Sunset Market Commentary

Markets

Chinese stock markets eventually closed 2% to 3% higher, giving the benefit of the doubt to further steps to support the property sector and hints at greater borrowing announced by Finance Minister Lan Fo’an on Saturday. Beijing didn’t disclose a headline figure, but measures got the thumbs up for now. The Chinese yuan failed to profit with USD/CNY at 7.0850 reaching its highest level since mid-September. Chinese trade data (reported after Asian close) showed exports only rising by 2.4% Y/Y (in USD terms vs +6% expected) with imports (+0.3% Y/Y) barely higher than a year ago. The trades surplus shrank from $91.02bn to $81.71bn. Weakness in both external and domestic demand motivate Chinese stimulus measures. More Chinese September/Q3 figures are scheduled for Friday with retail sales, production numbers and GDP data. European stock markets didn’t copy the Chinese gains, trading sideways amid an empty EMU eco calendar. Belgian OLO’s and French OAT’s slightly underperformed after rating agency’s Moody’s and Fitch respectively changed the outlook on the nation’s Aa3 and AA- credit ratings from stable to negative over a combination of political uncertainty and unsustainable public finances. The Belgian 10y swapspread increased from 40 bps to 42 bps. The underperformance could last with October 25 being the next possible pitfall when rating agency S&P gives its update on the Belgian AA rating (positive). That’s one notch above both Moody’s and Fitch for now. Belgium risks an effective downgrade by Fitch early next year. By that time, Fitch applied a negative outlook for two years, traditionally the time frame within they decide over a downgrade yes or no. German yields are up to 1 bp higher across the curve amid thin trading conditions. US markets remain closed in celebration of Columbus Day, but a speech by Fed president Waller on the economic outlook could still prove to be interesting. EUR/USD is dragged lower in the run-up to the ECB meeting later this week which is expected to deliver another 25 bps rate cut. The pair changes hands at 1.0910 from a start at 1.0938. EUR/GBP (0.8370) treads water. UK eco data can from tomorrow (labour market report) justify BoE president Bailey’s call to become more activist. CPI (Wednesday) and retail sales (Friday) follow later on this week.

News & Views

OPEC trimmed its forecast for oil-demand growth for a third consecutive time. The oil cartel now expects demand to grow by 1.93mn barrels a day in 2024 and by 1.64mn in 2025. This compares to 2.03mn and 1.74mn respectively in its previous forecast. Both remain well above the historical average of 1.4mn seen just before the pandemic struck though. The 100k 2024 revision came almost exclusively on the account of China, where demand is projected to grow by 580k instead of the 650k earlier. OPEC estimates total global demand to hit 104.1mn this year before reaching 105.8mn in the next. The forecast adjustment comes as the oil production group is considering to bring back some of the withheld output from December, two months later than originally planned. Oil prices have rebounded from their September multi-year lows but lingering demand concerns continue to dominate over potential supply disruptions related to the Middle East conflict. After a short adventure north of $80, a barrel of Brent is currently trading around $77.45 with opening losses this morning being the result of China’s keeping the specifics (price tag) on fiscal stimulus measures announced on Saturday unclear.

The Hungarian economy ministry today proposed plans to allow savers to tap into their private pension funds tax free to buy or renovate property in 2025. The cost of housing and/or renovation has soared in the wake of the inflation surge (which went as high as 25% on a headline basis). The Orban administration is also looking for ways to prop up the economy as the country is headed for elections in 2026. The ruling party and main opposition group are polling neck-and-neck currently. But stretched budgets – deficits have averaged 7% since the pandemic – mean there’s little scope to do so. Whether this will make a material difference to the economy is highly uncertain. The ministry said more than 1mn private pension fund members had savings worth HUF 2mn which could now be tapped tax-free for housing purposes. The news barely impacted the forint. EUR/HUF continues to hover north of the symbolically important 400 barrier.

Graphs

Brent oil ($/b) slips at the open, unable to shake off demand-driven worries

Belgian 10-yr swapsspread (weekly) at highest in a decade amid semi-core underperformance following rating outlook downgrades

CSI300: Chinese stocks give government’s stimulus plans benefit of the doubt

EUR/GBP: sterling trades sideways ahead of important eco update that either validates or nullifies Bailey’s call for activism