Good morning! Tuesday will bring key job openings data and an update to the ISM manufacturing index, and then we’ll get a fresh employment report on Friday.
For now, though, investors around the world can’t stop talking about China.
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Beijing is fueling a reversal in its weak and fragile stock market but there’s no guarantee the rally will keep its legs.
As Opening Bell Daily covered last week, the People’s Bank of China announced a wide-ranging stimulus plan to support the Chinese housing market, equities, and local banks.
Analysts have shared mixed reactions to the top-down care package. Investors, however, have adopted a decidedly optimistic stance. The CSI 300, one of China’s benchmark stock indexes, just saw its best week since 2008.
Now, I can appreciate a winning five-day stretch as much as anyone. What makes this instance notable is how it compares to what happened earlier the same month.
The CSI 300 dropped to a 52-week low on September 13, then spiked to a 52-week high on September 27.
To that point, a majority of the biggest Chinese stocks that also trade on US stock exchanges — including names like Alibaba and Baidu — saw gains of 20% or more over the last week, as analysts from Bespoke Investment Group highlighted in a note this weekend.
Remember, before Beijing made news with its stimulus package last week, few investors had the confidence to buy into the world’s second-largest economy.
The property market looked too unhealthy, and both businesses and consumers have been downbeat about China’s economic outlook.
Things aren’t perfect in the US, but comparing American and Chinese stock markets help illustrate the gap in confidence for global investors.
One more notable detail: The recent rallies for US and Chinese stocks both reflect investors’ bets on further policy easing.
Unlike buyers of the S&P 500, however, Chinese investors are looking for something more than interest rate cuts, which Beijing may not deliver on.
Dexter Roberts, a senior fellow at the Atlantic Council and the author of The Myth of Chinese Capitalism, says Beijing’s sudden intervention shows policymakers are finally acknowledging the severity of the economic crisis.
“What it doesn’t mean, however, is that China’s leader is ready to abandon his state-heavy, investment-led approach to economic management,” Roberts said.
“The effort to build an economy focused on the manufacturing of high-tech products, a goal that has been to the detriment of the China consumer, private companies and entrepreneurs, will continue to be the paramount aim.”
How long will China’s latest stock market rally last? Reply to this email or let me know on X @philrosenn.
Elsewhere:
📊 Top China cities are easing rules for homebuyers. Three of the country’s biggest metros are following through on Beijing’s efforts to prop up the trouble property market. Some local governments said they will remove restrictions for homeowners seeking multiple homes, lower minimums for down payments, and more. (Bloomberg)
📉 An update to the Fed’s preferred inflation gauge. The core personal consumption expenditures index, which strips out energy and food costs, climbed 0.1% in August. That’s less than Wall Street’s forecast for 0.2%. It also marked the smallest annual increase since February 2021. (Yahoo Finance)
✂️Another jumbo rate cut ahead? That depends on this week’s job numbers. Economists expect payrolls to climb 146,000 this month, which would be similar to the August number and leave the three-month average near its weakest since 2019. Meanwhile, Tuesday’s job openings report is seen dipping to its lowest level since the start of 2021. (Bloomberg)
Rapid-fire:
China announced on Sunday it will allow homebuyers to refinance their mortgages, the latest update to Beijing’s stimulus package (WSJ)
Dockworkers on the East and Gulf Coasts are preparing for their first strike since 1977, and the work stoppage will freeze the flow of goods through 36 ports (Barron’s)
Trump Media stock is down 70% since going public (Business Insider)
Japan’s election of Shigeru Ishiba for its ruling Liberal Democratic party is expected to pressure Japanese stocks (FT)
Spotify crashed for more than 40,000 users across the US on Sunday (Reuters)
Last thing:
Ryan Detrick, CMT @RyanDetrick
The fourth quarter is almost here.
Historically, this is the best quarter for stocks.
