October 18 – Big tech is driving the stock market higher at mid-day, most notably with Netflix seeing a 10%+ gain on the day following better than expected earnings while Nvidia and other chip stocks continue to recover after TSMC brought calm back to the sector. As such, the tech heavy Nasdaq leads the major indexes higher, while the S&P 500 pushes higher as well but the Dow Jones dips slightly. The VIX has cooled through the day, falling to the 18.3 level. The dollar is taking a break following its big week, trading around 103.4 at the time of writing. Treasuries are off slightly as well, with 10-year yields at 4.07% and 2-year yields trading at 3.96%. Crude oil is now falling sharply, with the nearby WTI pushing to its lowest level since Iran’s attacks on Israel on October 1st, hovering around $68.80/barrel. The ags are mostly lower to end the week, with the wheat complex taking a nosedive as the moisture situation across both the U.S. Southern Plains and winter wheat belt of Ukraine/Southern Russia improves, aiding planting prospects and improving outlooks ahead of dormancy.
China’s GDP grew at its slowest pace since Q1 2023, increasing 4.6% year-on-year in the third quarter. This was a very slight step down from the 4.7% seen in the second quarter and in line to slightly higher than market expectations, though those have been revised downward through the year. Chinese officials expressed confidence for the fourth quarter and into 2025 as well, noting that the recent ramp-up in stimulus measures will take time to show an effect. Today’s sub-5% GDP reading is still supportive of additional stimulus measures as well, though much of the negativity in the market continues to focus on the struggling property sector due to real estate accounting for such a massive percentage of household wealth which in turn weighs on consumer demand. Yesterday’s announcement of support for the housing market failed to impress, and today’s data showed new home prices in China fall at 5.8% year-on-year in September, down from the 5.3% seen in August and the sharpest decline since May 2015.
Other economic news out of China was more positive today, with retail sales rising 3.2% year-on-year in September, up from 2.1% in the month prior and blowing past expectations of a 2.5% jump. The health of the consumer in China will be very key to their economic recovery, making such readings more interesting to follow in the months ahead to watch for signs of improvement due to stimulus measures. China’s industrial output also beat expectations, climbing 5.4% year-on-year in September after a 4.5% rise in August and again well above market expectations of a minor jump to 4.6%. More optimism abounded from the PBOC announcement that another reserve requirement ratio cut of 0.25% - 0.50% was coming, bringing a major inflow to Chinese stocks from all types of investors. This follows another cut made back in late September as the Chinese government continues its attempt to stimulate growth.
The weakness in China has had spillover effects elsewhere, notably in Europe where the European Central Bank (ECB) cut rates by another 25 basis points yesterday, their third such cut this year. The European economy is struggling compared to the U.S., while their inflation readings have now dipped below the 2% level for the first time in three years. Barring some major surprises, the expectation is to see the ECB continue cutting rates into early 2025, with another cut priced in for next month and more expected before March. This raises the risk of seeing the Euro continue to struggle, supporting the U.S. dollar further in the longer-term. China held out on stimulus measures for longer than they likely should have in large part due to the fear of weakening the Yuan versus the dollar as it tries to play a larger role in the global market. Although we’re seeing the dollar take a breather to end the week, it is worth noting how aggressively it has rallied since the start of the month, reaching its highest level since the beginning of August yesterday which weighs on the affordability of U.S. exports.
