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A barrage of Chinese monetary stimulus measures lifted the likes of the CSI 300 with more than 4% and jumpstarted European dealings too. The EuroStoxx50 rose as much as 1.4%, lead by consumer discretionary/luxury sector, before paring gains to around 1% currently. WS opened slightly higher. The risk-on environment leaves some traces on bond markets as well with core bonds losing marginal ground. US Treasuries underperform Bunds, with net daily changes ranging between +1.2 (2-yr) to +4.5 bps (30-yr). The US 10-yr yield (+4.2 bps) tries to recoup first minor resistance of 3.78% (December 2023 low) with the bottoming out at the long end of the curve now firmly taking shape. German rate changes vary from -1.9 bps (2-yr) to 3 bps (30-yr). The German Ifo sentiment indicator undershot analyst estimates but that shouldn’t surprise much after yesterday’s disastrous PMIs. The combined reading fell from 86.6 to 85.4, matching the post-pandemic lows of 85.3. The indicator was lower only during the GFC and pandemic year 2020. Especially the current assessment (84.4, down from 86.4, new post-pandemic low) is in distress territory. The expectations gauge fell to 86.3, from 86.8. The darkening European economic outlook reopened the debate on an October rate cut. Lagarde and many of her colleagues dismissed it shortly after the September meeting but Estonian governing council member Muller is the first since the PMIs to not “totally” rule it out. He did add it would be easier to decide in December. European money markets give it a probability just short of 60%. Sticking to central bank speech, Fed’s Bowman explained her dissenting 25 bps rate cut vote last week. She said she still sees greater risks to price stability, “especially when the labour market continues to be near estimates of full employment.” A 25 bps move “would have better reinforced the strength in economic conditions, while also confidently recognizing progress toward our goals,” Bowman said, adding that she preferred a “measured” approach going forward. It’s classic risk-on in other markets as well, including commodities. Oil prices rise 2.2% (Brent $75.5/b), buoyed by elevated tensions in the Middle East as well after another major Israeli strike on Hezbollah targets in Lebanon. Iron adds about 2%. The FX space is a similar story with safe havens including the Japanese yen suffering. USD/JPY – though off intraday highs – fills bids around 144.1. Cyclical sensitive currencies such as the Aussie (also helped by the RBA’s status quo this morning) and kiwi dollar are among the best performers, together with the NOK and SEK. The euro has a slight edge over the dollar, allowing EUR/USD to recoup a good chunk of yesterday’s damage. The pair is changing hands around 1.114. Sterling holds on to yesterday’s impressive gains against the euro. EUR/GBP hovers around Monday’s closing levels of 0.832. Cable (GBP/USD) is readying an attack of the 1.34 big figure.

News & Views

Belgium business confidence continued to deteriorate in September, sliding from -12.6 to -13.3 (vs -12.4 expected). The fourth consecutive decline bring business confidence to the lowest level since January. Details showed weakness in manufacturing (-17.7 from -16.5) and building (-11.7 from -7.5) more than offsetting improvements in trade (-6.9 from -16.6) and business services (1.9 from 0.4). Manufacturing businesses assessed stock levels less favorably and also expressed much more demand expectations. Building business leaders indicated that they expect a slight decline in demand but were mainly more negative in their assessment of recent developments in both equipment use and orders books. Last week, Belgian consumer confidence fell from -3 to -7, matching the 2024 low set in May.

Czech economic sentiment improved from 93.7 to 97 in September, while consensus only expected a stabilization. It is the best outcome since June and carried by a broad-based improvement in business confidence (96.8 from 93). Confidence increased by 5.1 points in selected services, 3 in construction, 2.9 in industry and 1.3 in trade. Consumer confidence more or less stabilized (97.9 from 97.3) with subcomponents measuring overall economic & personal financial expectations over the next 12 months showing no meaningful direction neither. The share of consumers who believe that the current period is not conducive to making large purchases fell for the second consecutive month. The Czech koruna didn’t respond to the release with EUR/CZK testing this month’s high at 25.17 going into tomorrow’s central bank meeting where the CNB is expected to deliver a 25 bps rate cut to 4.25%.

