China Lifts Markets with Promise of More Economic Support
Chinese equities surged to their best weekly performance since 2008 after Beijing launched a $114bn stimulus package aimed at revitalizing the stock market and boosting economic growth. The CSI 300 index, along with the Hang Seng index, posted significant gains as government interventions bolstered domestic markets, while international markets also benefitted from China's economic actions.
Chinese markets have experienced their best week since 2008, thanks to a new stimulus package unveiled by Beijing. The $114bn war chest, aimed at stabilizing China’s capital markets and stimulating domestic consumption, pushed the CSI 300 index up by 15.7% over the week, its biggest gain since the global financial crisis. The package also helped European and U.S. markets, lifting industrial metals and strengthening investor sentiment globally, as China aims to meet its 5% annual economic growth target.
A central part of this plan is the People’s Bank of China’s creation of an Rmb800bn ($114bn) lending pool. This pool provides funds for companies to buy back their own shares and for non-bank financial institutions, such as insurers, to invest in local equities. By encouraging share buybacks and equity investments, the government hopes to boost both the stock market and broader economic activity. These moves have sent the CSI 300 index up by 4.5% and Hong Kong’s Hang Seng index up by 13% in just one week.
In addition to stocks, commodity markets have rallied, especially in industrial metals such as copper, aluminium, and zinc, which are vital to China’s manufacturing sector. Copper prices surged past $10,000 per tonne, marking a three-month high, while iron ore prices rebounded from two-year lows. These commodities, essential for sectors like construction, benefitted from the market optimism surrounding China’s reflation efforts. However, oil prices remained subdued, dampened by expectations of increased output from Saudi Arabia.
While the Chinese stock market rally has drawn comparisons to past momentum-driven surges, like the 2014-15 boom, analysts are cautious. David Chao, a global strategist at Invesco, highlighted similarities but warned of potential risks if momentum fades. The success of these stimulus measures depends on whether they can effectively lift consumer sentiment and drive sustainable economic growth, a challenge China has faced in recent years.
The surge in Chinese equities has had a ripple effect across global markets. In Europe, the region-wide Stoxx 600 hit a new record high, driven by gains in luxury and automotive sectors heavily exposed to Chinese demand. In the U.S., the S&P 500 reached new highs, partly supported by the expectation of continued stimulus from China and the recent interest rate cut by the Federal Reserve. Analysts predict that global easing conditions will support Chinese consumption, further boosting its export market.
Saudi Arabia Shifts Strategy: Abandoning $100 Oil Target to Regain Market Share
Saudi Arabia is preparing to abandon its unofficial target of $100 per barrel for crude oil as it readies to increase production starting in December. This shift signals the kingdom's resignation to a prolonged period of lower global oil prices. Despite the initial plans to unwind production cuts beginning in October, Brent crude prices have recently dipped below $70, raising concerns about the group's ability to effectively raise output in a challenging market.
As Saudi officials commit to ramping up production on December 1, they anticipate that this could lead to sustained lower prices, affecting oil shares worldwide. On a recent Thursday, Brent crude fell 3.5% to $70.87, and West Texas Intermediate dropped 3.8% to $67.06, resulting in significant declines for major oil companies like BP, Shell, and TotalEnergies. This policy shift reflects a notable departure from Saudi Arabia's strategy of cutting output since November 2022 to maintain higher prices.
The price of Brent averaged $99 per barrel in 2022, but has significantly declined due to increased supply from non-OPEC producers, particularly the U.S., and sluggish demand growth in China. With the price averaging $73 per barrel in September, Saudi Arabia faces a dilemma, as it requires nearly $100 per barrel to balance its budget amid ambitious economic reforms. Despite this, the kingdom is unwilling to surrender market share to other producers and believes it can navigate a lower price environment through various funding mechanisms, such as using foreign exchange reserves or sovereign debt.
Historically, Saudi Arabia previously ended the $100 oil era in 2014 by boosting output to combat the rise of the U.S. shale industry. Recently, under Energy Minister Prince Abdulaziz bin Salman, the kingdom has aimed to maximize revenues through production cuts, which has sometimes strained relations with the U.S. The kingdom has contributed significantly to OPEC+ production cuts, reducing its output by 2 million barrels per day over the past two years.
