Market report: China lobs in more stimulus and gold shoots to record highs
Susannah Streeter, head of money and markets, Hargreaves Lansdown: “The FTSE 100 has started the week on a positive foot, helped by the extra stimulus being thrown at China’s economy. Miners were among the gainers in early trade after the People’s Bank of China cut key lending rates. Burberry has also gained ground amid hopes that cheaper loans for consumers might stimulate demand for luxury goods. The one-year and five-year loan prime rate have been slashed by 25 basis points. These benchmarks are used to price consumer loans and mortgages, and the idea is that the move will encourage lending and spending and help mend the ailing property market. There are also hints from authorities that there may be further cuts to the amount banks need to hold in reserve, to try and boost lending further. With the taps of support being turned on more fully there is renewed hope that this approach of throwing the kitchen sink at the problem will help the economy reach growth targets. But there are still expectations that further fiscal stimulus will be needed, with tax tinkering expected to put more money into consumers’ pockets. The positive start for the FTSE follows a fresh surge of enthusiasm for US stocks on Friday, with the S&P 500 surging to new heights, with corporate earnings, particularly from financials lifting sentiment.
Housebuilders are again in the spotlight, as the latest data from Rightmove shows some nervousness among potential buyers in the run-up to the Budget. Price growth has eased off even though more properties have been hitting the market, with those available for sale rising 12% over the year. Some sellers appear to have been prompted to make a move due to rumoured changes in capital gains tax potentially hitting profits on second home. Usually, October is a super-busy month for the market, but prices have climbed 0.3%, compared to 0.9% in September. However, housebuilders’ share prices have held up in early trade, helped by the bets piling on the chance of another interest rate cut from the Bank of England in November, which is currently being put at more than 98%.
Safe-haven assets are in demand as conflict continues to wrack the Middle East and concerns persist about a slowdown in global growth. More investors have been piling into gold, with the precious metal reaching fresh record highs. Israel’s continuing bombardment of Lebanon and Gaza is adding to the risk of overspill into wider conflict in the region. The uncertain outcome of the US presidential election is also likely to be playing on minds and leading to more defensive positioning.
The European Central Bank is expected to continue to go further and faster with rate cuts, as worries ripple about the weakness of European economies. Producer prices in Germany fell 1.4% in September 2024, compared to the same month last year. With deflation tightening its grip over producer prices, there are expectations that consumer price inflation will be on a steeper trend downwards and hitting the 2% target more quickly. Financial markets are now pricing in an 80% chance of another interest rate cut in December, hot on the heels of Thursday’s reduction.
Brent Crude has crept up a little but is still around 9.2% lower than the level the benchmark was trading at a fortnight ago. Although fears of further escalation in the Middle East are keeping a floor on prices due to regional supply concerns, concerns over weak demand in China a possible supply glut emerging have pushed prices lower.