Graphs

EUR/HUF: forint ekes out slight gain after MNB cut as expected (-25 bps to 6.5%) but sticks a cautious and data-driven approach

AUD/USD: Aussie dollar tests January top after RBA keeps rates steady as inflation is not expected to return to 2% before 2026

Spread between 10-yr and 2-yr EMU swap recently turned positive for first time since 2022 as ECB easing bets rise on darkening outlook

Oil (Brent, $/b) rises on hopes of a Chinese revival after the recent string of monetary measures

Daily Pivots: (S1) 1.1073; (P) 1.1121; (R1) 1.1158; More....

No change in EUR/USD's outlook as range trading continues. Intraday bias remains neutral. Further rally is expected as long as 1.1001 support holds. On the upside, above 1.1200 will target 1.1274 high. Firm break there will resume larger up trend. However, firm break of 1.1001 will indicate near term bearish reversal.

In the bigger picture, prior break of 1.1138 resistance indicates that corrective pattern from 1.1274 might have completed at 1.0665 already. Decisive break of 1.1274 (2023 high) will confirm resumption of whole up trend from 0.9534 (2022 low). Next target will be 61.8% projection of 0.9534 to 1.1274 from 1.0665 at 1.1740. This will now be the favored case as long as 1.0947 resistance turned support holds.

Daily Pivots: (S1) 1.3278; (P) 1.3318; (R1) 1.3389; More...

Intraday bias in GBP/USD stays on the upside. Decisive break of 61.8% projection of 1.2664 to 1.3265 from 1.3000 at 1.3371 will pave the way to 100% projection at 1.3601 next. On the downside, below 1.3247 minor support will turn intraday bias neutral and bring consolidations first. But outlook will stay bullish as long as 1.3000 support holds.

In the bigger picture, up trend from 1.0351 (2022 low) is in progress. Next target is 38.2% projection of 1.0351 to 1.3141 from 1.2298 at 1.3364. Decisive break there will target 61.8% projection at 1.4022. For now, outlook will stay bullish as long as 1.2892 resistance turned support holds, even in case of deep pullback.

Daily Pivots: (S1) 0.8449; (P) 0.8484; (R1) 0.8510; More…

USD/CHF is still extending range trading from 0.8374 and intraday bias remains neutral. On the downside, break of 0.8374 will resume the fall from 0.9223 to retest 0.8332 low. Decisive break there will indicate larger down trend resumption. However, considering bullish convergence condition in 4H MACD, break of 0.8548 resistance will confirm short term bottoming, and turn bias back to the upside for 0.8747 resistance.

In the bigger picture, price actions from 0.8332 (2023 low) are currently seen as a medium term corrective pattern, with fall from 0.9223 as the second leg. Strong support could be seen from 0.8332 to bring rebound. Yet, overall outlook will continue to stay bearish as long as 0.9243 resistance holds. Firm break of 0.8332, however, will resume larger down trend from 1.0146 (2022 high).

Daily Pivots: (S1) 143.02; (P) 143.74; (R1) 144.32; More...

Despite loss of upside momentum as seen in 4H MACD, further rise is still in favor in USD/JPY with 141.73 minor support intact. Rebound from 139.57 short term bottom should extend to 38.2% retracement of 161.94 to 139.57 at 148.11. On the downside, below 141.73 will turn bias to the downside for retesting 139.57 instead.

In the bigger picture, fall from 161.94 medium term top is seen as correcting whole up trend from 102.58 (2021 low). Strong support could be seen from 38.2% retracement of 102.58 to 161.94 at 139.26 to contain downside, at least on first attempt. But in any case, risk will stay on the downside as long as 149.35 resistance holds. Sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.

Daily Pivots: (S1) 1.3493; (P) 1.3538; (R1) 1.3588; More...

Intraday bias in USD/CAD stays on the downside for retesting 1.3439 low. Firm break there will resume the decline from 1.3946, and target 61.8% projection of 1.3946 to 1.3439 from 1.3646 at 1.3333. On the upside, above 1.3540 minor resistance will turn intraday bias neutral first. But risk will stay on the downside as long as 1.3646 resistance holds, in case of recovery.

