Breakfast Bites - 1 Trillion Yuan stimulus breathes some life into Chinese stocks

Rise and shine everyone.

The big news this morning is the approval of 1 Trillion Yuan ($139B) stimulus measure in China through additional government bond issuance for disaster relief and reparations. This comes in the face of a default from one of their biggest property developers, Country Garden and is expected to be a major source of support for the ailing property market. Meanwhile, concerns are brewing that this pushes China’s fiscal deficit ratio higher to around 3.8%, notably above the 3.0% guideline limit. Stocks however, welcomed the news with the Shanghai Composite Index closing +0.40% and the Hang Seng Index closing +0.55%.

Over in the US, all eyes are still on the earnings release post market yesterday for Microsoft and Google. Both companies delivered a double beat but Microsoft gapped up on earnings, while Google languished. The main difference was the growth in cloud services. Microsoft beat growth estimates for their cloud services, Azure, delivering +28% constant currency growth while Google Cloud growth saw a deceleration coming in at +22% (vs. +28% in the prior quarter).

We have the Bank of Canada rate decision today at 10am ET and Meta after the close.

Fed Chair Jerome Powell will be giving opening remarks today at the 2023 Moynihan Lecture in Social Science and Public Policy, Washington, D.C. at 4:35 p.m. ET.

US Equity Futures are trading lower this morning with 2Y Yields lower than the long end. The Yield Curve steepens marginally to -0.23%. Gold, Oil and the US Dollar Index are marginally higher after yesterday’s pull back. BItcoin at 34,300 pulling back from its best levels of yesterday.

Asia and Australia

Asia equities ended mixed Wednesday. Greater China markets pulled higher on sovereign bond news but closed well off their peaks, with energy stocks dragging Hong Kong back too. Gains in Japan and Taiwan, losses in South Korea and India. Southeast Asia also mixed. Australia closed a few points lower.
Australia saw inflation numbers re-accelerate on a quarterly basis, driven in part by rising fuel costs. Headline Q3 CPI rose 1.2% q/q, above consensus 1.1% and follows 0.8% in the previous quarter. Translated to 5.4% y/y increase vs consensus 5.3% and prior 6.0%. Yesterday, the new Governor said in a speech that they were ready to hike again, if inflation came in hotter. But, one print may not be enough, given an increase in rates put the Australian property market in a difficult situation.
Mitsubishi Motor's (7211-JP ) decision to end vehicle production in China, signaling broader pressure on Japanese automakers. Downscaling adds to plans by Mazda to cut local dealership network by ~10% from FY22 levels. Toyota in July cut 1K staff at a Chinese JV. Honda and Nissan have scaled back production at local joint venture factories.
Other news:
- South Korea consumer sentiment slides for third consecutive month amid slowdown
- Japan government mulls ¥40K income tax cut to ease inflation pain
- Malaysian Ringgit hits new record low against Singapore dollar with further slide expected
- BOJ will watch yields until final minute before deciding on yield curve control tweak

Europe, Middle East, Africa

European equity markets mixed after moving off lows. Real estate, retail and travel/leisure lag, while basic resources and technology sectors the main outperformers.
German Ifo business climate survey improved in October to print 86.9 versus consensus 85.9 and prior revised to 85.8 versus 85.7. It is the first improvement in sentiment following five consecutive months of decline.
Eurozone M3 money supply growth down 1.2% y/y in September versus consensus for 1.7% drop and prior 1.3% contraction. Three-month average down 1.0%. There is however, ongoing weakness in credit dynamics. Annual growth rate of credit to Eurozone residents fell 0.5% versus 0.2% drop previously. Adjusted loans to private sector decreased to 0.3% from August's 0.7% gain.

ECB President Lagarde told EU officials on Monday the inflation fight is going well but lack of fiscal deal a headache for the region. Added the Eurozone economy faces stagnation for the next few quarters with downside risk, but inflation developments more balanced.

The Americas

US PMI numbers came in better than expected, with manufacturing data delivering the biggest surprise by moving into expansionary territory (above 50). While new orders and output improved, manufacturing employment actually fell into contractionary territory at 49.8 vs. 51.9.
Visa reported a slowdown in US payment volume growth in September and October. However, company attributed this to days mix impact and declining fuel prices in October. Pointed out that excluding those two items, payments volume growth was relatively stable from September to October. Noted consumer spend across all segments from high to low spend has remained stable since March, while its data has not indicated any behavior change across consumer segments.

Chart of the Day

Retail gasoline prices fell last week to an average $3.66 per gallon (-5.8% y/y) for all grades from $3.71 in the prior week. Prices have ranged between $3.20 and $5.11 for the last year.
Conversely, the retail price for on-highway diesel fuel rose to $4.55 per gallon (-14.9% y/y) last week.