Chinese equities are on track for their best weekly performance since 2008 after Beijing pledged more fiscal and monetary support for the economy. People's Bank of China Governor Pan Gongsheng announced plans to lower borrowing costs and inject more funds into the economy, as well as to ease households' mortgage repayment burden. The country’s Politburo said it would also be providing some fiscal support.
Equities in the luxury goods and mining sectors rallied on the news, with the Dow Jones Industrial Average and S&P 500 hitting record closing highs. The pan-European Stoxx 600 also hit a record level.
The FTSE 100 was up 0.7% by mid-session on Friday, with the more UK-focused FTSE 250 trading 0.9% ahead.
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30 October Budget
Labour has ruled out raising taxes on "working people" in its first budget statement on 30 October, including Value Added Tax, Income Tax and National Insurance. Reports suggested that the Treasury is reconsidering parts of Labour’s manifesto plan to toughen up the abolition of non-domicile tax status. This is on account of concerns over how much money will be raised, should wealthy foreigners simply leave the UK.
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Economics
The Paris-based Organisation for Economic Cooperation and Development has reversed its gloomy view of the UK economy after previously predicting Britain would have the weakest growth of any G7 nation. The OECD now expects the UK’s economy will grow by 1.1% in 2024 and 1.2% in 2025, up from previous forecasts of 0.4% and 1.0%. The OECD continued to predict that Britain would have the highest inflation of any G7 country in 2024 and 2025 at an average of 2.7% in 2024 and 2.4% in 2025, little changed from its previous forecast.
US economic growth accelerated in the second quarter amid strength in consumer spending. Gross domestic product increased at an unrevised 3.0% year on year in the last quarter, the third estimate of second-quarter GDP. Growth in the first quarter was revised up to 1.6% compared to the previously reported 1.4%.
However, US consumer confidence unexpectedly fell in September by the most in three years on concerns about the jobs market and the outlook for the broader economy. The Conference Board’s gauge of sentiment decreased 6.9 points to 98.7, the biggest drop since August 2021, and below market expectations.
Hopes of an improvement in the Chinese economy failed to significantly lift oil prices.
Chinese equities rallied sharply after authorities announced the largest raft of stimulus measures since the Covid-19 pandemic. The nation’s economy is teetering on the brink of deflation and there are concerns that a prolonged structural slowdown is in prospect. The measures are aimed at stimulating domestic consumption in the export-dependent economy. The property market support package included a 50-basis-point (bp) reduction in average interest rates for existing mortgages and a cut in the minimum down payment requirement to 15% on all types of homes. The Federal Reserve’s 50bp cut in rates last week allowed the People’s Bank of China (PBOC) to follow suit without putting too much pressure on the yuan. PBOC Governor Pan Gongsheng said the central bank would cut the amount of cash banks have to hold in reserve – known as reserve requirement ratios – which will allow them to issue more loans. The country’s Politburo also pledged to deploy any "necessary fiscal spending" to meet this year's economic growth target of “roughly 5%”. Hopes of an improvement in Chinese economic fortune lifted shares in the luxury goods sector, which has been under pressure for some time due to its high dependence on sales from Chinese consumers at home and abroad.
Energy
Hopes of an improvement in the Chinese economy failed to significantly lift oil prices on concerns over an increase in supply. The Financial Times reported that Saudi Arabia was ready to abandon its unofficial price target of $100 a barrel as it prepares to increase output and the United Nations said Libya had made progress on solving a civil dispute, paving the way for production and exports to resume.
About 25% of crude oil production and 20% of natural gas output in the Gulf of Mexico was shut-in because of Hurricane Helene, according to the US Bureau of Safety and Environmental Enforcement. This shut-in output is equivalent to 441,923 barrels per day of oil production and nearly 363.4 million cubic feet of natural gas from Gulf waters.
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Geopolitics
Israel rejected calls for a ceasefire with the Hezbollah movement, despite it being supported by Washington as fears of an all-out regional war accelerated. Nevertheless, officials from Israel and the US were due to meet on Friday to discuss a 21-day ceasefire proposal.
Ukrainian President Volodymyr Zelenskiy met with Democratic President Joe Biden and Vice President Kamala Harris, the Democratic presidential candidate, in Washington. President Biden announced a new military aid package of more than $8bn and Ms Harris reaffirmed her support for Kyiv. He is expected to meet Republican candidate Donald Trump on Friday,
Companies
Shares in embattled Rentokil Initial reacted positively to the announcement that a representative of Nelson Peltz’s Trian Fund Management had been appointed to its board as a non-executive director. This follows a profit warning earlier in September because of a slowdown in the key US market. Revenues from North America account for around 60% of group sales following the parent company's $6.7bn acquisition of Terminix in 2021.
Alcoholic drinks maker Diageo maintained its full-year guidance but described a “challenging” environment for the industry. In a brief trading statement ahead of its annual general meeting, Debra Crew, chief executive of the maker of Johnnie Walker whisky and Guinness said consumers continued to be “cautious”. In July, the company reported a drop in full-year operating profit as it pointed to a weaker performance in Latin America and the Caribbean.
Water group Pennon said like-for-like revenues in the first half were impacted by lower customer demand, which management expected to continue through to the end of the financial year.
Equipment testing group Halma maintained its annual guidance for the full year on Thursday as it said further progress was made in the first half trading conditions "which remain varied across our end markets". First-half results will be released on 21 November, and are expected to show good revenue growth, when currency moves are stripped out. Margins are expected to be modestly higher than the prior year. Four acquisitions were made in the first half, all in the safety sector.
Shares in US chipmaker Micron soared after the chipmaker forecast higher-than-expected revenue for the upcoming quarter. Management guidance for first-quarter revenues of $8.5bn-$8.9bn was ahead of the $8.3bn expected by analysts. The boosted guidance was due to a more favourable pricing environment as well as robust demand for Micron's memory chips used in data centres to power artificial intelligence.
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