Investors are managing cross currents today as Beijing announced an aggressive stimulus package to aid its ailing economy and markets. Stocks rallied initially, with some global benchmarks, including the Dow Jones Industrial Average, reaching fresh all-time highs. But, at 10:00 am ET, a huge downside miss on the Conference Board’s Consumer Confidence Index produced a green to red move for equities, with traders wondering if central bank accommodation will be enough to offset a deceleration in consumption. American households have certainly been resilient amidst declining savings, but also erratic while spending a greater share on services rather than goods.
Consumer Confidence Falls Sharply
Consumers aren’t feeling so rosy this month as the typical complaints about price pressures remained present, however; job uncertainty is starting to weigh on sentiments as well. Households reflected worries about the labor market and aren’t happy about working less hours, witnessing decelerating paycheck growth and seeing fewer employment opportunities. September’s headline Consumer Confidence figure arrived at 98.7, the lightest level since June and well beneath the 103.8 projected as well as the 105.6 from August. Both the Present Situation and Expectations components declined from 134.6 and 86.3 to 124.3 and 81.7.
PBoC Comes to the Rescue
West of the Pacific in Beijing, People’s Bank of China Governor Pan Gongsheng unveiled a support package to help the nation manage the challenging macroeconomic environment. The monetary authority reduced interest rates, including on existing mortgages in an effort to avoid a wave of foreclosures. Also, the central bank reduced reserve requirements for financial institutions to loosen up credit accessibility and lowered down payment requirements for second homes from 25% to 15%. And injecting a fresh dose of confidence into Chinese stocks, Gongsheng reported that the institution would lighten the leverage restrictions on equity investing, producing a spectacular rally in the region’s shares. The measures are being implemented to widen the path towards the Chinese Communist Party’s 5% annual economic growth target.
Commodities Respond Strongly to Beijing
Markets have hovered between gains and losses, but commodities are rallying strongly in response to China’s new stimulus measures. Major US equity indices are mixed, with the Dow Jones Industrial Average up 0.2%, but the Nasdaq Composite, Russell 2000 and S&P 500 benchmarks are all lower by roughly 0.1%. Sectoral breadth is positive nonetheless, with 9 of the 11 industries trading higher and led by materials, industrials and consumer discretionary; they’re gaining 1.5%, 0.6% and 0.5%. Financials and healthcare are the only segments losing and are traveling south by 0.7% and 0.1%, respectively. We’re seeing some bull-steepening moves in Treasurys, with the 2- and 10-year maturities moving lower by 4 and 1 basis points (bps) and changing hands are 3.55% and 3.75%. The dollar is lighter by 31 bps as the greenback depreciates relative to most of its counterparts, including the euro, pound sterling, franc, yen, yuan and Aussie and Canadian tenders. Commodity majors are trading in the green as measures from Beijing are expected to provide short-term boosts to the nation’s oil imports and manufacturing production. Copper, silver, lumber, crude oil and gold are higher by 3.2%, 3.1%, 1.2%, 0.9% and 0.6%. WTI crude is trading at $71.25 per barrel on improving prospects from Beijing, heightening hostilities in the Middle and Far East and rising hurricane risk stateside.
Treasury Auctions Incoming
This morning’s turbulent trading action is emblematic of the trickiness of late-cycle dynamics. Investors are confounded as they size up the potential for consumer exhaustion and its impact on corporate revenues versus central banks that are eager to quell volatility and foster calm markets. Certainly, folks constantly wonder if monetary authorities are behind or ahead of the curve, with the former position supportive of a soft landing while the latter signals a potential downturn. Against that backdrop, Wall Street is also considering how much fiscal stimulus is in the tank in case monetary accommodation is too little, too late. Treasury conditions stateside are especially top of mind with a presidential election coming up in 6 weeks amidst an unsustainable budgetary situation. In conclusion, things aren’t too concerning at the moment, especially with long-end yields behaving well, but the appetite for duration will be tested yet again this week. The US Treasury is auctioning $183 billion of 2-, 5- and 7-year notes this afternoon, tomorrow and Thursday.
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