As part of the delayed plan to unwind production cuts, Saudi Arabia intends to increase its output by an additional 83,000 barrels per day each month starting in December, aiming for a total increase of 1 million barrels per day by December 2025. However, the kingdom remains wary of compliance from other OPEC members, which may prompt it to unwind cuts more quickly if needed.
UK Economic Landscape: Budget Pressures and Regulatory Reform
Chancellor Reevaluates Non-Dom Tax Plans Amid Revenue Concerns - UK Chancellor Rachel Reeves is considering revisions to her proposed tax measures targeting non-domiciled individuals, as Treasury officials express concerns that the original plans may not yield the expected £1 billion annually. Despite aiming to tighten rules that allow wealthy foreigners to minimize their UK tax liabilities, officials warn that many may leave the UK in response to the proposed changes. Reeves emphasizes a pragmatic approach and remains committed to ending non-dom status, while balancing revenue expectations with the potential impact on affluent residents.
Gilt Investors Caution Chancellor on Borrowing Ambitions - As Chancellor Reeves seeks to borrow more for investment initiatives, she faces pushback from gilt investors, who express a limited appetite for increased UK debt. Experts warn that any borrowing beyond £10 to £20 billion could destabilize the gilt market. Reeves's plan to adjust fiscal rules, potentially including removing certain liabilities from the government balance sheet, aims to create additional public investment capacity, but investors urge caution to maintain long-term debt sustainability.
FCA Under Pressure to Support Growth - In an effort to enhance the UK’s financial services sector, Chancellor Reeves plans to formally instruct the Financial Conduct Authority (FCA) to prove its commitment to supporting growth. The FCA has faced criticism for its complex regulations, and Reeves's forthcoming remit letter will emphasize the need for a streamlined and competitive regulatory environment. The FCA asserts that it has already made strides in promoting growth, although tensions remain regarding transparency and responsiveness in its regulatory actions.
As the Labour government prepares for its October 30 Budget, these developments reflect a delicate balancing act between raising revenues, fostering investment, and maintaining the UK’s attractiveness as a financial hub. The Chancellor’s policies will be closely watched as the government navigates fiscal constraints and seeks to stimulate growth in the post-Brexit landscape.
Major Banks Unite to Support Tripling Nuclear Energy Capacity by 2050
Fourteen of the world’s largest banks and financial institutions, including Citi, Morgan Stanley, and Goldman Sachs, have pledged their support for a goal set during the COP28 climate negotiations to triple global nuclear energy capacity by 2050. This initiative aims to unlock financing for new nuclear power plants, addressing the sector's critical role in the transition to low-carbon energy. At a recent event in New York, attended by White House climate policy adviser John Podesta, these institutions recognized the need for nuclear energy as a key component in achieving climate goals, despite the historical hesitancy due to financing challenges and regulatory complexities.
Historically, financing for nuclear projects has been fraught with difficulties, leading to a slowdown in the development of new plants, especially in Western countries. The support from major banks signifies a significant shift in perspective, as many had previously regarded nuclear energy as politically controversial. Experts believe that this public endorsement will help normalize nuclear power as a viable solution to climate change, rather than a necessary evil. With this newfound support, banks are expected to facilitate project financing, arrange bond sales, and connect nuclear companies with private equity and credit funds.
The renewed interest in nuclear energy is also echoed by the tech industry, with companies like Microsoft and Oracle exploring nuclear options for powering their data centers. Microsoft recently announced a 20-year deal to restart a decommissioned nuclear reactor, while Oracle is designing a data center that includes plans for small modular reactors. As public opinion around nuclear energy shifts favorably in both the U.S. and Europe, the collaboration between major banks and technology companies could herald a new era for nuclear power, potentially driving the investment needed to meet the ambitious targets set for 2050.
Blackstone Unveils Europe's Largest AI Data Center in the UK
Blackstone, the world's largest alternative investment manager, is set to build Europe’s largest AI data center in Cambois, near Blyth, Northumberland. This £10bn billion investment is expected to create approximately 4,000 jobs, including 1,200 for the construction phase. In addition, Blackstone has pledged £110 million to enhance skills training and improve transport infrastructure in the region, reflecting a strategic shift from electric vehicle development to artificial intelligence following the collapse of Britishvolt.
