China’s 3rd day of stimulus packages has pushed gold futures prices to another new all-time high over $2,700.
September 26 (King World News) – Peter Boockvar: For the 3rd day there is more moves by the Chinese authorities meant to put floor under its housing and financial markets and now they are using fiscal spending to help lower income people too (this fiscal news came out during our trading day yesterday). Firstly, Bloomberg News citing “people familiar with the matter” said “China is considering injecting up to 1 trillion yuan ($142b) of capital into its biggest state banks to increase their capacity to support the struggling economy.” As to where the money would come from, “The funding will mainly come from the issuance of new special sovereign bonds.”
Secondly, on the fiscal side according to a statement from a Politburo monthly meeting, they will employ “necessary fiscal spending” in order to get to their targeted growth rate of about 5%. Part of this will be one time cash handouts.
Thirdly, and where the biggest stress in their economy lies, residential real estate, this statement said the government should “promote the stabilization of the real estate market” and will focus on finishing unfinished projects and “improve land, fiscal, tax, and financial policies as soon as possible to push forward the new model of property development.” They will also limit the building of new apartment projects in order to contain supply.
The Shanghai comp rallied by another 3.6% and is finally in the green year to date. The Hang Seng was up by 4.2% and higher by 17% year to date and the H share index in Hong Kong bounced another 4.8%, extending its year to date gain to 23% year to date. The yuan is rallying too as are commodities. Copper is up by 2%, to the highest since mid July. Iron ore is up for a 3rd day, by 3%…
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Saudi Arabia Agrees To Lower Oil Prices Ahead Of US Election
Oil though is down on the FT story that “Saudi Arabia is preparing to abandon its unofficial oil price target of $100 a barrel as it prepares to increase output to win back market share, even if it means lower prices”, and where the FT is “citing people familiar with the matter.”
When analyzing the global economy and markets, put aside any distaste for the authoritarian government in China, the human rights suppression of some and the buzz kill of the historically vibrant entrepreneurial culture and remember that it is still the 2nd biggest economy and thus remains a major economic presence. The demographic challenges with a shrinking working age policy is something too we all know but I expect a rise in per capita income will mitigate this and the Chinese consumer will also remain a major economic driver, particularly as their middle class continues to increase in size, likely doubling in the coming decade. With respect to manufacturing, they are fast moving up the value add ladder, as seen by the most advanced EV industry in the world.
Inflation May Return Quickly
And, if China is successful in at least stabilizing their economy, the whole disinflation spiking of the football by some central bankers will have to be rethought. I’ll argue again, I believe we’re in an era of inflation volatility and we’re not magically going back to 2% per annum gains and staying there sustainably as opposed to temporarily.
Stock market sentiment, along with price, is getting more bulled up again, and following the Fed’s rate cut. Investors Intelligence said Bulls rose back above 50 at 52.5 from 49.2 while Bears were unchanged at 22.9 with those expecting a Correction down to 24.6. AAII saw Bulls down by 1.2 pts w/o/w to 49.6 but it jumped by 11 pts last week. Bears shrunk by 2.7 pts to 23.7, matching the least since mid July. The CNN Fear/Greed index was 67 yesterday, in the middle of the ‘Greed’ category vs 65 one week ago and 43 one month ago. Bottom line, while the Bulls are coming back and bears are hibernating again, and something we should take note of, there is nothing uber extreme here.
Meanwhile In Switzerland
The Swiss National Bank cut its overnight rate by 25 bps as expected to just 1% but there were some that thought 50 bps was on the table. That is not a floor though, coming from the central bank that experimented with the deepest level of negative rate policy. Governor Jordan said “With today’s easing of monetary policy, we are taking the reduction in inflationary pressure into account. Further cuts in the SNB policy rate may become necessary in the coming quarters to ensure price stability over the medium term.”
With inflation running around 1% in Switzerland, the SNB has reason to have low rates but here were are back to zero REAL rates for them. Some central bankers just can’t help themselves when it’s time to ease.
Germany’s consumer confidence index was little changed at a still deeply negative level of -21.2 vs -21.9 in the month before. They said “After the severe setback in the previous month, the slight improvement in consumer climate can be interpreted more as a stabilization at a low level.” Nothing market moving here.
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Another Record High For Gold!
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