Video

Market Moves - 7th October

The market is calling for aggressive rate cuts, however, the fundamentals are not yet concerning. The Fed will want to avoid a Trichet moment, particularly given heightened geopolitical tensions raising the risk of energy price shocks ahead.

| 5 min watch

Transcript below

Erica Whyte:
Erica Whyte here, joined by our head of asset allocation, Abbas Owainati here to talk through a stock market revival over in China, which led to the biggest one-day rally for them since 2008 as tensions rage would only can really be described as fever pitch over in the Middle East. But what is the impact on markets and what might be in store?

Abbas is here to break it all down. How are you, Abbas, great to see you.

Abbas Owainati:
Very well. Thank you and good to be here in your new studios.

Erica Whyte:
Thank you. Aren't they gorgeous i'm absolutely biased, of course.

Abbas Owainati:
Ultimately, the state of the economy as inflation has more or less moderated, the focus has shifted to states of growth going forward. And in the US we continue to see resilient growth. Yes, indeed, some of the leading indicators are suggesting there is some slowdown. We're starting to see some cracks in the labour market, but certainly supportive of a soft landing. I guess growth is more challenged in Europe, in both Germany and France. The leading indicators have been more disappointing and the UK is actually very resilient. But with the most visibility ourselves being very positive.

But I think the real focus for markets the last couple of weeks and have been both China and the geopolitical tensions in the Middle East and on China, I have to say that this is really what we are. Many are dubbing as the Draghi moment. Chinese growth has been fairly challenged for some time. I think that's pretty clear in markets. And the central bank have come out and made fairly punchy announcements. I think interest rates why reserve ratios encouraging those with mortgages to be offered in mortgages at lower more attractive rates. And then the governments have also come out to make proposals to announce fiscal stimulus, all of which is very supportive for the Chinese consumer.

And ultimately they've been aiming for this 5% growth target, which has been fairly challenging to achieve for the recent period. And I think this is definitely one of those Kickstarters that we've been waiting for. Unfortunately, in the Middle East, escalation has obviously unfolded.

Erica Whyte:
It's horrible to see and so scary.

Abbas Owainati:
Absolutely. I think one of the in terms of markets, markets have relatively absorbed what's going on in the Middle East butut I think the obvious impact is around commodity energy prices, which will come to.

Erica Whyte:
Okay. So what are the implications of these moves, what can you share with us?

Abbas Owainati:
So we've seen over 25% rally in Chinese equity buys in the equity space.

Erica Whyte:
That's not bad.

Abbas Owainati:
In a space of a week which is fairly phenomenal.

Erica Whyte:
Yeah.

Abbas Owainati:
This speaks to a to a market that's been fairly unloved for a while. So there's obviously a significant inflow into it. And some Chinese equities of late of course, with such a reaction from market participants. Now we need to see some of the data prove that the Chinese consumer has turned the corner and the Chinese economy is starting to go on a second derivative basis, start to grow again. So time will tell.

But I would also want to clarify that these policies alone are not sufficient for Chinese growth to recover, to target levels, that the governments have been tighter, have been put in place, and we probably want to see more stimulus announcements and further interest rate cuts to come over the over the months ahead.

Erica Whyte:
So looking ahead, look at all of this mean and I do know that you do not have a crystal ball. You cannot predict the future.

Abbas Owainati:
And I think if we if we look at interest rates, we've definitely started to see the start of interest rates declining in the US. Of course, earlier this month. And the market has been fairly ambitious in how the interest rate cuts they've priced in. So if we take the US for instance, that we're expecting as much as 2% of cuts by the end of next year, My challenge to that is that the Fed and indeed the Bank of England will want to avoid having their very own treshe moment. So they don't want to be cutting rates too aggressively only to then reverse them. I think the only spanner in the works in this is if we go back to the geopolitical tensions in the Middle East, is if we see any supply disruptions to energy, we could see an energy spike. And this isn't our base case. This is a risk that certainly has increased over the last couple of days. And if that does evolve and unfold, then there could be more pressure on central banks to to reduce the pace of rate cuts.

Erica Whyte:
Lots to keep a look out for, Abbas thank you so much for all your expertise here today. That was fabulous.

Abbas Owainati:

Thank you.

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Market Moves - 7th October

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