China has responded to mounting public pressure by implementing a series of significant policy actions after months of gradual measures. The initial steps centered on monetary policy, quickly followed by fiscal pledges, some aimed directly at boosting the stock market. This unexpectedly strong response triggered a surge in Chinese equities. By the end of the week, the Politburo also committed to further fiscal support to stabilize the housing market, marking the first time officials explicitly targeted the property sector. On Friday, the central bank implemented policy rate cuts, underscoring the government's urgency. The Shanghai Composite Index and Hang Seng Index jumped 12.81% and 12.90% respectively over the week.
Some positive U.S. inflation news sparked an early rally on Friday. The Commerce Department revealed that the core personal consumer expenditures price index (the Fed’s preferred inflation measure), which excludes food and energy, increased by just 0.1% in August, slightly lower than expected. Year-over-year, the index rose by 2.2%, nearing the Federal Reserve's target of 2.0% and marking the lowest level since February 2021. Additionally, both personal incomes and spending fell short of expectations in August, indicating a further easing of inflation pressures.
The Dow Jones Industrial Average (+0.59% w/w) and the S&P 500 (+0.62% w/w) reached record highs, buoyed by new stimulus measures in China. Chemicals and materials stocks performed strongly, driven by optimism for a rebound in Chinese demand. Technology stocks also excelled, aided by reports of a potential Intel takeover and NVIDIA's CEO halting his share sales. The tech-heavy Nasdaq Composite gained 0.95% over the week.
Business activity in the eurozone unexpectedly declined in September due to a significant drop in new orders, as reported by S&P Global's purchasing managers’ indexes (PMIs). The initial reading of the HCOB Eurozone Composite PMI Output Index decreased to 48.9 from 51.0 in August, indicating contraction since a reading below 50 signifies a decline. Notably, German business activity fell the most in seven months, suggesting the economy may be headed for a second consecutive quarterly output drop. The Euro Stoxx 50 index finished 4.02% higher on the week as signs of slowing business activity raised expectations for interest rate cuts. In the UK, the FTSE 100 climbed 1.10% w/w.
Japan's stock markets rose this week, with the Nikkei 225 Index climbing 7.20%. The Bank of Japan's dovish comments weakened the yen, creating a favourable environment for stocks. Additionally, optimism stemmed from China's stimulus measures. Given that many Japanese exports go to China, the announcements boosted companies that directly or indirectly benefit from the Chinese economy.
Market Moves of the Week
In South Africa, producer price inflation fell to its lowest level in over a year. Headline producer inflation (PPI) eased to 2.8% y/y in August, its lowest level since July 2023, from 4.2% in July. The outcome was far below market forecasts of 3.5%.
Foreign investors have demonstrated strong confidence in the South African market by injecting R2.3 billion into local equities over the past two weeks, following the national elections at the end of May. This renewed optimism is further underscored by the substantial R17.4 billion that foreigners have allocated to local bonds during the same period, according to data from the JSE.
Eskom has requested the National Energy Regulator to authorize a 36% price increase for its financial year 2026, significantly exceeding the country's inflation rate. While this increase could enhance Eskom's cash flow and benefit bondholders, it poses serious risks for consumers and businesses, potentially exacerbating inflationary pressures and hindering economic growth. Investors note that years of mismanagement and an unsustainable cost structure have left Eskom in a position where it must catch up.
The All-Share Index rose by 4.47% this week, driven by strong gains in Industrials (+6.44%) and Resources (+5.60%), both buoyed by optimism surrounding China. The local currency strengthened against the U.S. dollar, dropping to R17.10/$ from last week’s R17.41/$ level. SA government bonds continued their rally, as yields on the 10-year dipped -0.08% over the week.
Chart of the Week:
The CSI-300, an index of the biggest mainland A-shares traded in Shanghai and Shenzhen, has rallied by more than 10% this week and it’s nearly back to its high for the year. That rally extended Friday after the central bank confirmed it was cutting the reserves that banks must hold, with the CSI-300 gaining another 2.7% in the morning session. : Source: Bloomberg
Credits: Strategic IQ
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