Economy

While these moves have generated optimism in the markets, BCA Research analysts suggest they could be indicators of deeper economic challenges rather than signals of a renewed recovery.As per analysts at BCA, these actions reflect concerns over growing economic weaknesses. In the United States, the Federal Reserve’s focus has shifted from controlling inflation to addressing a cooling labor market, as unemployment rises towards the estimated natural rate of unemployment. Although the initial response to a rate cut can be positive, historical patterns reveal that stock market rallies following such cuts are typically short-lived and followed by declines over the subsequent months. BCA flags that the Fed often cuts rates just before a recession, underscoring that monetary easing can be a forewarning of economic distress rather than a savior.The situation in China echoes similar concerns. Despite the massive stimulus and rate cuts, BCA indicates that these measures may not be sufficient to reverse the ongoing economic slowdown. The Chinese economy, grappling with the aftermath of a burst property bubble, is experiencing a balance-sheet recession characterized by weak demand for credit, low consumer confidence, and diminishing returns from monetary policy. Analysts at BCA argue that without more robust fiscal reforms, including efforts to increase consumption, China’s economic revival may be muted, despite short-term market gains.“We continue to expect that the global economy will fall into recession over the next 6-12 months,” the analysts said. The lagging impact of previous monetary tightening is expected to weigh heavily on economic activity, as rate cuts will not be able to prevent the onset of a recession in time. BCA recommends adopting a cautious approach to investment, with a risk-off portfolio strategy. This includes underweighting equities and credit, favoring government bonds, and maintaining a neutral stance on cash. More

The People’s Bank of China also announced a swap program with an initial size of 500 billion yuan designed to give funds, insurers and brokers easier access to funding needed to purchase stocks. The PBOC also said it would provide up to 300 billion yuan in cheap loans to commercial banks in a bid to help them fund share purchases and buybacks by listed companies.Stocks in China posted their best weekly performance in almost 16 years following the announcement last month, and the upturn continued into this week. Reports last Sunday said that the PBOC would also tell banks to bring down mortgage rates for existing home loans before Oct. 31, marking a further attempt to reinvigorate the beleaguered Chinese real estate market.On Monday, Chinese stocks notched their biggest single-day increase in 16 years, bringing the blue-chip CSI300 index up by almost 30% from a February low that stemmed from fears over the outlook for the world’s second-largest economy.In a note to clients, analysts at Yardeni Research called the measures a “twin bazookas” policy marked by “printing money and spending money.”However, doubt remains over the longevity of the push higher in stocks, they flagged.”The question now is whether this rally is sustainable or is just a short-term bounce after sentiment toward Chinese equities reached extreme pessimism,” the Yardeni analysts said.”Time will tell whether these twin bazookas shoot the silver bullets needed to revive China’s weak consumer demand and ailing property rubble.”The effectiveness of the stimulus measures will likely be signaled by the copper market, the analysts noted. As the world’s biggest consumer of the metal, accounting for a little over half of the world’s copper demand, any significant economic initiatives from Beijing can heavily impact its prices.So far, copper has had a muted reaction, with London prices on Thursday evening below a four-month high of $10,080.50 hit after China unveiled its first wave of new support policies.Despite the spike in Chinese equities, the analysts held to their long-time recommendation that investors should be underweight stocks in the country and overweight US shares.”We aren’t ready to change our position, for now. We continue to believe that Chinese consumer spending will remain structurally weak,” the analysts said. More

