On Monday, we heard that the People’s Bank of China cut their 1 and 5 year Loan Prime Rates to 3.1% and 3.6%, respectively. This comes after a recent rally in Chinese markets after policymakers announced their biggest stimulus package for the region since COVID-19, and after the introduction of 800 billion yuan ($112B) in stock market liquidity measures to bolster equity purchases on Friday. The 25 basis point cut will affect most new and outstanding loans in China as well as mortgage rates, with hope that this will provide sufficient stimulation to boost domestic demand. Perhaps in digesting the announcement, Chinese markets were relatively muted, with the Hang Seng falling marginally by 1.43% at the closing bell and China’s CSI 300 rising moderately by 0.25%.
Following their recent 25 basis point rate cut, European Central Bank President, Christine Lagarde spoke on Tuesday with reassurance that inflation would likely return to the ECB’s 2% target by next year, after coming in at 1.7% for September. Lagarde spoke in contrast to other policymakers on Tuesday who expressed concerns that price lags in the region are the result of a weaker Eurozone economy and a restrictive monetary policy path from the ECB that they believe might not be abating fast enough. Lagarde, taking a more measured stance, maintained that recent inflationary figures were reassuring, and that with wage growth now slowing, a path of rate decline has indeed become clear – but the pace is still to be decided based upon a close monitoring of key economic indicators.
Over in the US, investors are scaling back expectations for aggressive policy easing, as the U.S. economy has shown continued strength, and the Fed has adopted a more cautious stance on future rate cuts. Market concerns are also heightened by an uptick in oil prices as well as the potential for fiscal deficits following the upcoming presidential election.
In Ireland, GDP released on Tuesday showed a fall by 1% from the previous quarter in the three months ending in June of 2024, spearheaded by modified domestic demand.
Coming up this week we have the snap Japanese election on Sunday, which investors are watching keenly to see whether the ruling coalition loses its majority in parliament. If they do, the market may begin to price in an uptick in fiscal spending and a delay in interest rate increases. We also have US manufacturing and services PMI and US consumer sentiment.
Nicola Tune, Portfolio Specialist
