Dock dispute danger?

A week on from arguably the biggest market focus for the year, the US interest rate cut, things look rather rosy. The S&P 500 Index posted its 41st all-time high of the year on Tuesday, and the Chinese equity market is on for its best weekly performance since 2008.

China stole the limelight this week. Xi Jinping, the Chinese president, and the central bank governor announced a slew of stimulus measures to boost the Chinese economy and get it back on track for 5% GDP growth by year end. Initial announcements focused on the housing market, where interest rates were cut and minimum down payments on second homes were lowered to 15%, from 25%, as well as the lowering of bank reserve requirements to encourage further lending. A fund to help boost the Chinese stock market to support companies with buybacks was announced. It was Xi Jinping’s speech that really set the tone, talking about “forceful” intervention which will be crucial to get this major economy going once again. There is a long way to go for China to recover, but this a promising step in getting policy behind the market.

The follow-through led to European equities bouncing, due to the high reliance on trade. You’d think a boost to future Chinese consumption would support the oil price, but the likelihood of Saudi Aravia and Libya (OPEC members) increasing supply has led to further falls in the price of crude.

On the economic data front, the leading indicators for servicing and manufacturing painted a similar picture as before. In Europe, confidence remains low with weak outlooks posted once again for September. This supports our lower position here. However, the UK remains a bright spot where the high street has benefited from continued consumer spending.

In our weekly investment call, it was the US worker strikes that caught our attention. Boeing is trying to stop an ongoing two week strike with union negotiations. More importantly, the US ports covering the East and Gulf coasts are aiming to negotiate a new labour contract by 30 September. If this does not go through this could lead to industrial action involving 45,000 workers across 36 ports, five of which are the busiest ten in the US. This has led to companies building inventory ahead of the festive season, in case of a disruption. However, there is a danger that if a deal isn’t negotiated quickly, this could significantly disrupt global trade.

For now, equities have been supported by rate cuts and stimulus. Maybe the Santa rally has started early!

Looking ahead

Next week is the start of the third quarter earnings season, with Europe and the UK kicking off earnings. Eyes will remain on the outlooks, with companies focusing on lower future earnings last quarter. We are optimistic that the positive economic data this quarter will feed through to earnings results.