In the bigger picture, corrective pattern from 1.3976 (2022 high) is extending with another falling leg. While deeper decline could be seen, strong support should emerge above 1.2947 resistance turned support to bring rebound. Rise from 1.2005 (2021 low) is still in favor to resume at a later stage.

Daily Pivots: (S1) 0.6806; (P) 0.6830; (R1) 0.6862; More...

AUD/USD's rally is still in progress and intraday bias remains on the upside for 61.8% projection of 0.6348 to 0.6823 from 0.6621 at 0.6915. On the downside, below 0.6736 minor support will turn intraday bias neutral first. But outlook will remain cautiously bullish as long as 0.6621 support holds, in case of retreat.

In the bigger picture, overall, price actions from 0.6169 (2022 low) are seen as a medium term corrective pattern, with rise from 0.6269 as the third leg. Firm break of 6870 resistance will target 100% projection of 0.6269 to 0.6870 from 0.6340 at 0.6941. In case of another fall, strong support should be seen from 0.6169/6348 to bring rebound.

The forex market continues to display a mild risk-on mood, with commodity-linked currencies Australian, New Zealand, and Canadian Dollars gaining ground. In contrast, safe-haven currencies Japanese Yen, Swiss Franc, and Dollar are under pressure.

Australian Dollar jumps earlier today following RBA's decision to hold rates steady, combined with China's broad stimulus package aimed at boosting its sluggish economy. Despite this, New Zealand Dollar has taken the lead as the strongest currency of the day, with Canadian Dollar following closely behind in third place.

Japanese Yen remains the weakest performer, weighed down by rising yields in both the US and Europe. BoJ Governor Kazuo Ueda also reinforced a cautious stance, signaling that the central bank is in no hurry to raise rates, which only adds to Yen's decline. Swiss Franc, meanwhile, is the second weakest, as traders await Thursday's SNB rate decision, with growing speculation that the central bank could opt for a larger-than-expected 50bps rate cut.

Dollar is struggling to rebound rebound but remains confined within a narrow range against Euro, suggesting no significant selling yet. Meanwhile, Euro and British Pound are hovering in the middle, with Euro managing to shrug off disappointing German Ifo report. Although there is growing chatter of an ECB rate cut in October, no clear consensus has emerged.

Technically, Copper surges sharply higher on news of China's stimulus. The strong break of near term channel resistance indicates upside acceleration. Further rally should be seen to 161.8% projection of 3.9127 to 4.2743 from 4.0030 at 4.5581. But to confirm reversal of whole down trend from 5.1650, firm break of 4.6839 cluster resistance (61.8% retracement of 5.1650 to 3.9127 at 4.6866) is needed. But in either case, extended rally in Copper would give Aussie an extra lift.

In Europe, at the time of writing, FTSE is up 0.21%. DAX is up 0.50%. CAC is up 1.24%. UK 10-year yield is up 0.0870 at 4.011. Germany 10-year yield is up 0.041 at 2.197. Earlier in Asia, Nikkei rose 0.57%. Hong Kong HSI Rose 4.13%. China Shanghai SSE rose 4.15%. Singapore Strait Times fell -0.43%. Japan 10-year JGB yield fell -0.0532 to 0.811.

ECB's Muller cautious on Oct rate decision, eyes Dec for clearer outlook

ECB Governing Council member Madis Muller struck a cautious tone in comments to Bloomberg, noting that it is "too early to express a clear position" regarding the upcoming October rate decision. While a rate cut cannot be entirely ruled out, Muller suggested that the December meeting would provide a clearer picture, supported by updated economic forecasts.

Muller emphasized that recent data signals downside risks for the Eurozone, highlighting a "weaker near-term outlook" for economic growth. He stated, "There's a bigger probability that economic growth will be lower, not higher, than the expected number outlined in the ECB's base-case scenario."

Despite some positive developments, such as the recent slowdown in wage growth, Muller remained concerned about persistently high services inflation. "On the one hand, wage growth has slowed, which implies that inflationary pressures could be lower looking ahead," he said. "On the other hand, services inflation was very fast according to the latest data. I'd like to see that slow down further."

