Global Markets React to China’s Tepid Pledge as Investors Await US Inflation Data
European stocks dropped sharply after China’s latest pledge to support its economy failed to meet investors’ hopes for a new wave of substantial stimulus measures. The Stoxx Europe 600 Index, a key indicator of European equity performance, fell 0.7% as Chinese officials merely reiterated their commitment to meeting existing economic targets without introducing any new measures. This disappointment rippled through various sectors of the European economy, especially those closely tied to China, such as mining and luxury goods.
This sentiment mirrored global markets, with US-listed Chinese stocks and commodity markets also feeling the sting. Investors had expected more aggressive economic support from Beijing, particularly following months of slowing growth, weakened consumer spending, and reduced demand for exports. The lack of fresh action has reignited concerns about China’s economic trajectory and its knock-on effects on global markets.
The sectors most affected by China’s economic stance were European luxury and mining stocks, both of which have significant exposure to Chinese consumers and industrial demand. Luxury brands like Kering SA, the parent company of high-profile fashion houses such as Gucci, and Burberry Plc, a key player in luxury fashion, took significant hits, with both companies’ stocks dropping over 5%. These declines reflect growing concerns about China’s consumer spending power as the country’s economic outlook remains uncertain.
Similarly, European mining companies, which depend heavily on Chinese industrial demand for commodities, also faced declines. China is the largest global consumer of raw materials, and when its growth slows, mining stocks typically follow suit. The prospect of weaker demand for metals and minerals, essential for China’s industrial machine, sent shockwaves through the markets.
China’s economic developments reverberated across the globe, notably in the US and Asia. US-listed Chinese stocks saw notable premarket losses, with investors pulling back on fears of sluggish growth in the world’s second-largest economy. The Hong Kong stock market reflected similar apprehensions, with a gauge of Chinese shares in Hong Kong falling the most intraday since 2008, a year marked by the global financial crisis.
Commodity markets, a critical barometer of global economic health, also reflected the downbeat sentiment. Oil prices dipped below $80 a barrel, with Brent crude falling 2.1% to $79.26. This drop signals traders’ concerns over a potential reduction in Chinese demand for oil, a crucial factor for the global energy market.
Meanwhile, gold, a traditional safe-haven asset, also experienced minor declines, with spot prices down 0.1% to $2,638.64 an ounce. Although gold prices tend to rise during periods of economic uncertainty, the complex interplay of high bond yields and fluctuating risk sentiment has kept a lid on significant gains for the precious metal.
The muted response from China’s policymakers has led to diminishing enthusiasm around prospects for major economic stimulus. According to Benoit Anne, investment director at MFS Investment Management, the broader risk sentiment in the market remains somewhat resilient, but the “fading enthusiasm” surrounding China’s stimulus has nonetheless dented investor confidence. He noted that additional pressures, including the rise in bond yields and geopolitical tensions in the Middle East, have further complicated the market outlook.
While global markets remain focused on China, investors are also looking to upcoming inflation data from the US for clues about the Federal Reserve’s future actions. The combination of high inflation and rising bond yields continues to weigh on global sentiment, particularly as interest rates in the US and Europe are expected to remain elevated in the near term.
The rise in US Treasury yields above 4% earlier this week initially unsettled markets, as higher yields tend to increase borrowing costs and reduce the attractiveness of equities. However, by Tuesday, yields had slipped slightly, with the yield on the 10-year Treasury declining by one basis point to 4.01%. The slight retreat in bond yields helped to steady US equity futures after Monday’s market slide. Futures on the S&P 500 and Nasdaq 100 both rose modestly, by 0.3% and 0.4%, respectively.
Investors are now watching closely for Thursday’s US inflation data, as it could offer insights into the Federal Reserve’s next moves on interest rates. Adriana Kugler, a member of the Federal Reserve Board of Governors, reiterated the need for a “balanced approach” to rate cuts, reinforcing the view that the central bank may proceed cautiously in the coming months.
Current market expectations suggest that the Fed will implement a smaller-than-expected rate cut in its November meeting, with swaps pricing in a reduction of less than a quarter-point. Investors are increasingly attuned to how the Fed will navigate the balancing act between controlling inflation and fostering economic growth.
In addition to macroeconomic factors, investors are gearing up for the start of the US corporate earnings season, which kicks off in earnest on Friday with major banks such as JPMorgan Chase and Wells Fargo reporting their quarterly results. Analysts are closely monitoring corporate guidance for the final quarter of 2024 and early 2025, particularly in light of potential headwinds like inflation, rising interest rates, and geopolitical risks.
Shaniel Ramjee, senior investment manager at Pictet Asset Management, emphasized that much of the market’s focus has already shifted to 2025. He stated that “most investors will be looking to build a 2025 outlook,” with earnings forecasts and corporate guidance playing a crucial role in shaping expectations for next year’s market conditions.
In Europe, individual stock movements reflected varied corporate performances. For instance, UK-based housebuilder Vistry Group Plc saw its stock plummet by as much as 36% after slashing its profit forecast, further highlighting the sector-specific challenges faced by European companies amid broader economic uncertainties.
Several key events over the next few days will be critical in shaping market sentiment. Among the highlights are multiple speeches by Federal Reserve officials, which could offer further clues about the central bank’s monetary policy trajectory. On Tuesday, Fed officials Raphael Bostic, Susan Collins, Philip Jefferson, and Adriana Kugler are set to speak, potentially providing more context on the Fed’s outlook for interest rates.
Wednesday brings the release of the Federal Reserve’s meeting minutes, which will be scrutinized for any insights into the central bank’s internal debates on inflation and rate cuts. Additional Fed speeches by Lorie Logan, Austan Goolsbee, and Mary Daly later in the week will also likely contribute to market volatility as traders assess the possibility of further monetary tightening or easing.
Beyond central bank activity, the focus will also be on key economic indicators, including the release of US initial jobless claims and the Consumer Price Index (CPI) on Thursday, followed by the Producer Price Index (PPI) and University of Michigan consumer sentiment data on Friday. These reports will offer critical insights into the health of the US economy and inflationary pressures, which will be pivotal in shaping the Fed’s decisions in the months ahead.
- The Stoxx Europe 600 fell 0.7%, reflecting broad-based losses across the region.
- US equity futures steadied, with S&P 500 futures rising 0.3% and Nasdaq 100 futures up 0.4%.
- The MSCI Asia Pacific Index and MSCI Emerging Markets Index both dropped 2.2%, reflecting the broad impact of China’s sluggish economic stimulus on global equities.
- In currency markets, the euro was up 0.1% to $1.0989, while the Japanese yen gained 0.3% to 147.75 per dollar.
- Cryptocurrencies also declined, with Bitcoin down 0.9% to $62,428.48 and Ether falling 0.7% to $2,425.07.
- In bond markets, the yield on 10-year Treasuries dipped slightly to 4.01%, while Germany’s 10-year yield remained flat at 2.26%.