In a Monday note to clients, the bank outlines the reasons behind this prediction, noting that the current economic backdrop increasingly mirrors the fundamental criteria of this optimistic scenario.The idea of a “Roaring ‘20s” scenario, likened to the economic boom of the 1990s, hinges on strong GDP growth, moderate inflation, and stable interest rates.Strategists highlight that for this regime to materialize, sustained growth above 2.5%, inflation between 2-3%, and a Fed funds rate of around 3.5% are necessary. These conditions, supported by robust capital expenditure (capex) and AI investments, could boost productivity, resulting in long-term economic benefits.This bullish outlook, which seemed unlikely during the height of inflationary concerns, is now more plausible.Recent revisions to GDP and gross domestic income (GDI) indicate stronger consumer demand than previously thought, with real GDI growth revised up by 1.3 percentage points in 2023 and 0.7 percentage points in 2022. UBS notes that this demand shock has been a significant factor in driving economic performance, keeping recession risks at bay for now.Monetary policy also plays a crucial role in this scenario. UBS sees the Federal Reserve’s recent signaling as supportive of a Roaring ‘20s outcome.“The Fed starting rate cuts with a bold 50bps helps the near-term growth outlook at the margin,” strategists said in the note, with the Fed seemingly focused on maintaining full employment while inflation gradually declines. This approach, they suggest, could buy time for productivity and supply-side improvements to take root.Still, strategists caution that certain challenges could derail this optimistic path, particularly a cooling labor market and sluggish manufacturing activity.A weaker-than-expected jobs report and continued tepid consumer confidence could dampen growth prospects. Moreover, external risks such as the U.S. election, global geopolitical tensions, and the impact of Hurricane Helene could introduce further uncertainty.Overall, UBS remains cautiously optimistic, stating that the odds of a “Roaring ‘20s” economy are rising. The U.S. economy has already met the key criteria for this scenario, according to the bank.The real question now is whether these favorable conditions will persist long enough to create sustained economic prosperity.“With the mid-point of the 2020s only three months away, and the final stage of the post-pandemic normalization underway with the start of Fed rate cuts, it’s no longer too soon nor too optimistic to suggest that the US will experience a Roaring ‘20s economy,” strategists note, pointing to continued improvements on both the demand and supply sides, as well as in terms of monetary policy.“The way things have been trending, it’s quite possible that by early 2025 only the most pessimistic investors will need rose-colored glasses to see a clear path to a Roaring ‘20s outcome,” they concluded. More

In light of revised data on household income and spending, they propose that lower interest rates might help stimulate a rebound in borrowing, thereby supporting consumer spending and possibly preventing a recession.Despite the optimistic outlook, the analysts caution that “household balance sheets have the capacity to lever up.”However, they emphasize that mortgages constitute the largest segment of household debt, and it may take considerable time for mortgage rates to decline sufficiently to invigorate housing activity. The firm believes the lag could hinder immediate benefits from the rate cuts.BCA Research encourages the monitoring of specific household debt and housing market indicators in the coming months that could potentially challenge their current recessionary outlook.They are specifically interested in signs that could indicate a shift in economic conditions, which may affect their predictions and investment strategies.Despite these considerations, the analysts remain cautious. They state, “We don’t yet see sufficient evidence to deviate from our US recession call and portfolio positioning,” which currently emphasizes long-duration investments, curve steepeners, and an underweight stance on spread products.BCA continues to add to its list of indicators to monitor, signaling an openness to adjusting its views if economic conditions evolve.While lower rates could theoretically stimulate borrowing and spending, BCA Research is not yet convinced that these measures will significantly alter the economic trajectory. More

LONDON (Reuters) – British finance minister Rachel Reeves said she will introduce “guardrails” to ensure that extra borrowing for investment in her first budget is not excessive as she seeks to reassure investors about an expected rise in public debt.”It’s about making prudent, sensible investments in the long term and we need guardrails around that”, Reeves told the Financial Times in an interview published late on Friday. Reeves is due to make her first tax-and-spending budget statement on Oct. 30, a milestone for the new Labour government of Prime Minister Keir Starmer who has promised to increase investment in areas such as infrastructure and the transition to a net-zero economy to speed up Britain’s economic growth.With public debt at around 100% of annual economic output, investors are waiting to see how much more borrowing Reeves opts for alongside some tax increases.British gilt yields have risen more than those of other government bonds in recent weeks in part due to concerns about the scale of extra debt sales. At the same time, the warnings about a tough budget have dented consumer confidence, casting a shadow over the first months of the new government.Reeves and Starmer are mindful of how Britain’s bond market was hit in 2022 by the plans for big, unfunded tax cuts of former Prime Minister Liz Truss which forced her to quit.Reeves said the Office for Budget Responsibility, which makes the forecasts that underpin the government’s spending and tax plans, and the National Audit Office, a spending watchdog, would scrutinise her plans for public investment which would incentivise private investment too.”We will make sure that investment genuinely boosts growth and we will look at the role of institutions to demonstrate that, including, for instance, the NAO as well as the OBR,” she told the FT.Reeves said she hoped the implications of higher public investment over a longer period than the OBR’s five-year forecasting period would be taken into account.The former Bank of England economist confirmed she planned to revise the government’s fiscal debt rule to “take account of the benefits of investment, not just the costs,” but declined to say how much extra spending those changes would allow.She also said higher taxes were needed to avoid cuts to already stretched public finances that were implied by the plans of the previous Conservative government.”There won’t be a return to austerity,” she said. “The idea of this budget is to wipe the slate clean and make an honest assessment of spending pressures and tax as well,” Reeves said. “The previous government was relying on a fiction. The budget is an opportunity to bring honesty to the public finances.” More

