Why is “Mile Economics” difficult to work in Argentina?

Political

Summary:

Miller's reforms diluted monetary debt and public spending pressures by liberalizing prices, creating conditions for controlling inflation, but this also gave rise to a wave of poverty. He should adopt a pragmatic and balanced development strategy.

Amid high debt and low growth, Argentina has ushered in another wave of poverty. The National Bureau of Statistics announced on September 26, 2024 that Argentina's poverty rate has reached 52.9% in the first half of this year, 11.2 percentage points higher than the 41.7% at the end of 2023, reaching the worst level in nearly 20 years. This means that 3.4 million Argentines are in extreme poverty this year, with a daily income of less than $1.9. However, since taking office as President of Argentina in December last year, Milley has "held a chainsaw and chopped at the bureaucracy" and carried out drastic reforms to the country's public welfare system. Why is Milley, who claims to represent grassroots voters, creating poverty on a larger scale? What's the problem with "Millenomics"?

The sources of Argentina’s economic distortions

Milley, who holds high the banner of populism, may have underestimated the complexity of Argentina's economic crisis. Argentina's economy is a complex maze. From the unrestricted "blue dollars" traded on the black market, to the complicated financial instruments launched by the central bank and financial institutions, to the export taxes and import pre-authorizations issued by the government, the unbearable fiscal and quasi-fiscal deficits, and the intertwined laws and regulations of regulation and intervention, it eventually exacerbated rampant inflation and a regrettable recession.

Argentina has a land area of 2.78 million square kilometers, ranking eighth in the world. It is rich in agricultural and mineral resources. It is a member of the G20 and the third largest economy in Latin America. Its per capita GDP in terms of purchasing power parity is at a medium-high level, and it belongs to the first group in Latin America with Chile and Uruguay, which is similar to the level of southern Europe. Its human development index is at a very high level. For a long time, Argentina has been a medium-sized power and a major power in the Latin American region. It is hard to imagine that such a country that once enjoyed high growth would fall into the quagmire of stagnant growth and economic distortion.

Untamed inflation is a prominent feature of Argentina's economic distortions. When Milley took office in December 2023, Argentina's inflation rate was "only" 211%. It reached 289% in April 2024 and fell back to 237% in August, but it was still higher than when Milley took office.

Of course, the source of this round of Argentina's inflation is not Mile. Argentina's last president Fernandez is a left-leaning Peronist. At the end of his term, the Argentine government had a huge fiscal deficit, partly due to the sharp increase in pensions and public sector wages. In addition, in order to provide basic living security for low-income groups, Argentina has adopted price control measures on the public sector. The prices of rent, medical care, transportation, public facilities, etc. are all below cost. The resulting price subsidies have also greatly increased government spending.

Because the low-rated Argentine government had difficulty raising loans from the international financial market, Fernandez could only instruct the central bank to overprint Argentina's currency, the "peso", and use the over-issued currency to make up for the fiscal deficit, embarking on the path of "fiscal monetization". In order to force Argentines to hold pesos instead of exchanging them for dollars, Fernandez took currency exchange control measures. As a result, the public was forced to hold a large number of pesos, and helpless people even hid a lot of cash under their mattresses because the actual interest earned from depositing it in local banks was negative.

Excess cash is a "time bomb", and various risks are beginning to accumulate. In essence, Argentina's excessive welfare, price controls and huge subsidies that far exceed the economic development capacity have exacerbated the government's fiscal deficit, and fiscal monetization has led to a continuous deterioration in the actual purchasing power of currency. Currency exchange control measures taken to stabilize the economic system have trapped peso cash like a flood in Argentina's inefficient industrial production system. As a result, if the peso is spent, inflation will soar. If foreign exchange controls are lifted, people will rush to exchange pesos for dollars, the exchange rate will collapse, and import prices will soar. If price controls are lifted, the price of public services will soar, and the quasi-poor people who have long relied on minimum living security will fall into extreme poverty. A social crisis is imminent.

Mile's "chain saw" reform

After Fernandez, Argentina welcomed the new president, Mille, who "wielded a chainsaw and chopped at the bureaucracy." After taking office, he liberalized prices in the public sector, canceled government subsidies used to suppress utility prices, and allowed the peso to depreciate by 54%. As a result, the consumer price index rose 1.7 times in the first three months of Mille's tenure, equivalent to an annualized inflation rate of nearly 800%.

Of course, rising prices have caused serious damage to consumers' purchasing power, but it also has a silver lining: it has weakened the domestic demand pressure caused by excess pesos. On the central bank's balance sheet, money is reflected as a liability of the central bank. In this sense, the real value of the central bank's monetary liabilities fell by nearly 38% from November 2023 to February 2024, which significantly reduced the inflationary potential of excess pesos.

