Market Update

The People's Bank of China (PBOC) played a crucial role in driving this week’s market rally, announcing a series of significant policy measures. These included a 50-basis-point cut to banks’ reserve requirement ratio and reductions in key short-term policy rates. These actions, aimed at boosting liquidity and supporting China’s struggling economy, were further complemented by cuts to mortgage rates and reduced down payment ratios for second homes.
Chinese authorities also committed to fiscal support to stabilize the property market and maintain the country’s 2024 growth target of approximately 5%. Although specific fiscal spending plans were not disclosed, the strong pledge from China’s leadership has bolstered market confidence, sparking optimism for a sustained economic recovery. PBOC Governor Pan Gongsheng indicated that additional reserve requirement cuts could be considered later this year.
Meanwhile, across the Atlantic, US stocks followed suit with a strong performance, particularly in the technology sector. Reports of a potential Intel acquisition and news that NVIDIA’s CEO had halted his share sales contributed to a surge in tech stocks. On the macroeconomic front, US inflation data further supported market sentiment. The core Personal Consumption Expenditures (PCE) price index, the Federal Reserve’s preferred measure of inflation, rose by only 0.1% in August—below expectations. On a year-over-year basis, the index increased by 2.2%, just shy of the Fed's 2% target. This moderation in inflation has strengthened the case for a more cautious approach to future rate hikes by the Fed, adding to the week’s positive market mood.
In Europe, stocks also posted gains, with the luxury and industrial sectors leading the way. Expectations that China’s stimulus measures would boost domestic consumption helped luxury stocks rebound after facing pressure earlier in the year. Despite a slight decline in eurozone business confidence, the market remained upbeat, as optimism about China’s recovery outweighed concerns about weaker sentiment in the industrial sector.
Back in the UK, retail sales showed signs of recovery in September. The Confederation of British Industry (CBI) reported a modest increase in sales volumes, ending a three-month decline. Strong online demand helped drive this improvement, with digital sales seeing their fastest growth since June 2023. However, sales still fell short of seasonal expectations, highlighting the ongoing challenges retailers face as they navigate inflationary pressures on consumer spending.
Looking ahead, global markets remain optimistic, with China’s stimulus measures providing a much-needed boost to investor sentiment. Next week, data to watch includes China’s PMI on Monday before the country’s markets close on Tuesday for the Golden Week national holiday. We’ll also see final UK GDP for Q2, as well as eurozone inflation figures. Towards the end of the week, US non-farm payrolls and the unemployment rate will be released, providing further insights into the state of the US economy.