China's Economic Stimulus

China’s central bank has announced an unprecedented stimulus package to support the economy, including cutting the bank reserve requirements, lowering borrowing costs on mortgages, and 800 billion yuan ($114 billion) of liquidity support for domestic stocks. Consequently, Chinese equities have seen particularly strong gains following this announcement, with the Hang Seng Index up nearly 5% and index futures surging 8% in the last two days.

Global indices have also reacted positively to these stimulus measures in conjunction with dovish central bank expectations. In the first half of the week, the S&P 500 gained 0.2%, and the Nasdaq composite rose by 0.5%. In Europe, the FTSE 100 remained positive, up 0.1%, and the Euro Stoxx 50 rose 0.6%. However, despite this initial positive reaction, there is still a degree of uncertainty around the long-term sustainability of the Chinese economy, and significant concerns about geopolitical risks persist.

U.S. Consumer Confidence

This week's focus has been consumer confidence data, with investors trying to determine Federal Reserve policy moves for the end of 2024. The Conference Board's Consumer Confidence Index fell by the most in three years, dropping to 98.7 in September from 105.6. This was considerably below market expectations and fuelled mounting fears surrounding the labour market's strength. This disappointing data has led investors to take a more dovish outlook, increasing bets on larger interest-rate cuts for the Federal Reserve’s November meeting, with markets now pricing in a 55% chance of a 50bps rate cut.

Global Economic Landscape

In Europe, traders have increased expectations of a 25bps rate cut by the European Central Bank (ECB) as soon as October, with the odds now priced in at 60%. The German yield curve has steepened, with the two-year yield dropping to 2.09%, its lowest level since 2022, and the 2-to-10-year yield curve turned positive. In the UK, gilt yields rose slightly as Andrew Bailey remained cautious about future rate cuts in a speech, highlighting that consumers should not expect a return to near-zero rates. In Australia, August inflation data eased to 2.7%, the lowest level in three years, potentially setting up a dovish pivot at the Reserve Bank of Australia's November meeting, which would be one month earlier than currently anticipated.

Investment Outlook

The current market environment is characterised by increased volatility as investors process the implications of China's stimulus package and shifting central bank expectations. In the commodities market, gold hit an all-time high, while silver surged to its highest level since late May, with heightened geopolitical tensions driving investors to seek safe-haven assets.

As we move through the final quarter of 2024, investors should remain prepared for potential volatility, with the interplay between economic data, central bank policies, and geopolitical developments likely to continue driving market movements. In the second half of the week, particular attention will be paid to upcoming indicators, including the US Personal Consumption Expenditure (PCE) index for August, along with CPI Consumer Price Index data for France, Spain, and Japan.