Rising prices have also had an impact on fiscal financing. In the past, the central bank had to issue bonds to pay for the government's fiscal deficit. This "fiscal monetization" seriously damaged the rating of the Argentine central bank's bonds, causing bond interest rates to soar. Not only that, because the bond interest rate is high, most of the financing for the new round of bonds must be used to pay interest, which further lowers the bond rating and increases the interest rate. The "snowball effect" brought about by this vicious cycle has led to a sharp expansion of the central bank's debt, so that "fiscal monetization" and high interest rates have constituted a "quasi-fiscal" deficit recorded in the central bank's books.

The good news is that the sharp price increases brought about by the Mille reforms began to make the peso illiquid. The market found that only by buying central bank bonds could the liquidity of the peso be stabilized. Therefore, the central bank was able to issue bonds at a much lower interest rate than the previous government, thus providing itself with funds at a lower financing cost. As a result, Argentina's "quasi-fiscal" deficit accumulated due to excessive money issuance finally began to decline.

In addition to the turnaround in the central bank's "quasi-fiscal" problems, the government's fiscal deficit has also begun to decline. This is because most fiscal spending - including high-priced items such as pensions and public sector wages - is calculated in nominal prices, so when inflation unexpectedly soars, the real value of these expenditures will fall. Coupled with the freeze on public investment, the Argentine federal government has drastically cut transfers to the provinces, and the end result is a sharp drop in government spending. Therefore, after Mille took office, Argentina even achieved a small fiscal surplus in the first quarter of 2024 - the first time since 2008. The fiscal surplus means that the government does not need to go down the old path of "fiscal monetization", so the central bank does not need to over-issue pesos, and the pressure of future inflation is greatly reduced.

The rise in the price level has led to a strong dilution in public spending: real primary spending fell by 33% in the first two months of 2024 compared with the same period last year. Spending dilution has allowed the government to move from deficit to surplus in the non-financial public sector and has reduced the overall deficit (fiscal and quasi-fiscal) to less than half. In addition, the improvement in the fiscal situation has led to a sharp reduction in monetary financing, which is well below the rate of inflation.

Millet's "chain saw" reform can be summed up in one sentence: raise prices to reduce inflation. That is, raise the price level enough to dilute monetary liabilities and public spending to restore the level of international reserves. And, significantly reduce fiscal (and quasi-fiscal) deficits, thus cutting off the vicious cycle of financing fiscal revenues by printing money and fueling inflation. Millet's reform embodies a "technique" with Latin American characteristics: dilute, then adjust, and then stabilize.

The turnaround in inflation hides a new crisis

The problem is that the current temporary decline in inflation could trigger a potential crisis for the Miller government. Between November 2023 and February 2024, the price level of the Argentine central bank's monetary liabilities was diluted, i.e., its real value fell by 38%. The strong liquidity shortage caused by the dilution of monetary liabilities enabled the Argentine central bank to replenish its interest-bearing liabilities at a significantly lower interest rate and forced the market to sell dollars to the Argentine central bank to secure scarce peso liquidity.

Argentina's monthly inflation rate was 25.5% in December 2023 and fell to 4.2% in August 2024. These gains were mainly achieved through dilution and are actually very difficult to maintain in the long run. As inflation falls, the fiscal "rejuvenation" effect brought about by high inflation in the past may disappear. Of course, the contraction of liquidity has also brought strong recessionary pressure on economic growth. Argentina's economy will definitely continue to decline in 2024. The International Monetary Fund predicted in July 2024 that Argentina's GDP will shrink by 3.5% this year. It is foreseeable that lower national income will lead to lower government revenue.

The crisis will continue to expand. On the social level, unions and politicians have begun to demand increases in wages and pensions in order to restore some of the purchasing power lost due to price liberalization. The reduction in fiscal spending has led to a shrinking public sector and a worsening employment environment. At least 136,000 jobs have disappeared since Milley took office. Considering that the huge informal sector has already fallen into a deep recession, the job supply crisis may be even more serious.

Political games are also exacerbating the crisis facing Mille. Mille has reduced transfer payments to Argentina's provinces, which has upset the governors and even angered provinces such as Jujuy that are in urgent need of expanding infrastructure investment and foreign cooperation. But Mille needs congressional votes from these provinces to implement the next round of deep structural reforms. The problem is that Mille and his Liberal Progress Party are in the minority, while local forces have formed a broad opposition alliance in Congress.

