Another light day of economic releases left traders focussing on sharply lower treasury yields after Monday’s US holiday, driven by geopolitical risk and comments from policymakers suggesting the Fed has likely finished hiking. The dollar retreated and European stocks had their best day since July, with the EuroStoxx50 index closing 2.3% higher at 4205.23.
China’s considers new stimulus
A Bloomberg report claiming China’s policymakers are considering at least 1 trillion yuan of additional borrowing this year for a new round of stimulus helped lift mining stocks, as the central government seeks keep its 5% growth target in sight by boosting infrastructure spending. In a sperate report, Country Garden was said to be preparing for a default and debt restructuring after failing to repay a $60m loan denominated in Hong Kong dollars and warning it is unlikely to meet other offshore obligations.
Country Garden’s contracted sales in the first three months of this year fell 44% from a year earlier with sales in September plunging 81% according to a regulatory filing, leaving its cash flow and debt servicing ability deeply impaired. Its bonds trade at severely distressed prices, suggesting minimal recovery value and significant losses on its property portfolio in a winding up.
Inflation still robbing shoppers of discretionary purchasing power
The British Retail Consortium reported total sales values in September were 2.7% higher than a year earlier, a slowdown from the 4.1% YoY increase in August. The value of food sales was 7.4% higher while non-food sales were 1.2% lower, highlighting the impact of higher prices on discretionary spending.
In a speech late on Monday evening BoE MPC member Catherine Mann maintained her hawkish stance, warning that policy "has to be more aggressive because it has to address both a drift in expectations as well as the actual inflation". The Bank was extremely slow to tighten policy, with its first hike from a Bank Rate of 10bps to 25bps only after inflation had already breached 5%, and Mann highlighted the continued risks from “embeddedness, the duration, the expectations” of inflation.
Germany weighs on EU industrial output
Italian industrial production unexpectedly rose in August, making it the only one of the big four EU economies to show improvement, with a .2% MoM increase against expectations of a .3% decline. The bigger picture remains one of stagnation for now, with weakness in Germany weighing heavily on the eurozone aggregate data.
US small business pessimism deepens
The NFIB Small Business Optimism survey dipped slightly in September to 90.8 with a mixed message among its internals. Most concerning was an increase in the net percentage of business owners saying it was harder to get a loan, with expected credit conditions deteriorating to the worst level since March when SVB collapsed. NFIB Chief Economist Bill Dunkelberg said that “Owners remain pessimistic about future business conditions, which has contributed to the low optimism they have regarding the economy”. Despite this apparently downbeat outlook, the labour market components - which were released last week - showed hiring intentions close to the highest of the year.
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Today’s macro agenda
US PPI September, FOMC Sep 20th minutes, MBA weekly mortgage applications
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