Over the weekend China announced another stimulus package, but it was not well received as it failed to outline exactly what it is for. Both Chinese Inflation and PPI was less than impressive and reiterated the needs for another round of stimulus. MoM PPI data declined by 2.8% YoY for September and the annual Inflation rate stood at 0.4% below market expectations and Augusts read of 0.6%. The green shoots or recovery have shriveled up. More on this later. In the US Q3 Corporate reporting season kicked off with some positive results from the banking sector. JPMorgan rising over 3% after the bank beat on both earnings and revenue. Wells Fargo soared over 5.5% even though its earnings and revenue came below forecasts. Bank of New York Mellon added 0.4% as it topped estimates for earnings and revenue. Also, BlackRock rose 1.5% as its assets under management jumped to a record. Producer prices flattened in September from August, beating forecasts of a 0.1% rise and the monthly core rate also eased to 0.2% from 0.3% as expected. The annual rates, however, were higher than anticipated, butting a small question mark on the next announcement from the FED. Equities continued their record run although Consumer Sentiment surprises the market and drops. The University of Michigan consumer sentiment for the US declined to 68.9 in October 2024 from a five-month high of 70.1 in September. On the price front, inflation expectations for the year-ahead edged up to 2.9% from 2.7%. below.  

But first let’s take a deeper look into the reason for the stimulus package in China. China’s announcement of another stimulus package is particularly significant for the global economy and valuations for equities due to the country’s role as one of the world's largest economies and manufacturing hubs. China is a key driver of global demand for commodities, industrial goods, and raw materials, and any slowdown in its economic activity has far-reaching effects on global supply chains and markets. The concern we feel is that with another round of stimuli the market may look at this as unfavorable due to persistent deflation and worsening inflation and economic outlook.  

The recent data, showing a decline in China's Producer Price Index (PPI) by 2.8% year-on-year in September and lower-than-expected inflation (0.4% annual rate), indicates deflationary pressures. This points to weaker domestic demand, which is problematic because China’s internal consumption has been a critical factor for economic recovery, particularly after the pandemic. These signals suggest that China’s economic recovery has not only stalled but may be faltering, which could lead to lower demand for imports, affecting trade partners globally.

Moreover, China's need for further stimulus implies that previous measures have not been sufficient to reignite growth. This is crucial because any prolonged economic slowdown in China can exacerbate the already sluggish global economic growth. For example, major export economies like Australia, Japan, and Germany, which are heavily dependent on trade with China, could face declining demand for their goods, hurting their economies as well.

The muted reception to China's stimulus package also raises concerns about the effectiveness of Beijing's policy tools. Investors globally are wary that without a clear outline of how the stimulus will be deployed, it may not be enough to counter the broader deflationary risks. This uncertainty can lead to global market volatility, as investors adjust their expectations about global growth and the demand for commodities like oil and metals, which tend to fall when Chinese demand weakens.

China’s announcement of another stimulus package is particularly significant for the global economy due to the country’s role as one of the world's largest economies and manufacturing hubs. China is a key driver of global demand for commodities, industrial goods, and raw materials, and any slowdown in its economic activity has far-reaching effects on global supply chains and markets.

The recent data, showing a decline in China's Producer Price Index (PPI) by 2.8% year-on-year in September and lower-than-expected inflation (0.4% annual rate), indicates deflationary pressures. This points to weaker domestic demand, which is problematic because China’s internal consumption has been a critical factor for economic recovery, particularly after the pandemic. These signals suggest that China’s economic recovery has not only stalled but may be faltering, which could lead to lower demand for imports, affecting trade partners globally.

Moreover, China's need for further stimulus implies that previous measures have not been sufficient to reignite growth. This is crucial because any prolonged economic slowdown in China can exacerbate the already sluggish global economic growth. For example, major export economies like Australia, Japan, and Germany, which are heavily dependent on trade with China, could face declining demand for their goods, hurting their economies as well.

The stimulus in China, unfolding situation in the Middle East together with hurricane Milton in the US has potential to provide more volatility and perhaps positive direction for the commodity. WTI crude oil futures dipped by 0.3% to settle at $75.5 on Friday as investors considered the potential supply disruptions from the Middle East conflict and the effects of Hurricane Milton on fuel demand in Florida. Still, the U.S. benchmark marked its second consecutive weekly gain and has surged over 10% since Iran's missile attack on Israel. The rally has been fuelled by geopolitical tensions in the Middle East, particularly Israel’s potential retaliation to Iran’s missile attack. The situation has raised concerns about potential supply disruptions in the Middle East. Hurricane Milton also contributed to short-term fuel demand in Florida, although long-term consumption could be dampened by the storm’s aftermath. On the demand side, the outlook improved after top crude importer China unveiled a draft law to promote private sector growth, aiming to boost investor confidence amid an economic slowdown. The prospects for Oil remain positive.

In the United States this week, focus will be on the retail sales report and speeches from several Federal Reserve officials, followed by industrial production, import and export prices, building permits, and housing starts. Meanwhile, the earnings season will hit full stride with reports expected from mega caps like UnitedHealth, Johnson & Johnson, Bank of America, Abbott, Netflix, and Procter & Gamble. In Europe, all eyes will be on the European Central Bank’s interest rate decision, followed by Germany’s ZEW Economic Sentiment index, and industrial production and trade balance data from the Euro Area. In the UK, key reports will include the unemployment rate, inflation figures, and retail sales. China will reveal its Q3 GDP growth rate, along with data on retail sales, industrial production, unemployment rate, housing index, and fixed asset investment. Inflation data will also be released for India, Canada, New Zealand, Japan, and South Africa.

On the position …, we have reduced all … positions in equities, but we are … off on reducing position sizes further, ditto this week. Note that this is also a hedge against … equity positions. Oil continues to trade well for us, and happy to remain … given issues mentioned above. Wheat has come back, after showing good profits but still happy to … for the longer period. Climate issues will continue to squeeze world ending stocks. 

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