The hurricane is packing maximum sustained winds of 75 mph (120 kmh), the Miami-based forecaster said. More

(Reuters) – U.S. exchange-traded funds (ETFs) that invest in dividend-paying stocks have enjoyed a rush of inflows since the Federal Reserve kicked off its rate cutting cycle last month, though a jump in U.S. Treasury yields could slow the deluge of investor funds.The group of 135 U.S. dividend ETFs tracked by Morningstar pulled in $3.05 billion in September, the same month the Fed cut interest rates by 50 basis points, its first reduction since 2020. That compares to average monthly inflows of $424 million in the first eight months of 2024.Their newfound popularity has been driven by investors seeking income-generating products ahead of declines in yields that are expected to occur as the Fed continues cutting interest rates. “The pivot in monetary policy translates into cash looking for new homes, and dividend-yielding stocks will be one of the beneficiaries,” said Nick Kalivas, head of factor and equity ETF strategy at Invesco.Whether the trend continues remains to be seen: benchmark 10-year Treasury yields have shifted higher in recent weeks and hit two-month highs on Friday, after a blowout U.S. employment number pointed to a resilient economy that likely does not need the Fed to deliver more large cuts this year. Still, Josh Strange, founder and president of Good Life Financial Advisors of NOVA, said the revival of interest in dividend stocks is a reaction to rising valuations in sectors such as tech as well as in broader markets, in addition to shifts in monetary policy. At 21.5 times future 12-month earnings estimates, the S&P 500’s valuation is near its highest level in three years and is well above its long-term average of 15.7, according to LSEG Datastream. “The S&P 500 has become increasingly concentrated in just a few names, and the momentum has all concentrated around AI, making these stocks look frothy,” Strange said.Yields offered by dividend ETFs vary by strategy, but can range from just under 2% to as much as 3.6%. By comparison, benchmark 10-year Treasuries yield fell to around 3.6% in September.Energy and financial stocks often appear in dividend ETFs, including Chevron Corp. (NYSE:CVX), JP Morgan Chase (NYSE:JPM) and Exxon Mobil (NYSE:XOM). But they also feature pharmaceutical companies like Proctor & Gamble, utilities such as Verizon (NYSE:VZ) (VZ.N > or Southern Co (NYSE:SO). and retailers like Home Depot (NYSE:HD).”If you seek out high dividend payouts, you’re making a tradeoff: you also want to own companies that will grow and be capable of increasing those payouts,” said Sean O’Hara, president of Pacer ETFs, discussing the outlook for dividend ETFs and related products in the latest edition of Inside ETFs. To lessen the risk of owning companies with deteriorating fundamentals, Pacer builds ETF portfolios based on companies’ free cash flows, such as the $24.8 billion Pacer US Cash Cows ETF, launched in 2016. It has attracted $7.1 billion in inflows in the last 12 months. More

X had challenged the fine but the Federal Court of Australia ruled it was obliged to respond to a notice from the eSafety Commissioner, an internet safety regulator, seeking information about steps to address child sexual exploitation material on the platform.Musk took X, then called Twitter, private in 2022. But the company had argued it was not bound to respond to the notice in early 2023 because it was folded into a new Musk-controlled corporate entity, removing liability.”Had X Corp’s argument been accepted by the Court it could have set the concerning precedent that a foreign company’s merger with another foreign company might enable it to avoid regulatory obligations in Australia,” eSafety Commissioner Julie Inman Grant said in a statement following the verdict.eSafety has also started civil proceedings against X because of its noncompliance.X did not immediately respond to a request for comment on Friday.This is not the first conflict between Musk and the Australian internet safety regulator. The eSafety Commissioner earlier this year ordered X to remove posts showing a bishop in Australia being stabbed during a sermon.X challenged the order in court on the grounds that a regulator in one country should not decide what internet users viewed around the world, and ultimately kept the posts up after the Australian regulator withdrew its case.Musk said at the time the order was censorship and shared posts describing the order, which would have applied globally, as a plot by the World Economic Forum to impose eSafety rules on the world.($1 = 1.4609 Australian dollars) More