The UK government has hailed Blackstone's investment as a significant vote of confidence, underscoring the nation's return as a major player on the global stage. Prime Minister Sir Keir Starmer noted that this development highlights the UK’s commitment to attracting substantial investments. Local officials believe the data center will position the region at the forefront of the AI revolution and could create an additional 2,700 related jobs.
Blackstone’s President and COO, Jon Gray, emphasized the firm's commitment to the UK, citing the country’s combination of talent, innovation, and transparent legal systems as attractive investment factors. Local leaders have welcomed the investment as a “gamechanger” for Northumberland and have called for further government support to unlock the project’s full economic potential. With construction expected to start next year, this initiative promises to significantly impact the local economy and enhance the UK’s standing in the global tech sector.
Abrdn Excludes China from Emerging Markets Fund
Fund manager Abrdn is making a significant shift by excluding China from its Emerging Markets Sustainable Equity fund, rebranding it as the Emerging Markets Ex China fund. This decision reflects the need to provide investors with greater flexibility as they navigate the complexities of the Chinese market, which has struggled in comparison to its international rivals. Nick Robinson, deputy head of global emerging markets equities at Abrdn, noted that while China remains home to several outstanding companies, there is a growing demand among investors for more diverse investment options beyond China.
This change comes in response to the fund’s underperformance relative to the MSCI Emerging Markets index over the past year, three years, and five years, with major Chinese tech firms like Alibaba and Tencent featuring prominently in its previous holdings. Abrdn's research suggests a promising outlook for emerging markets excluding China, which are anticipated to contribute nearly 50% of global growth by 2050. By broadening its focus, Abrdn aims to capitalize on new opportunities in technology and finance sectors outside of China.
The move by Abrdn is indicative of a broader trend in the investment industry, with the number of actively managed emerging market strategies that exclude China surging from six in 2017 to 51 in 2024. Despite this growth, some investors remain optimistic about China's potential, citing its current valuation as an attractive opportunity. While there is evident interest in products focused on other emerging markets, such as India, the dynamic nature of global investing continues to evolve as asset managers respond to shifting market conditions and investor preferences.
Wall Street Banks Predict Continued Gains for UK Sterling
Investment banks, including Goldman Sachs, Bank of America, and Barclays, foresee further gains for sterling following its impressive rally this year. Currently trading around $1.34, the pound is expected to rise to $1.35 by year-end according to Bank of America and Barclays, while Goldman Sachs anticipates a target of $1.40 within the next 12 months. The buoyancy of the UK economy and the Bank of England's cautious approach to interest rate cuts have fueled this optimistic outlook, as sterling has outperformed other major currencies, gaining over 5% against the dollar and 4% against the euro.
The surge in sterling's value is attributed to the UK's robust economic performance, which has defied expectations. On a trade-weighted basis, the pound is at its highest level since the Brexit referendum in 2016. Analysts point out that while global central banks, particularly in the US and Eurozone, are implementing significant rate cuts, the Bank of England is adopting a more measured approach, with only minor reductions anticipated in the coming months. This difference has positioned the pound favorably against other currencies, as inflation in the UK remains relatively high, prompting the Bank of England to proceed cautiously with rate adjustments.
Despite the positive outlook, some investors express caution regarding sterling's future trajectory. Concerns arise as the pound approaches levels that may trigger market hesitance. While many analysts are bullish on sterling's potential, there is also a growing sense of uncertainty among asset managers, reflecting doubts about the Bank of England's ability to maintain a slower easing cycle compared to the Federal Reserve. As the UK economy shows resilience and the potential for improved EU relations, the outlook for sterling remains optimistic, but market dynamics will continue to influence its performance.
KKR's $75 Million Windfall for Workers: A Step Towards Equity in Private Equity
KKR is making headlines by allocating $75 million of the proceeds from its sale of GeoStabilization International (GSI) to its blue-collar workers, with individual payouts ranging from $10,000 to $325,000. This initiative marks a significant shift in the private equity sector, as KKR aims to reshape its image amid increasing scrutiny over income inequality. The payout comes as part of a broader trend within the industry to include employees in financial successes, particularly in light of the sale's substantial $1 billion value. For many employees, this financial boost can be life-changing, providing critical funds for significant life purchases, such as home down payments.
