China stocks fall, EU stocks show slight gains
10 Year Bonds auctioned by the Treasury for $39B. Wall St rebounds, oil drops 4.5%, China stocks fall 7%, U.S. deficit hits $1.8T
U.S. Fiscal Year Developments
Wall Street stocks rebounded on Tuesday, despite uncertainties surrounding China and a Category 5 hurricane in Florida. However, U.S. stock index futures dipped slightly ahead of Wednesday’s opening. The S&P 500 slid 0.1%, the Dow Jones Industrial Average stayed relatively stable, and the Nasdaq dropped 0.2%. Oil prices, which saw a significant 4.5% slump, steadied at $74 per barrel after a volatile week, reflecting an overall 14% year-on-year decline in U.S. crude prices. Traders remained focused on upcoming U.S. consumer price data for September, with the Federal Reserve scheduled to release minutes from its September meeting, which had led to a half-point interest rate cut.
The U.S. Treasury will auction $39 billion of 10-year notes later on Wednesday, while 10-year Treasury yields hovered around 4%. Fiscal concerns also surfaced as the U.S. Congressional Budget Office projected a federal deficit of $1.834 trillion for fiscal year 2024, driven by rising debt interest and increased outlays for Social Security and Medicare. The Atlanta Fed’s ‘GDPNow’ forecast revised third-quarter growth to 3.2%.
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Chinese Market Declines
Chinese stocks saw their worst losses since 2020, with the CSI 300 and Shanghai Composite Index dropping 7.1% and 6.6%, respectively. This marked an end to a 10-day winning streak, fueled by concerns over underwhelming stimulus measures from Beijing. Hong Kong’s Hang Seng Index also fell, losing an additional 2% on Wednesday after a near 10% drop the previous day. Economists are adjusting expectations for China’s annual growth downward, with a target of 5% now in jeopardy after a 4.7% growth rate in the last quarter.
Despite Beijing’s earlier stimulus efforts, investor confidence waned. The Chinese Finance Ministry is expected to announce further fiscal stimulus plans, potentially boosting the market outlook, but investors are cautious after earlier disappointment.
Largest One Year Oil Market drop
Oil prices plunged 4.5% on Tuesday, marking the largest one-day drop of the year as tensions in the Middle East receded slightly. U.S. crude settled just under $74 per barrel, while Brent crude dipped to $76.82. The market reacted to both Middle East ceasefire talks and doubts over Chinese demand. Analysts from Goldman Sachs noted that risk premiums in oil markets have significantly diminished, with options markets now pricing only a 5% chance of a $20 per barrel price jump. Such a rise would likely result from a significant supply disruption of 2 million barrels per day over six months, without OPEC intervention.
Global Market Movements
In Europe, France’s CAC 40, Germany’s DAX, and Britain’s FTSE 100 each saw slight gains of 0.3%. In Asia, Japan’s Nikkei 225 rose by 0.9%, buoyed by an increased takeover bid for Seven & i Holdings, while Australia’s S&P/ASX 200 saw a modest 0.1% rise. South Korean markets were closed for a holiday. The New Zealand central bank cut interest rates by half a point for the second time this year, sending the kiwi dollar lower.
Currencies and 10 Year Bond Markets
The U.S. dollar continued its upward trajectory, with the Bloomberg Dollar Spot Index rising 0.2%. The dollar reached 148.68 yen, while the euro remained stable at $1.0960. U.S. 10-year Treasury yields climbed by three basis points to 4.04%, while Germany’s 10-year yield stayed at 2.25%, and the U.K.’s 10-year yield was unchanged at 4.18%.
Corporate and Other Market News
Tesla saw record vehicle deliveries from its Shanghai factory in the last quarter. Taiwan Semiconductor Manufacturing Co. reported a 39% increase in quarterly revenue, allaying concerns about a slowdown in AI hardware demand. Meanwhile, Boeing faced further difficulties as its labor strike negotiations collapsed, and S&P Global Ratings threatened to downgrade its credit rating.
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