Milley's voters are also wavering. Since Milley was elected president in 2023, his approval rating has remained stable at around 50%. However, a recent survey by polling agency Poliarquia showed that Milley's approval rating fell by 7 percentage points to 40% between August and September. Data from another polling agency, CB Consultora, showed that Milley's approval rating fell by 4.2 percentage points in September compared to August, falling to 46.4%. The Argentine government confidence index calculated by Torquato di Tella University also fell to 14.7% in September, the largest drop this year.

Argentina should adopt a pragmatic and balanced development strategy

Mille's "chain saw" reform diluted monetary debt and public spending pressure by liberalizing prices, thus providing a favorable macroeconomic environment for controlling inflation. However, the liberalization of public service prices, coupled with the shrinking of public sector jobs, will lead to a surge in people's living costs and a sharp drop in income, thus giving rise to Argentina's recent poverty wave.

Amid social unrest and intensified political conflicts, Milley's policy dividends began to decline, and the reform momentum fell into a more complicated dilemma. Political forces in various provinces were particularly dissatisfied with Milley's policy of reducing transfer payments, and thus continued to obstruct Milley's structural reform policies. As a minority in Congress, it was difficult for Milley and his Liberal Progress Party to forcefully promote the implementation of new policies.

During the critical period of national economic transformation when the space for internal reform is narrowing, Argentina should consider a more pragmatic and balanced development strategy, especially seeing the huge potential of globalization and South-South cooperation. On the premise of maintaining the continuity and stability of its foreign policy, Argentina should consider actively participating in the high-level global South cooperation system and opening up new external development space for economic system reform under the framework of the Global Development Initiative. The Mile government has recently taken practical actions to encourage major developing countries to increase investment in Argentina, which is a positive signal. It is believed that Mile, who calls himself a "madman", will show the global South the wisdom of governing the country based on rationality and seeking long-term goals.

Source: FT Chinese

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Cohen

Economic

While many insurers have reduced their investments in fossil fuel companies, State Farm, the largest U.S. home and auto insurer, and Berkshire Hathaway’s insurance companies have boosted their investments in oil and gas firms over the past decade, an analysis by The Wall Street Journal .

Fossil fuel financing and insurance have come under scrutiny in recent years as ESG policies have become mainstream for many investors.

The Journal has now analyzed annual filings of insurers’ investments in stocks and bonds obtained from the National Association of Insurance Commissioners, a non-governmental organization that supports U.S. insurance regulators.

Between 2014 and 2023, State Farm and Berkshire’s insurers boosted their investments in oil and gas firms, even if more than half of the 236 property-and-casualty insurers in the Journal’s analysis reduced their spending on stocks and bonds issued by fossil fuel companies.

State Farm, which has invested billions of U.S. dollars in stocks and bonds of companies including ExxonMobil, Chevron, and Diamondback Energy, has raised the share of fossil fuel investments in its $142.7 billion portfolio to 3.6% in 2023, up from 2.6% back in 2014, the Journal’s analysis found.

Berkshire Hathaway’s insurance firms, for their part, reported they spent $39.9 billion on fossil fuels stocks and bonds in 2023. This has raised the share of investments in fossil fuels to more than a fifth of their overall $183 billion in holdings, according to the Journal’s analysis.

The big spending on fossil fuels from Berkshire Hathaway is not surprising, considering Warren Buffett’s bet on Occidental, in which his conglomerate has heavily invested over the past year.

As a result of the rising fossil fuel investments by Berkshire Hathaway and State Farm, the overall exposure of the U.S. property-and-casualty insurance industry to fossil fuels rose to 4.4% of portfolios in 2023. This compares with 3.8% of investments in portfolios in fossil fuels in 2014, the WSJ analysis found.

Source: OILPRICE

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JanusHenderson

Economic

If you own a home, you’ve probably noticed that insurance premiums are on the rise. But for those investing in insurance companies, the picture is much bigger. The insurance industry is evolving as a mix of long-term and more traditional cyclical factors are driving up prices and opening the door for growth opportunities.

Catalysts for growth

The insurance market is currently experiencing a “hardening cycle” characterized by rising premiums and tightening capital market conditions. Several factors have contributed to this cycle, but it’s helpful to consider its origins.

Before the COVID-19 pandemic, the insurance industry was grappling with cracks in reserves and higher-than-expected losses. The pandemic then exposed unexpected correlations across insurance lines, forcing carriers to reevaluate their risk models and diversification strategies. This shock has contributed to a prolonged hardening cycle, revealing that many insurers with seemingly diversified portfolios were under-reserved relative to historical loss-cost trends.