Germany's Ifo falls to 85.4 as economic pressure mounts

Germany's Ifo Business Climate Index dropped from 86.6 to 85.4 in September, falling below market expectations of 86.1. This decline signals rising concerns for the German economy as key sectors show signs of strain. Current Assessment Index also fell, from 86.5 to 84.4, missing forecasts of 86.0. However, Expectations Index, which reflects sentiment about future economic conditions, remained relatively stable, easing only slightly from 86.8 to 86.3, in line with expectations.

Sectoral data shows widespread weakness. The manufacturing sector posted a significant drop from -17.8 to -21.6, while the services sector also deteriorated, falling from -1.3 to -3.5. The trade sector saw a deeper contraction, with the index dropping from -27.4 to -29.8. On the other hand, construction provided a rare positive, showing a slight improvement from -26.8 to -25.2.

According to the Ifo Institute, "The German economy is coming under ever-increasing pressure." With multiple sectors showing increasing strain, the data suggests the German economy could remain in a precarious position, adding to recession concerns as the Eurozone's overall economic prospects look uncertain.

RBA holds rates at 4.35%, remains vigilant on inflation risks

RBA kept the cash rate target unchanged at 4.35% today, as widely anticipated by markets. The central bank stated that data since the August Statement on Monetary Policy have "reinforced the need to remain vigilant to upside risks to inflation." Maintaining its stance of "not ruling anything in or out," RBA emphasized its determination to return inflation to target levels and affirmed it will "do what is necessary."

Regarding the inflation outlook, RBA noted that headline inflation is expected to "fall further temporarily" due to federal and state cost-of-living relief measures. However, it does not foresee inflation returning sustainably to the 2–3% target range until 2026. This suggests that while short-term relief is expected, underlying inflationary pressures remain a concern over the medium term.

BoJ's Ueda signals no rush to hike rates amid global uncertainties

In a speech today, BoJ Governor emphasized that the central bank will need to thoroughly assess factors such as financial and capital market developments both domestically and internationally, as well as the broader global economic environment. Importantly, Ueda indicated that there is "enough time" to make these evaluations, suggesting that BoJ is not in a hurry to raise interest rates again.

Ueda reaffirmed BoJ's commitment to adjusting its policy based on its economic and inflation outlook, stating that if the projections in the Outlook Report are met, the BoJ would indeed raise the policy interest rate. However, he also stressed the unpredictability of the current environment.

"Given the high uncertainties surrounding economic activity and prices, unexpected situations may occur," Ueda noted, adding that policy actions will need to be timely and flexible rather than adhering to any "fixed schedule."

Ueda further commented on Yen, noting that the recent one-sided depreciation has been partially retraced since August. This, along with a slowdown in the rise of import prices, has reduced the upside risk to inflation driven by higher import costs.

Japan's PMI manufacturing dips to 49.6, services rises to 53.9

Japan's PMI manufacturing index ticked down from 49.8 to 49.6, marking its third consecutive month in negative territory. On the other hand, services sector offered some relief as its PMI edged higher, rising from 53.7 to 53.9. Composite PMI slipped from 52.9 to 52.5, indicating a slight softening in growth momentum.

Usamah Bhatti, Economist at S&P Global Market Intelligence, noted that Japan's private sector expansion carried on through Q3, though at a slower pace. The expansion remained services-led, with the sector showing its strongest growth in five months, while manufacturing output fell back into contraction for the second time in three months.

Bhatti also highlighted that input cost inflation has eased to a six-month low, with both manufacturing and services firms reporting softer cost pressures. However, service providers are increasingly passing higher costs onto customers, as output price inflation ticked up slightly in September. Confidence in the future remains positive, but the overall sentiment has weakened to its lowest level since April 2022.

AUD/USD Mid-Day Report

Daily Pivots: (S1) 0.6806; (P) 0.6830; (R1) 0.6862; More...

AUD/USD's rally is still in progress and intraday bias remains on the upside for 61.8% projection of 0.6348 to 0.6823 from 0.6621 at 0.6915. On the downside, below 0.6736 minor support will turn intraday bias neutral first. But outlook will remain cautiously bullish as long as 0.6621 support holds, in case of retreat.

In the bigger picture, overall, price actions from 0.6169 (2022 low) are seen as a medium term corrective pattern, with rise from 0.6269 as the third leg. Firm break of 6870 resistance will target 100% projection of 0.6269 to 0.6870 from 0.6340 at 0.6941. In case of another fall, strong support should be seen from 0.6169/6348 to bring rebound.