The effort to distribute wealth to workers is led by KKR's private equity head, Pete Stavros, who has been instrumental in developing worker equity incentive programs over the past decade. This initiative is not merely a standalone effort; it aligns with the formation of Ownership Works, a collaborative initiative among private equity firms aimed at creating $20 billion in wealth for workers by 2030. The recent endorsement from Democratic presidential nominee Kamala Harris highlights the political support for such measures, as she calls for reforms to facilitate employee participation in corporate profits and success.
As KKR continues to implement similar equity awards across its nearly 50 deals, the move reflects a changing landscape in private equity, where employee compensation plans increasingly incorporate stock options tied to company performance. This shift not only incentivizes employees but also aims to align their interests with those of investors. With the sale of GSI generating five times KKR's original investment, both the company and its workers stand to benefit substantially from the growing recognition of the importance of employee involvement in the financial success of private equity-backed firms.
UK Government Signals Increase in Capital Spending Ahead of Budget
Sir Keir Starmer has indicated plans for a significant boost in capital spending at the upcoming Budget, following support from the OECD for reforms aimed at enhancing public investment. Speaking in New York, the Prime Minister emphasized the importance of government spending acting as a “catalyst” for private investment, advocating for fiscal rules that facilitate borrowing for investment rather than just day-to-day expenses. Chancellor Rachel Reeves is set to unveil revised fiscal rules on October 30, with the intention of allowing substantial investments in key areas such as green energy, infrastructure, and healthcare.
Starmer's remarks come as the OECD urges the UK to amend its “short-termist” fiscal regulations, warning that the current framework could undermine public finances in the long run. Reeves, during her address at the Labour Party conference, stressed the need to end low investment levels that contribute to economic decline. The government is exploring ways to adjust its investment constraints, including alternative measures of the government balance sheet that acknowledge the value of assets created through investment. While the OECD forecasts a 1.2% GDP growth for the UK in 2024, it also warns of persistently high inflation, which may challenge the government’s investment strategies and borrowing capacity.
Argentina's Poverty Rate Surges Above 50% Amid Austerity Measures
Argentina’s poverty rate has soared to 52.9%, marking the highest level in two decades, as President Javier Milei's austerity measures take a toll on the economy. The recent data from the national statistics agency revealed that 3.4 million Argentines fell into poverty this year, up from 41.7% in the latter half of 2023. Milei's administration, which began in December, has implemented drastic public spending cuts in an attempt to combat an annual inflation rate that peaked at nearly 300% in April. While Milei’s spokesperson claimed that these measures were necessary to avoid hyperinflation, opposition lawmakers argue that the austerity policies are exacerbating the crisis for working families and the elderly.
Milei's popularity appears to be waning as polls indicate a significant drop in public confidence. An index measuring government confidence fell 14.7% in September, the most significant decline this year, while support for Milei among retirees plummeted following his veto of a pension increase approved by Congress. Despite a month-on-month economic activity growth of 1.7% in July—better than analysts' projections—the overall sentiment remains bleak, with experts warning that a palpable improvement for citizens is essential for the government's recovery. For now, the atmosphere feels more like a recession, with the government needing to shift the narrative to instill hope for economic recovery.
JPMorgan and HSBC Processed Payments Linked to Prigozhin's African Ventures
Leaked documents have revealed that JPMorgan Chase and HSBC unwittingly processed payments for companies in Africa linked to the late Russian warlord Yevgeny Prigozhin. The documents, obtained by the Center for Advanced Defense Studies (C4ADS), indicate that a Sudanese company controlled by Prigozhin made equipment purchases from China in 2017, utilizing major Western banks in the transaction. This revelation underscores the Wagner Group's involvement in severe human rights abuses across Africa and highlights the complexities surrounding the financing of its operations.
One invoice shows that Meroe Gold, a front company for Wagner, used JPMorgan Chase as an intermediary bank for transactions, while another involved Hang Seng Bank, part of HSBC. Although Meroe Gold was not sanctioned at the time, Prigozhin had been under U.S. sanctions since 2016. Both banks have emphasized their commitment to preventing financial crime, with JPMorgan stating it found no matching records for the transactions. C4ADS argues that these dealings illustrate how Wagner exploited the legitimate financial system to establish its foothold in Africa, now absorbed into entities controlled by the Russian defense ministry following Prigozhin's death.
By: Mohammed Shafiul Islam
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