Post-COVID, several other factors are contributing to the hardening market and creating opportunities for growth in coverages and higher premiums:

Emerging perils: Cybersecurity risks, intellectual property protection, and business interruption insurance have gained prominence and increased demand for new coverage types. Climate change is also prompting businesses to seek more comprehensive protection and has made it more difficult for carriers to forecast losses. Global losses from natural disasters have significantly outpaced global GDP over the last 30 years.1

These difficult-to-insure risks have led to significant growth for excess and surplus (E&S) specialty lines. Further, many of these risks, such as climate change and cybersecurity risk, are long-term in nature. We believe insurers with coverage lines benefitting from these secular trends may be uniquely positioned to outgrow competitors, especially those with “moats” such as data, scale, and information advantages.

Economic and social inflation: Rising material and labor costs from construction to automobile repair are increasing claim payouts. Social inflation, characterized by an increase in lawsuits, higher jury awards, and more liberal treatment of claims, is further driving up costs. Inflation can negatively impact insurers’ profitability in the short term because reserves need to be increased and premiums can only be adjusted gradually.

However, at this stage of the insurance cycle, pricing has adjusted, and bottom-lines are improving. While some areas like property insurance may be nearing peak pricing, we believe casualty lines still have room for growth due to ongoing social inflation trends.

Limited new entrants: Unlike past hardening cycles, there has not been a significant influx of new insurance companies or alternative capital entering the market. Higher interest rates and market volatility are pushing some capital out of the industry, leaving remaining companies to adjust pricing and risk appetite. As capital becomes more constrained, insurers are forced to be more selective in underwriting new policies, and that leads to higher prices and growth opportunities for existing players.

Seeking to Capitalize on Insurance’s Extended Cycle_1

Navigating risks

While these growth catalysts are creating compelling investment opportunities, insurers are simultaneously facing a number of challenges that could present pitfalls for investors.

Unpredictability of costs: Insurance companies book revenue upfront, but the true costs of claims may not be known for months or years. This is particularly true for long-tail claims like those in life insurance. Small changes in actuarial assumptions for long-duration policies can have outsized impacts on profitability, making companies that write shorter-term policies generally more attractive.

Loss reserves: Assessing the adequacy of an insurer’s loss reserves is notoriously difficult, even for industry insiders. Unexpected reserve charges can hit stock prices hard. Given the complexities in reserving and pricing risk, it’s critical to analyze underwriting practices, reserve adequacy, and risk culture to identify sound business practices.

Concentration risk: Insurers that are diversified across business lines, geographies, and customer types are typically better able to offset overexposure to specific risks.

Regulation: The regulatory landscape is complex and subject to change. There’s potential for increased government intervention or regulation in markets facing affordability and high-risk challenges. For example, homeowners’ insurance in wildfire- or flood-prone areas is becoming increasingly problematic. In some cases, there is risk that private insurers could be pushed out by state-run programs.

To help mitigate these varied risks, we believe evaluating a management team’s track record and ability to navigate the intricacies of the industry is crucial to identifying the strongest players.

Valuation and portfolio considerations

Despite strong recent performance, we believe many quality insurers still have underpriced growth prospects relative to other market segments. Companies growing top-line revenue in the high single digits to low double digits are often trading at low- to mid-teens multiples of earnings – a significant discount to the market for comparable growth prospects.

Seeking to Capitalize on Insurance’s Extended Cycle_2

Insurance stocks can also play a valuable role in portfolio construction, offering diversification as their risks often have a low correlation to the broader economy. The insurance pricing cycle doesn’t move in lockstep with economic cycles, providing some insulation during downturns. Many insurers also pay attractive dividends, enhancing total return potential.

Despite a reputation for slow growth and low returns on equity (ROE), the industry’s wide dispersion in stock performance creates a fertile ground for stock pickers. And within the industry, there are competitively advantaged companies that have long track records of outperforming their peers in both growth and profitability.

Capitalizing on market dynamics

The insurance industry currently offers favorable conditions for growth-oriented investors. We believe companies adapting their business models, utilizing data effectively, and practicing disciplined underwriting are best positioned to navigate this evolving market.

Firms with sustainable edges – such as those with scale advantages, niche target market expertise, or efficient customer acquisition and servicing capabilities – are well positioned to outgrow competitors throughout pricing cycles.

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Owen Li

Economic

Thirty years ago, in 1994, the Suzhou Industrial Park was established as a joint venture between the governments of China and Singapore. Despite some initial hiccups, this industrial park is widely seen as a success story in putting Suzhou on the international map with many multinational corporations (MNCs) setting up shop there. World-class industrial parks can similarly be an important positioning feature in the Johor-Singapore Special Economic Zone (JSSEZ) to attract new MNC investments to this area. With a better coordinated marketing strategy by the relevant investment promotion agencies and strategic partnerships facilitated by industrial park developers, such developments have the potential to change the manufacturing landscape in southern Johor. They can also catalyse the development of related service capabilities that can be deployed to other parts of the country and potentially as exports.

