50 days to go until the US Presidential Election. Harris and Trump clashed in the first debate. Although Trump signalled to the media that this was his best debate, the consensus was that Harris won the night. The market liked this as the potential for the Democrats to regain the presidency meant no real change in policies. Further Inflation data released also indicated that the FED has this firmly under control, with the YoY Inflation Rate coming in at 2.5%, which was 0.4% lower than the previous print. The market is more focused on the potential cut due to inflation coming within the FEDs band rather than the possible loss of economic performance and potential recession caused by keeping rates high for too long. The key in the direction for equity markets, we feel, is the size of the cut, as this would gauge how confident the Fed is that we will not trade into a recession. A 50bpts cut suggests the FED is worried; at 25bpts, suggests a more moderate concern. The ECB, however, looks to be more concerned as they cut rates from 4.25% to 3.65% during the week. This is a clear indication that the economy is weak and needs stimulus. Further, after a 65bpt slash in rates, Industrial Production dropped by 2.2%. The last positive read was in last December. Adding to the concern of a weak global economy was a rash of economic numbers from China. Last Saturday, the NBS released Industrial Production YoY 4.5%, a 0.6% drop from the previous read, and weak Retail Sales dropping from 2.7% to 2.1%. Further clues that show that more stimulus is required to kickstart the economy. Interestingly, the Housing Price Index released showed a further drop. The House Price Index has been falling since May 2019, and in July 2023, growth printed its first negative read since September 2014. It has had 13 consecutive declines in a row since August 2023. As a result, we do expect to see more fallout in this sector, which may send a message to the global economy that the engine room of the world is faltering, again. In Australia, Consumer Inflation notched a gain, which is not what the RBA wants and suggests relief from high rates will take some time. 

But first, let’s take a deeper dive into China weak economy. China, the world’s second-largest economy, continues to face significant economic challenges. Recent data released by China’s National Bureau of Statistics (NBS) paints a concerning picture of the country’s economic trajectory. Industrial Production growth came in at 4.5% Year-over-Year (YoY), representing a 0.6% decline from the previous reading. Meanwhile, Retail Sales, a key indicator of consumer demand, dropped from 2.7% to 2.1%. These figures suggest that China’s economy is struggling to regain momentum despite efforts by the government to stimulate growth.The decline in both Industrial Production and Retail Sales is particularly troubling for global markets. China is often referred to as the “engine room” of the global economy, as it plays a central role in driving demand for goods and commodities worldwide. When China’s economy slows, the effects are felt across the globe. Export-oriented economies like Germany, Japan, and South Korea are especially vulnerable to a prolonged slowdown in Chinese demand.

One of the most striking indicators of China’s economic malaise is the Housing Price Index, which has shown a continued decline. The index has been falling since May 2019, and in July 2023, it printed its first negative read since September 2014. This marks 13 consecutive declines in a row since August 2023, signalling a deeper issue within China’s real estate sector. The weakness in housing is concerning because the real estate market is a significant driver of economic activity in China. A prolonged slump in housing could have ripple effects throughout the economy, impacting construction, manufacturing, and consumer spending. The property sector in China accounts for close to a third of the country's GDP. Evergrande and Countries Gardens collapse continues to ripple through the market and has further sparked more concerns in the shadow banking sector. Given the continual decline in the index, we feel that we can expect further economic weakness. 

As China’s economic woes deepen, there are growing concerns that the country’s slowdown could send a global message that the world’s engine room is faltering. This is a troubling development for many countries that rely on China as a key trading partner. If China’s economic growth continues to decelerate and deflation persisting, it could lead to a broader global slowdown, especially for economies that are closely tied to Chinese demand. Add to this, the worries in Europe and it presents a real concern.

The rate cut clearly signals that the ECB believes the European economy needs further stimulus. Economic data in Europe has been weak, with industrial production and other key indicators pointing to a slowdown. The ECB’s decision to cut rates by such a large margin suggests that policymakers are increasingly worried about the prospect of a prolonged economic downturn.

One of Europe's most telling signs of economic weakness is the drop in Industrial Production, which declined by 2.2% following the rate cut. This is a particularly concerning development, as industrial production is a key growth driver in many European countries. The last time Europe posted positive industrial production growth was in December, highlighting the current slowdown's severity.

 The ECB’s rate cut also reflects broader concerns about the global economy, adding to this the weakness in China and fears that Europe’s export-driven economy could face additional headwinds. Europe’s close economic ties with China mean that any slowdown in Chinese demand could significantly impact European growth. As such, the ECB is taking pre-emptive action in the hopes of avoiding a deeper recession. The US is yet to react to this fallout but this week economic releases could be providing a clue. The hope is the US could pull the rest of the global economy out this malaise.

This week, we have a rash of economic data from the US and the all-important FOMC meeting. On Tuesday, we have Retail Sales; YoY data looks weaker than the previous read as to the MOM. Then, on Wednesday, Industrial Production and Manufacturing releases. Both indicators are expected to show a gain on both YOY and MoM from the weak prints last month.  Then, on Thursday, Federal Reserve Governors get together and decide on monetary policy. It is widely anticipated that an interest rate cut of 25bpts will be announced with an outside chance of 50bts.  The important aspect to this announcement is the perceptions on what we can expect in the next few years as this will guide our investment patterns. If the third projection is for 2.9%, then investors' perception of this is either positive growth, no recession, or recession and the need for stimulus.  In Australia, we have the employment data Thursday.

On the position front, we remain … Both SP500 and SPI albeit have reduced positions in both to reflect recently found bullish sentiment. We do still feel valuations are too … and expect an economic slowdown, which we will realise is a correction. The checky … at … was stopped out US … with … loss. AUDUSD, we reversed the position here and feeling comfortable about being … The wheat position is added to our wheat position and remains … crude.

Trade Focus:

Gold

Fundamentals:

Gold prices surged to a new all-time … of $… and is set to extend their gains as the US Dollar weakens on Friday. Expectations for a bigger interest rate cut by the Federal Reserve boosted the non-yielding metal…

Technical Analysis:

Technically, we have breached major resistance, so expectations are for it to trade … after some consolidation of the break. If we get a break below US… on a daily close, then this cements a top of significance. Otherwise…

Support              …

Resistance         …

Momentum        …