What Happened Last Week
- China: Property market support was announced over the weekend in major cities in addition to the raft of monetary and fiscal measures released last week.
- International Equities: China-led emerging markets drove international equities to their strongest week versus U.S. stocks since 4Q22.
- U.S. Equities: S&P 500 hit fresh all-time highs (again!).
What We’re Watching This Week
- U.S. Data: Friday’s jobs report is the highlight; economists expect payrolls growth to decline relative to the healthy readings of the past six months.
- China: As markets readjust to the new policy moves from Beijing, expect heightened volatility due to the week-long closure of local markets for the Golden Week celebration.
- Middle East: Israel’s continued strikes on Hezbollah may wake up investors to renewed tail risks of regional escalation in the conflict-riven, resource-rich Middle East.
Investment Management Team’s Views
- The global monetary easing party, kicked off by the Fed’s super-sized cut a week and a half ago, went global last week as China delivered a “bazooka stimulus” package geared toward stemming the risk of a deflationary spiral. Against the backdrop of very poor investor sentiment, the size and coordination of the mostly monetary stimulus (with promises of future fiscal support) were enough to drive the largest rally in Chinese equities since 2008. Emerging markets and broad international equities gained strongly in the biggest weekly outperformance of international stocks over U.S. ones since late 2022. Despite the magnitude of last week’s international move, we did not see a major cross-asset reaction across domestic equities or interest rates, but the S&P 500 did manage to notch its 44th all-time high of the year.
- Much remains uncertain about the impact of China’s policy pivot on market price action and global growth, but it is no doubt a positive development. Shifting back to the U.S., revisions to the growth data last week also painted a positive picture and closed the puzzling gaps in the data in favor of economic strength. Although the revisions are a welcome source of clarity, much of that growth data is backward-looking. We are watching how the most rate-sensitive sectors respond as a leading indicator of the economy and future markets. Mortgage activity, for example, has already started to pick up, albeit only by a small amount.
- Friday’s jobs report will take center stage as economists expect a downshift in payroll growth. The JOLTS report on Tuesday will also shed light on any changes to labor supply and demand dynamics. Outside the U.S., all eyes will be on China, although additional measures are less likely in the near term due to their Golden Week holiday. Developments in the Middle East, with the war around Israel shifting its gravity northward towards Lebanon, also have our attention; barring an Iranian intervention or regional spillover, we view a cross-asset market reaction as unlikely.
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