The current quality of industrial parks in Malaysia suffers from a wide variance, with many of the older industrial parks facing serious challenges of poor infrastructure which have not been properly maintained as a result of ineffective management. Some of the older industrial parks that are located close to residential areas have not been “legalised” and as such, do not even have public amenities such as fire hydrants. As it stands, there is no proper classification framework for industrial parks.

This is not to say there are no best-in-class industrial parks in the country. AME Elite Consortium Bhd, a publicly listed company, made its name developing award-winning integrated industrial parks in its home base of Johor, including I-Park in Senai, which I’ve visited. Not only is the infrastructure for these parks well developed and well maintained, shared facilities and common recreational areas are also provided. Accommodation for workers is often located nearby. The industrial parks as well as the workers’ accommodation are still managed by the developer. Many of the properties built and managed by AME were packaged into a real estate investment trust (REIT) in 2021.

The characteristics of world-class industrial parks are increasingly shaped by the demands of MNCs that have adopted strict ESG standards for their manufacturing facilities. These include:

•Transparent and detailed master plans

• Energy and environmental sustainability (solar renewable energy (RE) on rooftops, centralised district cooling and heat recovery systems, detailed waste management plans including recycling of wastewater)

• Workers’ accommodation, welfare and safety (especially for foreign workers)

• Risk and safety management (safety of processes and for people, managing accidents, real-time monitoring of activities)

• Management of common property and infrastructure (usually by the developer)

• Internet and mobile connectivity (Broadband, 4G and 5G)

• Alignment with government policies in terms of tax and other incentives

Integration with nearby townships with commercial and residential developments are a bonus.

UNIDO, the United Nations Industrial Development Organization, has devised detailed recommendations in the Industrial, Environmental and Social Infrastructure of industrial parks to achieve optimum objectives for developers and customers. The organisation has also devised a framework for eco-industrial parks, in line with changing global demands.

It may be worthwhile for property developers that are new to industrial park development to consider strategic partnerships with local and foreign players to bring new technologies and value propositions into the picture. These partnerships can raise the value of industrial park properties and help attract higher quality investments, especially if the presence of these strategic partners can increase the brand value of these parks. It may also be worthwhile to explore models of rehabilitating “brownfield” industrial park sites into eco-industrial parks with support from local, state and federal governments, with the possible assistance of international organisations such as the Asian Development Bank and the World Bank. Malaysia-China, Malaysia-Japan, Malaysia-South Korea and Malaysia-EU branded industrial parks with infrastructure players from partner countries to anchor these developments should also be considered.

Examples of strategic local partners include Pantas, a start-up in the climate solutions for carbon and ESG measurement and management space; I-Handal for heating and energy solutions; KJTS for centralised district cooling systems and facilities management; and Solarvest for RE solutions and UEM Lestra for the larger RE ecosystem solutions, just to mention a few. Examples of foreign strategic partners include Keppel Infrastructure and CapitaLand (Singapore), IHI Asia Pacific (Japan) and CMEC (China).

The private sector should also collaborate with relevant government agencies such as the Malaysian Investment Development Authority (Mida) to come up with a proper classification scheme for factories as well as industrial parks, similar to the framework provided by the Green Building Index (GBI) for office buildings. Having such a classification scheme will provide incentives for industrial park developers to provide better infrastructure and incorporate more sustainability features in their master plan. This will slowly upgrade and raise the capability of industrial park developers in the country and get the private sector more used to paying for quality infrastructure and better facilities. In addition, this can create business opportunities for the service sectors involved in building better quality industrial parks such as those involved in energy management software systems and safety and security monitoring systems, as examples.

The JSSEZ provides a fantastic platform to catalyse the development of world-class industrial parks. There will be many more opportunities to replicate the cooperation between UEM Sunrise and CapitaLand, which are working on a joint venture in the development of the Nusajaya Techpark near Iskandar Puteri. JLand’s massive Ibrahim Technopolis (IBTEC) also provides interesting collaborative opportunities.

The experience which Malaysian companies can obtain from strategic partnerships will hopefully allow some of them to spread their wings and expand these developments beyond Johor and our borders.

If world-class industrial parks become a normal part of the economic landscape in Malaysia, with the JSSEZ as the catalyst, our manufacturing ecosystem would look very different within a decade.

