China announces more support measures

China’s finance minister Lan Fo’an announced new support measures to support the country’s economy in a briefing over the weekend. The new measures include central government issued bonds that would help to recapitalize state-owned banks, allowing local government to raise funds to buy up unsold property that can be converted to social housing as well as indications that the government could widen the deficit through greater spending. However, the statement fell short of outlining a specific amount of direct fiscal stimulus, an omission that will likely disappoint markets and provide more anxiety over the cooling of China’s economy. The latest statement follows on support measures announced in September that were aimed at restoring confidence in China’s financial markets and comments from the country’s planning agency that growth targets were still achievable.

Inflation data from China gave more indication of a drifting economy. Headline CPI inflation slowed to 0.4% y/y in September, missing targets and slower than 0.6% recorded a month earlier. Producer prices remain in outright deflation with PPI inflation at -2.8% in September from -1.8% a month earlier.

In the US, consumer sentiment dropped in October according to the preliminary report from the University of Michigan. Headline sentiment fell to 68.9, down from 70.1 a month earlier, as both the current and expectations components declined. Year-ahead inflation expectations increased to 2.9% from 2.7% a month earlier while longer run inflation expectations were at 3%. Elsewhere in the US, producer prices were unchanged in September with final demand PPI at 0.0% m/m. Goods prices dropped marginally by 0.2% m/m offsetting a similar sized increase in producer services inflation.

Today’s Economic Data and Events

• 11:00 CH trade data September
• 16:00 IN CPI y/y Sept: forecast 5.1%

Fixed Income

• US Treasuries closed Friday near unchanged with the 2yr UST yield at 3.9554% and the 10yr UST yield at 4.1003%, up by about 4bps. Markets are still pricing in just shy of one rate cut at the November FOMC meeting and almost another cut in full in December. Lorie Logan, president of the Dallas Fed gave more emphasis to the “gradual” change in Fed policy while welcoming the disinflation that is underway in the US economy.
• Bond markets in general had a mixed close at the end of the week with emerging market bond indexes slightly lower. Regional credit was also slightly offered on Friday.

FX

• Currency markets had a mixed session on Friday with both the Euro and Sterling modestly gaining on the dollar. EURUSD was marginally higher, by less than 0.05% at 1.0937 while GBPUSD was up by a negligible 0.06% at 1.3067. USDJPY rose, however, by 0.4% to 149.13.
• Commodity currencies were more mixed with USDCAD rising for an eighth days in a row to 1.3762, up 0.2%, while AUDUSD added 0.2% to settle at 0.6750 and NZDUSD managed a gain of 0.3% to close at 0.611.

Equities

• Equity markets had a strong close for the week. The Dow Jones index added almost 1% on Friday while the S%P rallied 0.6% and the NASDAQ was higher by 0.3%. European markets also gained, up 0.7% for the EuroStoxx index while the FTSE added 0.2%.
• In Japan, the Nikkei closed higher by 0.6% while the CSI slumped almost 3%.

Commodities

• Oil faded slightly on Friday with Brent closing just above USD 79/b, down 0.5%, and WTI off by 0.4% at USD 75.56/b. Markets will be digesting the announcement from China’s finance minister and whether it was enough to turn around the broadly negative macro themes for oil.
• Industrial metals and gold all closed higher at the end of the week with a focus on the support measures coming out of China.