Economic Indicators Update

ECB Governing Council member Madis Muller struck a cautious tone in comments to Bloomberg, noting that it is "too early to express a clear position" regarding the upcoming October rate decision. While a rate cut cannot be entirely ruled out, Muller suggested that the December meeting would provide a clearer picture, supported by updated economic forecasts.

Muller emphasized that recent data signals downside risks for the Eurozone, highlighting a "weaker near-term outlook" for economic growth. He stated, "There's a bigger probability that economic growth will be lower, not higher, than the expected number outlined in the ECB's base-case scenario."

Despite some positive developments, such as the recent slowdown in wage growth, Muller remained concerned about persistently high services inflation. "On the one hand, wage growth has slowed, which implies that inflationary pressures could be lower looking ahead," he said. "On the other hand, services inflation was very fast according to the latest data. I'd like to see that slow down further."

• The People’s Bank of China (PBoC) has unveiled a stimulus package aimed at boosting economic growth.
• Key measures include a cut in the 7-day repo rate, a reduction in the required reserve ratio (RRR), and support for the mortgage market and property sector.
• Asian and European stock markets have reacted positively to the stimulus as markets welcomed the news.
• Oil prices have risen as well and could benefit from the stimulus package. Will the Oil price recovery continue?

The People’s Bank of China (PBoC) in a surprise briefing this morning unveiled a massive stimulus package in an effort to reach its growth targets. The jury is out on whether these measures will suffice but the initial reaction has been a positive one.

Asian stocks rose to a two and half year high with the Hang Seng Index rising as much as 3.2% and the blue-chip CSI 300 Index rising around 2.4%. The effect has filtered through to the European open as well with stocks in the luxury goods and mining segments in particular benefitting. Overall this is a positive for market sentiment at an important time.

The most important announcement by the PBoC is probably the 20bps cut to the 7-day repo rate. This would make it cheaper for banks to borrow money and thus businesses and individuals will benefit as well. The idea would be that cheaper loans could help boost spending on goods and services.

The other notable measures from the PBoC:

• A 50 basis point reduction in the required reserve ratio (RRR) lowers the RRR for major banks from 10.0% to 9.5%. (This move in conjunction with the others could help spur on weakening credit activity moving forward.)
• Support mortgage market. Outstanding mortgage rates to be cut. Second home purchases min downpayment from 25% to 15%.
• Funding support to be increase from 60% to 100% for property. Central support will increase for unsold homes.
• Will establish new monetary policy rules to support the stability and development of the stock market. Companies to have increased access to liquidity.

The property market has been a particular area of focus for Chinese authorities and global market participants. Last months weak property price data further exacerbated those concerns so it is no surprise that the PBoC has made an effort to bring back stability to an important pillar of the economy.

Moving forward it will be important to see some stability and potential recovery in property prices. Housing inventories also need to begin moving down as this will be a sign that the stimulus measures are having the desired effect. Failure of the above may lead to further concerns and affect market sentiment which would leave the PBoC in a tough spot.

Source: LSEG

Market Reaction

As we touched on earlier, the initial reaction has been a positive one with the Hang Seng and CSI 300 Index benefitting. European equities have also experienced a slight bounce at the open with the DAX rising and individual stocks in certain sectors benefiting.

Market sentiment in general may receive a boost today following the PBoC announcement and risk assets could be the beneficiaries.

Hang Seng (Hong Kong 33) Daily Chart, September 24, 2024

Source: TradingView (click to enlarge) 

From a commodity perspective, Oil prices may be one to watch. Chinese growth has been an anchor on Oil prices of late and the move could help oil prices continue its recent rally. Tensions in the Middle East and the PBoC stimulus could be just what the doctor ordered for Oil prices to continue their ascent.

Other commodities such as copper, silver etc may also benefit from the announcement. If markets expect the stimulus to boost spending and demand this could result in an uptick across the commodity space.

Brent Crude Daily Chart, September 24, 2024

Source: TradingView (click to enlarge) 

Support

• 74.00
• 72.38
• 70.00

Resistance

• 76.30
• 78.90
• 80.00