Source: Theedgemarkets

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Warren Takunda

Stocks

December S&P 500 E-Mini futures are down -0.56%, and December Nasdaq 100 E-Mini futures are down -0.71% this morning as Treasury yields extended their rise, while investors looked ahead to U.S. inflation data, the start of third-quarter earnings season, and a parade of Federal Reserve speakers.

In Friday’s trading session, Wall Street’s major averages ended in the green. Albemarle surged over +8% and was the top percentage gainer on the S&P 500 after The Australian reported that mining giant Rio Tinto might be considering an acquisition in the lithium sector. Also, chip stocks gained ground, with Advanced Micro Devices climbing nearly +5% and Broadcom rising more than +2%. In addition, CVS Health advanced over +2% after TD Cowen upgraded the stock to Buy from Hold with a price target of $85. On the bearish side, Spirit Airlines plummeted more than -24% after the Wall Street Journal reported that the budget airline and its bondholders had discussed a potential bankruptcy filing following its failed merger with JetBlue Airways.

The U.S. Labor Department’s report on Friday showed that nonfarm payrolls increased by 254K in September, significantly surpassing expectations of 147K and marking the largest gain in six months. Also, the U.S. September unemployment rate unexpectedly declined to 4.1%, stronger than expectations of no change at 4.2%. In addition, U.S. average hourly earnings came in at +0.4% m/m and +4.0% y/y in September, stronger than expectations of +0.3% m/m and +3.8% y/y.

“Coming off a string of relatively weak jobs data over the summer months, the September jobs report was just what the doctor - or in this case the Fed - ordered,” Jim Baird, chief investment officer at Plante Moran Financial Advisors. “It broke the recent trend and provided a reason for optimism in the underlying resiliency of the labor economy.”

U.S. rate futures have priced in a 94.5% chance of a 25 basis point rate cut and a 5.5% chance of a 50 basis point rate cut at the next FOMC meeting in November.

Meanwhile, investors remain cautious about rising geopolitical risks as the world anticipates Israel’s possible retaliation to Iran’s missile attack last week. Israel bombed Hamas targets across Gaza on Monday to prevent what it described as an “immediate” threat of planned rocket fire by the group to commemorate its devastating attack a year ago.

Third-quarter earnings season kicks off this week, with big banks such as JPMorgan Chase and Wells Fargo set to release their earnings reports on Friday. PepsiCo and Delta Air Lines are among other major names scheduled to deliver quarterly updates during the week.

On the economic data front, the U.S. consumer inflation report for September will be the main highlight. Also, market participants will be keeping an eye on other economic data releases, including U.S. PPI, Core PPI, Exports, Imports, Trade Balance, Wholesale Inventories, Crude Oil Inventories, Initial Jobless Claims, and Michigan Consumer Sentiment Index (preliminary).

In addition, investors will closely monitor the release of the Federal Reserve’s minutes from the September 17-18 meeting on Wednesday, watching for insights into how policymakers are considering the future pace of easing.

A host of Fed officials will be making appearances throughout the week, including Bowman, Kashkari, Bostic, Kugler, Collins, Jefferson, Logan, Goolsbee, Barkin, Daly, Cook, and Williams.

In other news, Tesla is anticipated to unveil its self-driving “robotaxi” at a Thursday event, where the company might offer further details about several of its products. Also on Thursday, semiconductor company Advanced Micro Devices will share updates on its artificial intelligence products during its “Advancing AI” event, where its chief executive officer, Lisa Su, is scheduled to speak.

Today, investors will focus on U.S. Consumer Credit data, which is set to be released later in the day. Economists, on average, forecast that August Consumer Credit will stand at $11.80B, compared to the previous figure of $25.45B.

In the bond market, the yield on the benchmark 10-year U.S. Treasury note is at 4.016%, up +0.84%.

The Euro Stoxx 50 futures are down -0.42% this morning as tensions in the Middle East tempered optimism surrounding the U.S. economy after Friday’s strong jobs report. Real estate and utility stocks slumped on Monday. Data from the Federal Statistical Office released on Monday showed that Germany’s monthly factory orders fell more than expected in August, increasing pressure on the struggling sector, which shows few signs of a recovery. Separately, data from Eurostat revealed that consumers in the Eurozone increased their spending slightly in August, signaling a modest recovery in consumer expenditure. Meanwhile, French Central Bank Governor Francois Villeroy de Galhau told an Italian newspaper that the European Central Bank is likely to reduce interest rates on October 17th due to weak economic growth and the associated risk of inflation falling below its 2% target. “Yes, quite probably,” Villeroy told La Repubblica when asked if a reduction is expected this month. In corporate news, Cie Financiere Richemont Sa gained about +1% after agreeing to sell its Yoox Net-A-Porter online fashion and accessories business to Mytheresa.

