Markets Pause as Asia Surges and China GDP Beats Forecasts
Markets shrugged off late week U.S. regional bank stock worries as Asian equities rallied on a Japan leadership breakthrough and stronger than expected Chinese third quarter data. This mattered today because easing U.S. trade rhetoric and fresh Japanese fiscal stimulus prospects pushed risk appetite higher in the near term while U.S. inflation data and ongoing government shutdown keep longer term rate expectations and credit stress in focus. Globally, Japan and China are driving sentiment in Asia, Europe is reacting to a sovereign rating move and corporate deals, and U.S. markets are watching earnings and inflation for direction after banks showed renewed stress last week.
Market mood and near term risks
Equity markets began the session with resilience despite a global website and cloud outage that disrupted trading on Monday. Investors looked past late week weakness in regional bank stocks as the S&P Composite 1500 Regional Banks index recaptured about a third of Thursday’s steep losses on Friday. That bounce suggests some short term risk appetite returned, but bad credit radars remain elevated across the system.
U.S. political developments are also in the background. The federal government has been shut down for 20 days and markets are now focused on the exceptional mandated release of U.S. inflation figures on Friday. Headline consumer price inflation is expected to lift annual core rates back above 3 percent and traders have priced some easing in policy later next year. Dovish Federal Reserve commentary last week and persistent loan market and bank concerns mean market participants will be watching data and Fed speeches closely for clues about the path of policy and credit conditions.
Asia leads with Japan politics and China data
Asian shares rallied as Tokyo surged to fresh records after a weekend coalition deal set Sanae Takaichi on course to become Japan’s next prime minister. The Nikkei climbed more than 3 percent to a record on the initial reaction and is up about 23 percent year to date. That rise was driven by expectations of fiscal expansion under the new coalition and a temporary firming of the yen with longer dated Japanese government bond yields holding steady.
China surprised to the upside in the third quarter with quarterly growth of 1.1 percent and annual growth of 4.8 percent, a pace described as the weakest in a year but still aligned with Beijing’s 5 percent target trajectory. Industrial output jumped 6.5 percent and retail sales rose 3.0 percent in September. While retail sales and the property sector remain soft, the stronger than expected industrial and quarterly numbers have raised hopes that the ruling party’s forthcoming five year plan could support fresh stimulus measures that would cushion slower areas of the economy.
U.S. earnings calendar and bank stress
U.S. corporate earnings this week will demand attention as Netflix (NASDAQ:NFLX) reports on Tuesday and other large caps such as Tesla (NASDAQ:TSLA) report later in the week. Earnings season tends to reset market expectations for growth and margins, and this cycle starts against a backdrop of elevated credit market concerns after last week.
Regional bank shares have shown volatile moves. The partial rebound by the S&P Composite 1500 Regional Banks index indicates buyers were willing to step in after heavy selling. Yet the newsletter flagged that bad credit radars are rising broadly. That suggests any signs of increased loan losses or funding pressure could quickly sway sentiment again, especially if inflation data alters rate cut expectations and compresses bank margins.
European reaction and corporate moves
European debt markets tested risk appetite after S&P Global (NYSE:SPGI) cut France’s sovereign rating to A plus on Friday. French bond yields and risk spreads ticked higher and the CAC 40 was lower as investors weighed the implications for sovereign financing costs. In corporate news, luxury group Kering (EPA:KER) agreed to sell its beauty business to L’Oreal (EPA:OR) for 4 billion euros. That transaction marks a strategic refocus by Kering and will be watched for its impact on earnings mixes and leverage profiles.
Other headlines included a U.S. announcement that tariffs on Colombia would rise and a flare up over payments, while rare earth magnet exports from China fell in September reigniting concerns about supply concentration for key tech and defence components. Commodity and currency moves showed markets responding to both macro and geopolitical signals with the offshore yuan steady near 7.1235 per dollar. The euro traded around 1.1665, sterling near 1.3431 and the Australian dollar rose to 0.6504 on the China data.
What to watch during the trading day
Traders will parse U.S. economic data and central bank commentary for cues on the policy path. Markets will also monitor the exceptional inflation data release later in the week which has potential to shift expectations about timing and scale of future rate cuts. On the corporate front short term volatility could come from early earnings reports and any further headlines on bank balance sheet stress.
In Asia the political confirmation vote in Japan and the rollout of China’s five year plan will be key domestic events. Any concrete stimulus language from Beijing or clarity on fiscal plans could extend the regional rally. In Europe the aftershocks of the sovereign rating move and corporate restructuring in the luxury sector will shape investor appetite for risk assets.
Overall markets are pricing a mix of rising regional optimism in Asia and persistent uncertainty in the United States and Europe. That combination has created pockets of strength in risk assets while leaving rates and credit spreads sensitive to incoming data and headlines for the coming trading session.
