Chinese Market Losses Steam, But Global Equities Fly High

Two years ago, in October 2022, inflation was soaring above 8 per cent, the Federal Reserve was aggressively raising interest rates, and the S&P 500 had plunged 25 per cent from its peak. However, this challenging environment eventually gave way to a new bull market that persists till today. 

Despite some lacklustre economic data over the past two weeks, corporate earnings helped buoy market sentiment. In the U.S. the Labour Department reported small but notable increases in both headline and core inflation (excluding food and energy) for September, with gains of 0.2 per cent and 0.3 per cent, respectively, slightly exceeding forecasts. On an annual basis, core inflation rose to 3.3 per cent, up from 3.2 per cent in August, marking the first rise since March 2023. A sharp rise in medical care (up 0.7 per cent) and transportation services (up 1.4 per cent) prices offset a significant 1.9 per cent drop in energy costs. 

Additionally, the Labor Department surprised markets by reporting a spike in weekly jobless claims to 2,58,000, the highest level in 14 months. While some of the increase was attributed to disruptions caused by Hurricane Helene, Michigan also experienced significant job losses. The unexpected uptick in consumer inflation shifted expectations regarding the Federal Reserve’s upcoming November meeting. Minutes from the Fed’s previous meeting revealed a split among members, with some advocating for a smaller 25-basis-point rate cut, though the official decision was a 50-basis-point reduction, with only one member dissenting. 

In Europe, the STOXX Europe 600 Index edged up 0.66 per cent amid optimism that the European Central Bank (ECB) might accelerate rate cuts and that China could implement additional economic stimulus. Key European stock indices also posted gains: Italy’s FTSE MIB rose 2.13 per cent, Germany’s DAX gained 1.32 per cent, and France’s CAC 40 added 0.48 per cent. The UK’s FTSE 100, however, slipped 0.33 per cent. 

Minutes from the Fed’s previous meeting revealed a split among members, with some advocating for a smaller 25-basispoint rate cut, though the official decision was a 50-basis-point reduction, with only one member dissenting. 

Germany’s Federal Ministry for Economic Affairs and Climate Action revised its economic forecast, predicting a 0.2 per cent contraction for 2024, down from an earlier estimate of 0.3 per cent growth. The ministry also emphasised the need for stronger consumer spending to drive growth in 2025. Factory orders fell by 5.8 per cent in August, a sharper decline than the expected 2 per cent, although industrial production unexpectedly rose by 2.9 per cent, largely driven by a recovery in the automotive sector. 

In Asia, Japan's stock markets rallied, with the Nikkei 225 Index gaining 2.45 per cent and the broader TOPIX Index rising 0.45 per cent, helped by a weakening yen, which boosted the outlook for Japanese exporters. In contrast, Chinese stocks struggled in the past fortnight, as optimism surrounding Beijing’s stimulus measures faded. The Shanghai Composite Index dropped 3.56 per cent, and the blue-chip CSI 300 Index declined 3.25 per cent. Hong Kong’s Hang Seng Index was hit even harder, falling 6.53 per cent. 

Amid this downturn, the People’s Bank of China introduced a RMB 500 billion swap facility aimed at providing liquidity to institutional investors for stock purchases. The central bank will allow nonbank financial institutions, including securities firms, funds, and insurers, to exchange highly liquid assets like government bonds for cash if they provide certain collateral. This move was part of a broader stimulus package unveiled in late September, which also included interest rate cuts and other measures intended to revitalize China’s slowing economy.