International News 07/10
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Investor Anticipation Mounts as China Prepares Stimulus.
The Chinese government is reportedly preparing to implement a new economic stimulus package in an effort to stimulate economic growth. This announcement follows closely on the heels of investor anticipation for further policies from President Xi Jinping. The National Development and Reform Commission (NDRC) will be holding a press conference to discuss additional policy packages aimed at boosting the economy. The briefing will include five senior officials from the NDRC, including its chairman, Zheng Shanjie. China has previously implemented a series of economic stimulus measures, including interest rate cuts and increased liquidity, with the objective of boosting bank lending and supporting the stock market. These measures have led to a resurgence in investor confidence, resulting in a surge in Chinese stocks. However, concerns are growing over the sustainability of this rally, as China has experienced false starts in the past. Analysts anticipate that Beijing will expand public spending as part of the stimulus package, with some economists suggesting that the country has room to increase fiscal support by issuing 10 trillion yuan (US$1.4 trillion) worth of special debt.
Stocks Rally as Fed Rate Cut Concerns Grow.
Wall Street veteran Ed Yardeni anticipates that the Federal Reserve may conclude its current cycle of easing the Fed Funds Rate (FFR) in the coming months, citing the recent improvement in US labor data and the potential for inflationary pressures. Yardeni noted that with an increase in the number of people in employment, there is a possibility of inflation should the Fed continue to cut the FFR throughout the year. Additionally, he noted that oil prices have rebounded and China's economy is showing signs of recovery, which further increases the potential risks of inflation. Yardeni criticized the Fed's decision to cut interest rates by half a percentage point last September, stating that such measures are typically taken to combat recessions or market crashes. He believes that the Fed does not need to take further action and suggests that some officials may regret their previous actions. Following the release of positive non-farm payroll data, stocks rose and US Treasury yields and the US dollar increased.
ECB Will 'Quite Probably' Cut Rates This Month.
ECB Governing Council member Francois Villeroy de Galhau has indicated that a reduction in interest rates is likely at the next meeting of the European Central Bank (ECB). He observed that inflation declined below the ECB's 2% target in September and that market expectations for inflation in 2025 were even lower than the ECB's forecast. Villeroy stated that the balance of risks is shifting, with the risk of not achieving the inflation goal due to weak growth and tight monetary policy over an extended period of time. He underscored the importance of a gradual approach to policy and advised against lowering interest rates excessively. Since the last meeting, data has shown inflation below 2% for the first time in over three years, and surveys indicate a decline in economic activity. Investors now anticipate a 90% chance of a rate cut in October. Villeroy argued that if the ECB meets its targets and the growth outlook remains sluggish, there would be no reason for monetary policy to remain restrictive. He also downplayed the risk of inflation from Middle East tensions.