When one becomes two

China’s decision to replace the 35-year-old one-child policy with a two-child policy prompted investors to snap up any shares relating to babies – from diapers and body-care products to baby food and infant milk formula.

A data board in the Shanghai stock exchange
Source: Bloomberg

However, the Wall Street Journal noted that the China’s Xinhua did not report a timeline for the abolishment. While Peking University Professor Lu Jiehua estimated that 100 million families may benefit from the policy change, it is not fully clear how many births will result.

Bloomberg reported that a previous relaxation of the policy did not help to boost births by the target of two million a year. Therefore, the rush for baby-related stocks may not necessarily bear fruit, unless you were one of the first, thus avoiding being the greater fool.

Chinese indices ended the session higher, capping off a very fine month. The Shanghai Composite (SHCOMP) gained around 11% in October, after suffering losses for four consecutive months since the sharp correction in June. To be sure, SHCOMP is still far from its peak, being capped by the formidable 3500 barrier. However, trading volume in the month remained lower, at 520.9 billion, compared to the average of 930 billion in the first three quarters.

Likewise, the CSI 300 posted a double-digit rally this month. The smaller Shenzhen Composite outperformed its bigger SHCOMP, surging 17%. It is worthwhile to note that margin trading remained on the rise, with the outstanding balance of margin transactions, touching a two-month high of CNY 628.4 billion. Overall, the Chinese equity markets remain in a consolidation zone.

Meanwhile, the STI traded mostly flat today, before slipping below pivotal 3000 level in the afternoon. Prices were struggling to reclaim the level, and a close at sub-3000 region would signal a potential reversal from the recent highs near 3100.

Performance was evenly split between gainers and losers. On the downside, the telecommunications and the financial sectors were weighing on the index. UOB traded higher, with almost 2% gains as of 3.12pm, while the other two Singaporean banks grappled with losses.

Week ahead

The start of November brings a barrage of data and events, which would keep market participants on their toes. On the data docket, we have quite a few US data lined up next week, including manufacturing PMIs, trade data, and labour market indicators.

These macro data will take on greater importance, as the Federal Reserve has made it quite clear that a December rate lift-off is still on the table. In other words, the upcoming data points will help shape market expectations of the odds of a rate move in the next FOMC meeting.

Specifically, the non-farm payrolls for October will certainly be closely monitored given the weak numbers seen in August and September. Analysts are expecting another sub-200k reading, at 180k, which would be an improvement from September’s 142k.

Adding to the noise is the torrent of speeches from Fed policymakers, including chair Janet Yellen and vice-chair Stanley Fischer. They are likely to talk about the October decision in greater details. Needless to say, any toning down from the rather hawkish meeting statement will unravel anticipation of a 2015 rate move, thereby kicking the USD off recent highs.

The Reserve Bank of Australi  and Bank of England will be having their policy meetings next week on 3 November and 5 November respectively. For the former, there is increasingly expectation of further rate cuts, with 40% of economists looking at a 25bps reduction of the overnight cash rate to 1.75%.

OIS pricing, however, has fallen to 48% as of Friday, from above 60 earlier in the week. Staying on the central bank theme, the Bank of Japan will release the minutes to its first October meeting, while governor Kuroda will be speaking next Friday, 6 November.

In China, the People's Bank of China governor Zhou Xiaochuan is speaking at the three-day China Caixin summit where officials may reveal details on reform plans, according to Bloomberg. In addition, China will release reports on manufacturing surveys for October on 1 and 2 November. Investors will be keen to learn about the official PMI (Consensus: 50) and the private sector Caixin PMI (Consensus: 47.6). Meanwhile, Chinese trade figures are also due.

 

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