China's Stimulus Ignites Market Optimism
This week, the People's Bank of China (PBOC) took an aggressive stance to combat economic weakness and deflationary pressures that have plagued the country in recent months. The central bank outlined that the stimulus would include cutting the bank reserve requirements, lowering borrowing costs on mortgages, and 800 billion yuan ($114 billion) of liquidity support for domestic stocks. This comprehensive package sparked a surge in sentiment surrounding Chinese equities, with the Hang Seng index gaining over 13% during the week.
Equities Surge to New Records
In the US, the Federal Reserve's preferred inflation gauge, the Personal Consumption Expenditures (PCE) index, dipped to 2.2% in August, its lowest reading since February 2021, driving the S&P 500 to record highs intraday. This marks a near 34% gain for the index over the last year, with expectations of more significant rate cuts in November, which will help to continue the positive momentum. The Dow Jones Industrial Average managed to hold onto gains and closed at a record high, however the Nasdaq composite fell on Friday despite a positive performance over the week for all three indexes.
In Europe, equities mirrored the optimism, with Germany's DAX, France's CAC 40, and Britain's FTSE 100 all posting gains. The Stoxx Europe 600 index gained 2% over the week and closed at a record high. This was primarily driven by increased investor sentiment in the hope that China's stimulus might revive weakened demand, especially for luxury goods firms listed in Europe.
Commodities and Currencies
Gold futures reached a fresh all-time high, briefly surpassing $2,700 an ounce before settling slightly lower, with investors continuing to move into safe-haven assets as economic uncertainty mounts. Oil prices declined over the week amid supply concerns after reports that Saudi Arabia is planning to accelerate unwinding its oil production cuts and intends to scrap its $100 a barrel unofficial price target. In currency markets, the Japanese yen saw gains at the end of the week after Shigeru Ishiba's nomination as the ruling party leader due to his support of monetary policy normalisation, which sent hawkish signals to the market.
Looking Ahead
As the final quarter of 2024 approaches, market participants will be keenly monitoring signals from central banks and upcoming economic data releases. Next week, the focus will be on German inflation data, Eurozone core CPI estimates, and US job data, including jobless claims and non-farm payrolls. The robust performance of global markets this week, coupled with China's bold stimulus measures, paints an optimistic picture for investors. However, geopolitical uncertainties and evolving monetary policy decisions may introduce volatility in the months ahead.