Germany’s Factory Orders, Eurozone’s Sentix Investor Confidence Index, and Eurozone’s Retail Sales data were released today.

The German August Factory Orders stood at -5.8% m/m, weaker than expectations of -1.9% m/m.

Eurozone October Sentix Investor Confidence Index arrived at -13.8, stronger than expectations of -14.6.

Eurozone August Retail Sales came in at +0.2% m/m, in line with expectations.

Japan’s Nikkei 225 Stock Index (NIK) closed up +1.80%, while mainland Chinese markets were closed for a holiday.

China’s Shanghai Composite Index was closed for the week-long National Day holiday. Mainland China’s financial markets will reopen on Tuesday.

Japan’s Nikkei 225 Stock Index closed higher today, surpassing the key 39,000 level, buoyed by Friday’s gains on Wall Street. Financial stocks outperformed on Monday. Preliminary data from the Cabinet Office released on Monday showed that Japan’s leading economic index, which is used to gauge the economic outlook for a few months ahead on data such as job offers and consumer sentiment, fell in August to its lowest level since October 2020. Meanwhile, Japan’s new finance minister vowed to consider policy actions against sharp currency fluctuations based on their impact on the real economy. “We need to take necessary measures while closely watching the effects on people’s lives and economic activities, rather than responding to the foreign exchange market itself,” Katsunobu Kato said in an interview on Monday. In corporate news, Konami Group climbed over +8% and Nintendo gained more than +4% following a local media report that Saudi Arabia’s sovereign wealth fund is contemplating boosting its stakes in Japanese gaming firms. Investors are bracing for earnings reports from major Japanese companies this week, including AEON, Fast Retailing, and Seven & I Holdings. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed up +20.33% to 30.19.

The Japanese August Leading Index was at 106.7, weaker than expectations of 107.2.

Pre-Market U.S. Stock Movers

Arcadium Lithium surged about +27% in pre-market trading after announcing that Rio Tinto approached the company about a possible takeover.

Pfizer rose over +2% in pre-market trading after the Wall Street Journal reported that activist investor Starboard Value acquired a roughly $1 billion stake in the company and is urging management to implement changes.

Apple fell more than -1% in pre-market trading after Jefferies downgraded the stock to Hold from Buy with a price target of $212.92.

Amazon.com slid over -2% in pre-market trading after Wells Fargo downgraded the stock to Equal Weight from Overweight with a price target of $183.

Netflix dropped about -1% in pre-market trading after Barclays downgraded the stock to Underweight from Equal Weight with an unchanged price target of $550.

Source: Barchart

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ACY

Economic

European currencies, particularly the British pound (GBP) and the euro (EUR), have emerged as strong performers among G10 currencies this year, reflecting a mix of strategic monetary policy decisions and evolving global market sentiment. The GBP has shown remarkable resilience, largely buoyed by the Bank of England's (BoE) cautious stance in maintaining interest rates at higher levels. This approach has played a pivotal role in supporting the pound’s ongoing strength, positioning it as a preferred currency for yield-seeking investors.

In contrast to the more aggressive monetary easing seen elsewhere, notably by the U.S. Federal Reserve and the European Central Bank (ECB), the BoE's relatively hawkish posture has differentiated the pound in the eyes of global markets. While other central banks opted for significant rate cuts as part of their broader efforts to stimulate economic growth, the BoE’s steady course has attracted capital flows, further strengthening the GBP amid improving global risk appetite.

This divergence in monetary policy reflects deeper differences in economic fundamentals across major economies. The Federal Reserve’s sharp rate cuts were largely motivated by concerns over slowing economic growth and the need to stabilize U.S. markets. Similarly, the ECB's decision to implement larger cuts was driven by persistently weak inflation and subdued economic activity across the Eurozone. Against this backdrop, the GBP's relative stability, supported by a more optimistic economic outlook in the UK, has made it a more attractive option for investors seeking returns in a low-yield environment.

Elsewhere in Europe, Scandinavian currencies such as the Norwegian krone (NOK) and the Swedish krona (SEK) have also experienced a notable lift, though their performance has been more nuanced. The Norwegian krone, typically sensitive to fluctuations in global oil prices, has been hindered by the recent decline in oil markets. Lower demand projections from key energy consumers like China, combined with broader concerns about global energy consumption, have weighed on the krone. Given Norway's status as a major oil exporter, the currency’s fortunes remain closely tied to the health of the global oil market. Consequently, despite broader economic improvements, NOK has underperformed relative to other European currencies.

