, hinting at potential reductions in the reserve requirement ratio and other key rates by year-end. While the rate cuts were anticipated, analysts suggest that additional fiscal measures are necessary to address the underlying issue of weak demand in the economy.

Hong Kong’s Hang Seng index fell 0.9%, while mainland China’s CSI 300 rose 0.4%. Japan’s benchmark Nikkei 225 was trading close to the flatline, while the broad based Topix was 0.2% lower. South Korea’s Kospi climbed 0.7% and the small-cap Kosdaq jumped about 1%. Australia’s S&P/ASX 200 was up 0.7%.

Positive earnings drive Wall Street to new highs

The S&P 500 and Dow Jones Industrial Average closed at record highs on Friday, marking their longest winning streak of 2024 with six consecutive weeks of gains. The S&P 500 increased by 0.4% to 5864.67 points, while the Dow added 37 points to 43,275.91. The Nasdaq Composite rose 0.6% to 18,489.55, bolstered by a strong earnings report from Netflix. The market's strength is attributed to investor optimism on corporate earnings and the upcoming US election with expectations of business-friendly policies.

Netflix shares rose about 11% on Friday after the company reported third-quarter earnings per share of USD 5.40, surpassing the USD 5.12 consensus estimate. Revenue for the period reached USD 9.83 billion, exceeding expectations. Additionally, Netflix delivered a positive outlook. American Express reported that its third-quarter profit exceeded Wall Street estimates due to effective cost management, despite slower fee growth. The company’s total expenses were USD 12.08 billion, below the expected USD 12.74 billion, while revenue rose by 8% to USD 16.64 billion, slightly under the forecast. Profit increased by 2% to USD 2.51 billion, equating to USD 3.49 per share, surpassing analysts' predictions of USD 3.28. AmEx has raised its 2024 earnings forecast to between USD 13.75 and USD 14.05 per share. Procter & Gamble posted first-quarter earnings that surpassed analysts' expectations, with adjusted earnings per share at USD 1.93 compared to the anticipated USD 1.90. However, the company fell short on revenue, reporting USD 21.74 billion against an expected USD 21.91 billion, primarily due to weak demand in China.

US building permits decline in September

Building permits in the United States fell by 2.9% to a seasonally adjusted annual rate of 1.428 million in September, missing market expectations of 1.46 million. Approvals for units in buildings with five or more units dropped by 10.8% to 398,000, while single-family authorizations increased by 0.3% to 970,000. Regionally, permits declined in the Northeast, Midwest, and South, but rose in the West.

European stock indices close on a friendly tone on Friday

European markets closed higher Friday, led by an uptick in tech and luxury stocks, as well as equities from export-oriented sectors related to China following encouraging economic data from the world's second-largest economy. The pan-European Stoxx 600 ended the session up 0.2%, with most regional bourses and the majority of sectors in the green. The index also recorded its second consecutive week of gains. Tech stocks led gains, rising 2%, while mining stocks added 1.4%. Luxury stocks also climbed on Friday, with Gucci-owner Kering rising 3.5%, having climbed over 5% earlier in the session. The EuroStoxx 50 closed 0.8% higher at 4986.27 points. The eurozone leading equity index thus limited its weekly loss to just under 0.4%. The Swiss SMI gained 0.2% on Friday to 12,326.76 points.

IMF warns of global economic challenges

IMF Managing Director Kristalina Georgieva warned on Thursday that high government debt and low growth continue to impede the global economy. Despite central banks' efforts to control inflation, the benefits have not been universal, with some regions still grappling with high prices and social discontent. Georgieva also highlighted that international trade is no longer the robust growth driver it once was, due to increasing protectionist policies. She cautioned that retaliatory trade measures could harm both the implementers and their targets.

UK retail sales rise in September

Retail sales volumes in Great Britain increased by 0.3% in September 2024, following a 1% rise in August. This growth was primarily driven by non-food stores, particularly computer and telecommunications retailers, despite a decline in supermarket sales. Over the third quarter, sales volumes grew by 1.9% compared to the second quarter. Online sales also rose by 1.3% during the month, contributing to a 6.7% year-on-year increase.

Corporate and economic calendar

Corporate news in focus: Quarterly figures from Logitech and SAP.

Economic data in focus: German Producer Price Index (08:00), Bundesbank monthly report (12:00), Federal Reserve member Kashkari speaks (19:00).

 

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.

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