The global financial markets kicked off the week on a cautious note as uncertainty over China’s economic recovery deepened following a lackluster briefing from the country’s Finance Ministry. The weekend update from China’s Finance Minister Lan Fo’an, which fell short of market expectations, did little to dispel concerns about the country’s sluggish economy. This has triggered shifts across global currencies, stocks, and commodities, reflecting a cautious outlook from investors.
Monday morning saw the Australian and New Zealand dollars slide against the U.S. dollar, a direct reaction to the latest news from China. Both currencies, often considered proxies for China’s economic performance due to their heavy trade reliance on the nation, reflected investor nervousness. China’s yuan also weakened against the U.S. dollar, slipping by 0.3% to 7.0900 per dollar in offshore trading.
Meanwhile, U.S. stock futures edged lower as Wall Street digested the potential global implications of China’s unclear fiscal path. MSCI’s Asia-Pacific share index managed to eke out a small gain, but overall sentiment across the region was muted.
Investor anticipation had been building for the Finance Ministry’s briefing, hoping for solid and actionable stimulus measures to support China’s struggling property sector and revitalize domestic consumption. However, while Minister Lan hinted at greater government borrowing and fiscal support for property developers, markets were disappointed by the absence of specific monetary figures or concrete initiatives.
Data released alongside the briefing painted a grim picture, with Chinese consumer prices remaining weak and factory-gate prices—reflecting the costs manufacturers charge for goods—falling for the 24th consecutive month. This combination of underwhelming fiscal pledges and prolonged deflationary pressures added to the growing anxiety about China’s ability to hit its annual GDP growth target of 5%.
Brent crude oil prices dipped below $78 per barrel on Monday, largely driven by concerns that China’s demand for oil—the world’s largest importer of crude—would not see a significant increase in the near term. The lack of new measures aimed at boosting consumption in China has weighed on global oil prices, particularly as investors are keenly aware that China’s economic health is vital to global commodities demand.
The drop in oil prices reflects a broader sentiment of disappointment among markets that have been waiting for additional Chinese stimulus. Other commodities, like spot gold, also saw declines, falling 0.4% to $2,646.47 an ounce.
Richard Franulovich, head of FX strategy at Westpac Banking Corp., summarized the market sentiment in a note to clients, saying, “Markets are likely disappointed that China’s Finance Ministry did not unveil concrete additional stimulus. Though, a more conclusive market reading will come when China’s local markets open later Monday.”
Japanese markets were closed for a holiday, and Hong Kong markets were returning from a long weekend, providing some breathing room for traders before they respond more fully to China’s updates later in the week.
Patience among global investors is beginning to fray. Over the past several months, markets have been largely buoyed by hopes of significant fiscal support from Beijing following a late-September stimulus blitz. However, those measures, while initially encouraging, have failed to sustain momentum in key sectors like property and manufacturing. Onshore Chinese equities, as reflected in the CSI 300 Index, posted their largest weekly loss since late July last week, signaling a growing realization that more substantial intervention may be necessary to restore market confidence.
Currencies closely tied to China’s fortunes, such as the Australian and New Zealand dollars, have also been on a downward trajectory, both posting declines for two consecutive weeks as China-related sentiment worsens. Analysts like Chris Weston, head of research at Pepperstone Group, have expressed concern that the lack of clarity on China’s efforts to reflate its economy could lead to further weakness in these currencies. “With market participants looking to efficiently price certainty on China’s growth prospects, the lack of immediate clarity on China’s efforts to reflate the economy is unlikely to be taken well,” said Weston. However, he noted that Beijing’s strong commitment to achieving a 5% GDP growth target and indications of a potential move away from its 3% fiscal deficit limit might help limit some of the negative fallout in equity markets.
Meanwhile, U.S. markets have been navigating their own challenges. On Friday, the S&P 500 surpassed 5,800 points, setting a new record for the 45th time in 2024. The gains were fueled in part by strong performances in the banking sector, particularly after JPMorgan Chase & Co. unexpectedly raised its net interest income guidance, spurring optimism about the health of the financial system.
As the week begins, the U.S. dollar continues to climb, rising in early Monday trading after posting gains in the previous two weeks. Traders have started to adjust their expectations for how quickly the Federal Reserve might lower interest rates, focusing instead on a slower pace of rate cuts. Yields on U.S. Treasury bonds have been rising in tandem, with the 10-year bond yield climbing 4 basis points to 4.1%, although cash Treasuries were closed in Asia due to the Japanese holiday.
Solita Marcelli, chief investment officer for the Americas at UBS Group AG’s wealth management unit, suggested that despite some fluctuation in market expectations for rate cuts, the overall direction remains clear. “Whether the Fed decides to reduce rates at a faster or more gradual pace, the direction of travel remains unchanged, in our view,” she wrote. Marcelli recommended that investors prepare for a lower-rate environment by shifting cash into medium-duration investment-grade bonds and quality stocks.
This week, all eyes will be on key economic data releases and central bank decisions, which will likely have significant implications for both equity and currency markets. Chinese growth and retail sales data, due later this week, will offer further insight into the strength of the world’s second-largest economy, while inflation readings from New Zealand, Canada, and the UK will help gauge the pace of disinflation across major economies.
In the Asia-Pacific region, Thailand, the Philippines, and Indonesia are all expected to announce central bank interest-rate decisions, which could set the tone for broader monetary policy shifts in the region.
Across the Atlantic, the European Central Bank (ECB) is widely expected to cut interest rates by 25 basis points. Barclays strategists, including Themistoklis Fiotakis, noted that softer-than-expected economic data and faster disinflation have made the case for a rate cut more compelling. “Clearly softer activity data and faster disinflation have had an immediate impact on both ECB communication and markets, which are now pricing a 95% probability of a 25bp cut this week,” the Barclays team wrote.
Meanwhile, U.S. retail sales, jobless claims, and industrial production figures will also be released, providing a clearer picture of how the U.S. economy is holding up amid higher interest rates.
As financial markets look ahead to a busy week of data and decisions, the broader picture remains one of caution. China’s underwhelming finance briefing and persistent deflationary pressures in its industrial sector have highlighted the risks facing the global economy, particularly given China’s outsized role in global trade.
However, with major economies like the U.S. and Europe showing signs of resilience, investors will be carefully weighing their next moves. The expectation of lower interest rates in the U.S. and the eurozone, alongside a potential loosening of fiscal limits in China, could provide some relief to markets. Nonetheless, the lingering uncertainty in China, especially around its ability to implement meaningful stimulus, is likely to keep investors on edge for the foreseeable future.
Stocks: S&P 500 futures were little changed, Hang Seng futures were unchanged, Australia’s S&P/ASX 200 rose 0.2%, Euro Stoxx 50 futures rose 0.7%.
Currencies: The Bloomberg Dollar Spot Index rose 0.2%, the euro fell 0.2% to $1.0918, the Japanese yen fell 0.1% to 149.30 per dollar, the offshore yuan fell 0.3% to 7.0900 per dollar.
Cryptocurrencies: Bitcoin remained stable at $62,793.86, while Ether rose 0.1% to $2,463.57.
Bonds: The yield on 10-year U.S. Treasuries was steady at 4.10%, while Australia’s 10-year yield climbed five basis points to 4.28%.
Commodities: West Texas Intermediate crude fell 1.8% to $74.22 a barrel, while spot gold dropped 0.4% to $2,646.47 an ounce.
