The Hang Seng index jumped over 3% to trade above 21,500 points, as China’s latest stimulus measures bolstered H shares. The China Enterprise Index climbed 3% on Friday. China announced several stimulus measures, aiming at boosting economic activity. The government is easing mortgage requirements for first-time home buyers, where the decline in the property down-payment requirement was the first in five years.
The authorities also reduced the purchase tax on vehicles with smaller engines (1.6L or lower) from 10% to 5%, which will be effective from 1 October until the end of next year. These two measures helped boost the share prices of carmakers and developers listed on the Hong Kong Stock Exchange.
As the race to meet the 7% GDP target goes on, the Chinese government is likely to increase the number of stimulus measures in the fourth quarter. It is hard to imagine what would be the global impact as well as domestic effects if China undershoot the 7% growth target.
A major miss could be disastrous for global markets. Nonetheless, the earlier roll out of fiscal and monetary measures should start to transmit through the local economy, and help shore up growth momentum in the coming months.
Following the much-anticipated US payroll data tonight at 8.30pm SGT, what are market participants looking at in the next week?
First off, the US Q3 earnings season will start in earnest, where PepsiCo, Yum! Brands and Alcoa are reporting their profits in the coming week. Analysts are not overly enthusiastic about it, as the consensus is that S&P 500 Q3 earnings will fall 3.9% y/y, according to Reuters. US companies had been besieged by the trinity of factors – low energy prices, strong US dollar, and weak global demand. Energy and materials firms are expected to be among the worst-hit and would likely drag down the overall earnings performance.
What I am concerned with is the performance of financial stocks. Earnings estimates for US financials may have overshot, given that the Federal Reserve did not do anything about interest rates in the third quarter.
Staying on US, a few first-tier data may be keenly watched by investors, especially if the non-farm payrolls report came in better than expected. US services industries, which accounted for 90% of the US economic activity, has likely slowed in September. Economists are expecting the ISM non-manufacturing Composite to ease to 58.0 in September from 59.0 in August.
In addition, the trade deficit is forecasted to have widened to -$42.5 billion in August from -$41.9 billion previously, as exports weakened while imports picked up.
Meanwhile, the Reserve Bank of Australia (RBA), the Bank of Japan (BOJ) and the Bank of England (BOE) will set monetary policy on 6 October, 7 October and 8 October respectively. All is expected to refrain from adjusting monetary tools.
The Fed will also release the FOMC minutes of the 16-17 September meeting. Given the enormity of the September decision, market watchers will dissect the minutes for further clues of the timing of the first rate hike. More Fed is due next week, with John Williams, James Bullard, Dennis Lockhart and Narayana Kocherlakota scheduled to speak. I doubt we will hear anything new from them. They should continue to toe the party line of ‘fed funds rate is still likely to increase this year’.
One can’t help but wonder if the markets will be swayed by their firm stand. Currently, the implied probability of a December hike remained below 50%.
There may also be some interest in the IMF’s October update to its world economic outlook. Based on recent remarks from IMF head Christine Lagarde, the organisation believed there is reason to be concerned about the global economy. She said that the IMF sees troubling signs in the global finances, adding that prospects of higher US rates and Chinese slowdown are contributing to uncertainty and higher market volatility.
She noted that the collapse in commodity prices are weighing on resource-based economies, where a number of them are from emerging markets. In short, the IMF expects global growth to be disappointing this year, and would likely pick up modestly in 2016.
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