Weekly recap
What happened in markets
The Australian sharemarket closed relatively flat last week, as it eked out a less than 0.1% gain. The local index reached a new all-time high during the course of the week, as investors took optimism from the US Federal Reserve making their first rate cut in over four years. The RBA voted to keep rates on hold locally, stating they would like to see inflation fall comfortably within their 2-3% range before they consider any cuts. Gains were seen in the Materials sector (9.4%) following the reports of increase stimulus measures in China. However, the Financials sector lost ground to close down 4.4%, as all of the major banks fell over the course of the week.
The US sharmarkets were higher, boosted by the stimulus measures announced in China. Core Personal Consumption Expenditure rose 0.1% in the month of August and came in below economists’ expectations of 0.2%. The major technology companies outperformed over the week, as Tesla added 9.3% and NVIDIA Corporation rose 4.7%. Micron Technology was a standout performer, up 16.0% over the week on the back of a positive result and better than expected guidance.
European sharemarkets were also higher last week, as the STOXX Europe 600 reached a new all-time high. Recent data has highlighted further economic slowdown in the Eurozone, raising concerns about a potential recession. As a result, markets have priced in the likelihood of more rate cuts by the European Central Bank later this year. The Materials sector was amongst the best performers, as London-listed Rio Tinto added 11.4%, while Glencore rose 12.7%.
Stock & sector movements
What caught our eye
China pulled out all the stops last week in an effort to revive its faltering economy, unveiling a series of aggressive measures to address its deepening property crisis and boost overall economic activity. From interest rate cuts to historic down-payment reductions, policymakers signalled their commitment to averting a full-blown economic downturn in the world’s second-largest economy.
In its most significant move yet, China’s central bank, the People’s Bank of China (PBOC), slashed mortgage rates for existing loans and lowered the down-payment requirement for second homes to a record low of 15%. This decision, aimed at rejuvenating the ailing property sector, is expected to relieve up to 150 million borrowers by cutting their interest expenses by an estimated 150 billion Yuan (US$21 billion) annually. The reduction comes amid continued pressure on the real estate market, which has been in crisis for four years and shows no signs of a swift recovery.
Beyond the property market, the PBOC also made headlines by cutting its one-year medium-term lending facility rate by 30 basis points. This move, the largest cut on record, signals a broader effort to reduce borrowing costs across the economy and jumpstart growth. Additionally, the central bank is expected to follow up with further reductions, including cuts to the key seven-day reverse repurchase rate. Analysts see this as the beginning of a comprehensive monetary easing campaign aimed at stimulating consumption and boosting confidence.
In parallel, China’s top political body, the Politburo, echoed the urgency of these measures, pledging to stabilise the property market and ramp up fiscal spending. Reports suggest that Beijing plans to issue 2 trillion Yuan (US$284 billion) in special sovereign bonds to stimulate consumption and help local governments manage their rising debt levels. These steps, combined with targeted cash handouts to struggling households, represent a marked shift from the government’s previous, more conservative, interventions.
Whether the measures announced by China last week will lead to a sustained economic recovery or simply provide an adrenaline shot to stem further deterioration, only time will tell. One thing is certain, however; both the share markets and companies with significant exposure to China responded positively. The China Shenzhen and Hang Seng indices rose by 17% and 13%, respectively, over the week. The share prices of BHP and Rio Tinto also saw gains, climbing by 13% and 11%.
The week ahead
Locally, Retail Sales data will be the main focus, as investors look to keep a close eye on how increased rates are affecting consumers budgets.
Overseas, unemployment data will be released in both the UK and the US, while Gross Domestic Product data in the UK will give investors an insight into the health of their economy.