On the other hand, the Swedish krona has displayed greater stability, with the EUR/SEK exchange rate remaining within its established yearly range. Sweden's relatively diversified economy, less dependent on volatile commodities like oil, has contributed to the krona's steadier performance. Additionally, the Swedish economy’s resilience amid global uncertainties, bolstered by strong industrial output and export activity, has supported the krona. However, the direction of SEK will be influenced by future decisions from the Riksbank, which, like many other central banks, is weighing the need for further monetary easing to support growth and inflation targets.

Looking ahead, investors are keenly focused on upcoming monetary policy decisions from key institutions such as the Riksbank and the Swiss National Bank (SNB). Both are anticipated to continue along their paths of rate reductions, following earlier cuts aimed at spurring growth and maintaining price stability. However, despite ongoing rate cuts, the Swiss franc (CHF) has continued to perform well, especially during periods of heightened market volatility. The Swiss franc’s traditional role as a safe-haven asset has helped sustain its strength, even as other currencies have struggled. That said, additional rate cuts by the SNB could introduce downside pressure on the CHF, particularly if global risk sentiment improves and demand for safe-haven assets wanes.

European currencies have outperformed many of their global counterparts in recent months, driven by a combination of stable or moderately dovish central bank policies and evolving global economic conditions. However, their future trajectory will likely depend on a complex interplay of factors. Central bank strategies will be crucial, as policymakers must balance the need for economic stimulus with the risk of undermining their currencies’ appeal. Additionally, shifts in key sectors like energy, equity markets, and global trade dynamics will continue to shape currency performance in the coming months.

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This week, risk-off sentiment is likely to continue driving global market movements, as geopolitical tensions in the Middle East escalate further. The developments in this region will take centre stage.

Additionally, the US is scheduled to release its September inflation data, which the Federal Reserve (Fed) closely monitors to adjust its monetary policy.

Both the ECB and the Fed will release their September meeting minutes, providing deeper insight into the stances of these central banks.

Europe

Economic data for the eurozone is expected to be light this week, meaning that external factors will likely influence market movements more significantly.

The ECB’s September meeting minutes will be the most important market event, as they may provide indications of how quickly the central bank will continue reducing interest rates.

Following two 0.25% rate cuts in June and September, analysts expect the ECB to cut rates again in October, with inflation cooling more than anticipated in September.

Other economic indicators this week include the Eurozone’s retail sales, Germany’s industrial production, and France’s trade balance for August, though these are expected to have a limited impact on European stocks and the euro.

In the UK, the monthly Gross Domestic Product (GDP) data for August will be a key focus.

The British economy stalled for the second month in a row in July, suggesting that the momentum seen in the first half of the year may be fading. A slowdown in growth could push the Bank of England to accelerate its easing cycle.

The US

The US monthly Consumer Price Index (CPI) for September is expected to be a critical data point for global markets this week. It will be the first inflation release since the Fed’s large 0.5% rate cut in September.

Inflation in the US eased to 2.5% in August, and consensus forecasts suggest that price growth will slow further to 2.3% in September, moving closer to the Fed’s 2% target.

A higher-than-expected reading would dampen expectations of further rapid rate cuts and could weigh on stock markets, while a lower reading would likely boost sentiment.

Additionally, the US Producer Price Index (PPI), which tracks changes in the selling prices of goods and services, with a focus on wholesale prices, will be released.

In August, the PPI rose by 1.7% year-on-year, confirming the cooling inflation trend. It is expected that the PPI will increase by only 0.1% in September, down from 0.2% in the previous month.

The Fed's September meeting minutes, which detail the discussions and decisions from the FOMC meeting, will also be released this week.

These records will provide valuable insight into the Fed’s future policy direction, which will shape financial market trends.

Although the Fed is expected to cut interest rates at its meetings in November and December, Fed Chair Jerome Powell has emphasised that the Fed is not on a pre-set course, and future decisions will depend on incoming data.

Asia Pacific

In the Asia-Pacific region, the Reserve Bank of New Zealand is expected to make a substantial 0.5% rate cut this week, driven by a deteriorating economic outlook.

In August, the bank unexpectedly cut the official cash rate by 0.25%, marking a shift from its previously hawkish stance.

The New Zealand economy contracted by 0.2% in the second quarter, following 0.1% growth in the first quarter.

The central bank anticipates that the country will enter another technical recession this year, having already done so in the final quarter of last year.

China is set to release its new yuan loans and M2 money supply data for September.

Following stimulus measures from the People's Bank of China, these data will be critical for assessing lending activity and liquidity.

Continued growth in new loans and an increase in the money supply are expected to support the ongoing rally in the Chinese market.

Source: EuroNews

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