Portfolio Update – October 2024

General news

• On 01/10/2024, Shigeru Ishiba, set to become Japan’s next leader, has built his career as a political outsider, often opposing party orthodoxy. Despite winning the Liberal Democratic Party leadership, experts doubt his ability to govern as such. Ishiba has been a critic of former Prime Minister Shinzo Abe’s “Abenomics” and instead supports fiscal tightening and higher taxes, opposing the Bank of Japan’s negative interest rate policy. In the LDP election, he defeated Sanae Takaichi, who favored Abenomics. While Ishiba has previously voiced different economic policies, his recent comments suggest a possible continuation of accommodative monetary policy, similar to his predecessors, to address Japan’s ongoing deflation concerns.
• On 02/10/2024, Israel conducted multiple strikes against Hezbollah targets in Lebanon on Sunday following the killing of Hezbollah leader Sayyed Hassan Nasrallah in an Israeli air attack on Friday. The Israeli military stated it targeted numerous Hezbollah facilities, including weapon storage and rocket launch sites. The navy intercepted a projectile from the Red Sea and several others from Lebanon. Nasrallah’s death marks a significant setback for Hezbollah and Iran, as he played a central role in building Hezbollah as a key ally within Tehran’s regional network. Despite his death, Hezbollah vowed to continue fighting, launching more rockets on Sunday.
• On 03/10/2024, The oil market saw a significant spike this week following a large-scale ballistic missile attack by Iran on Israel, which briefly drove crude prices up by over 5%. Traders had largely dismissed risks of supply disruption in the Middle East, focusing instead on fears of a surplus due to weakening demand in China and increased OPEC+ production. However, the escalation of conflict has raised concerns about potential retaliatory strikes by Israel on Iran’s oil infrastructure, which could disrupt supplies. Analysts also warned of possible attacks by Iranian proxies on oil and gas shipments from the Persian Gulf, adding further uncertainty to the market.
• President Joe Biden’s administration is avoiding invoking the Taft-Hartley Act to end the strike by International Longshoremen’s Association (ILA) workers at East and Gulf coast ports, likely due to union support ahead of an election, despite economic concerns. Cabinet members have criticized port ownership and ocean carriers, but negotiations between the ILA and United States Maritime Alliance (USMX) remain stalled. The strike’s impact includes supply chain disruptions and the risk of wage-driven inflation, with ILA President Harold Daggett seeking a $5 per hour raise over six years. The USMX previously offered a nearly 50% wage increase, which the ILA rejected.
• On 04/10/2024, Oil prices have risen by more than $5 per barrel this week amid fears that Israel could attack Iran’s energy infrastructure. Despite the rally, analysts believe the oil market may be too complacent about the potential impact of a broader Middle East conflict, which could disrupt up to 4% of global supply. Goldman Sachs warned that sustained disruptions in Iranian output could increase oil prices by $20 per barrel, while SEB suggested an extreme scenario could push prices above $200. Analysts like Jeff Currie argue that a large short position is limiting further price increases, though current market conditions—low inventories, OPEC production cuts, and potential conflict—point to a positive near-term outlook.
• On 05/10/2024, The U.S. economy added 254,000 jobs in September, significantly exceeding expectations and indicating a strong labor market, with the unemployment rate dropping to 4.1%. The Labor Department’s report included upward revisions for previous months, reflecting continued employment strength. Average hourly earnings rose by 0.4% for the month and 4% year-over-year, surpassing forecasts. Job gains were led by hospitality, which added 69,000 jobs, and health care, which contributed 45,000. The broader measure of unemployment fell to 7.7%, while labor force participation remained steady at 62.7%. This robust report suggests a healthy economy and may influence the Federal Reserve to maintain a gradual approach to interest rate reductions.
• The average rate on a 30-year fixed mortgage jumped 27 basis points to 6.53% after the release of the government’s employment report, according to Mortgage News Daily. This marks a 42-basis-point increase from mid-September, shortly before the Federal Reserve cut its benchmark rate. While mortgage rates don’t directly follow Fed decisions, they do loosely follow the 10-year U.S. Treasury yield. The strong jobs report has shifted expectations for future rate reductions, with analysts predicting mortgage rates will remain around 6% over the next year. Despite the lower rates compared to last year, rising home prices and low inventory have kept the housing market from seeing a significant boost.
• On 08/10/2024, The Strait of Hormuz, a vital waterway between Iran and Oman, connects key crude oil producers in the Middle East to global markets. In 2022, approximately 21 million barrels of oil per day, accounting for 21% of global crude trade, passed through this strategic channel. Any disruption in oil flow through the Strait, such as a blockade, could significantly increase global energy prices, raise shipping costs, and delay supply. Energy analysts, like Alan Gelder of Wood Mackenzie, view a blockade or disruption as a worst-case scenario, potentially driving oil prices above $100 per barrel. This concern has intensified following Israel’s threat to retaliate against Iran for recent missile attacks, sparking fears that Iran’s energy infrastructure could be targeted, which might further destabilize global oil markets.
• U.S. Treasury yields were slightly lower on Tuesday after the 10-year yield hit its highest level in over two months in the previous session. The 10-year yield fell by more than two basis points to 3.998%, while the 2-year yield declined by five basis points to 3.949%. This comes after Monday’s increase, where the 10-year yield briefly surpassed 4% due to strong labor market data, despite the Federal Reserve’s recent rate-cutting efforts. Investors are now awaiting further signals on interest rate direction, with comments expected from Fed policymaker Adriana Kugler.
• On 09/10/2024, Chinese stocks experienced a significant selloff on Wednesday, with the CSI 300 index dropping 7.05%, ending a 10-day winning streak and closing at 3,955.98. Hong Kong’s Hang Seng Index also declined 1.7% in a volatile session, following a steep 9.41% loss the previous day, its worst in 16 years. Meanwhile, Japan’s Nikkei 225 climbed 0.87%, closing at 39,277.96, and Australia’s S&P/ASX 200 rose slightly by 0.13%. Investors are closely watching policy decisions from central banks in New Zealand and India, with New Zealand cutting its policy rate by 50 basis points to 4.75%, while India kept rates unchanged at 6.5%. South Korean markets were closed for a public holiday. In the U.S., stocks gained, with the S&P 500 up 0.97% and the Nasdaq rising 1.45%, as oil prices fell 4.6% amid geopolitical concerns in the Middle East.
• On 10/10/2024, during the Federal Reserve’s September meeting, officials agreed to a half-percentage point interest rate cut but were divided on the aggressiveness of the move, according to minutes released Wednesday. Some policymakers advocated for a smaller, quarter-point reduction, expressing confidence that inflation was declining and concern over the labor market. Ultimately, only one member, Governor Michelle Bowman, dissented, favoring a smaller cut. The decision marked the first 50 basis point cut in over four years. Since then, stronger-than-expected labor market data, including a rise of 254,000 nonfarm payrolls in September, has tempered expectations of further aggressive cuts, with Fed Chair Jerome Powell signaling more modest reductions by the end of 2024.
• On 11/10/2024, In September, U.S. inflation exceeded expectations, with the consumer price index (CPI) rising 0.2% for the month, resulting in an annual inflation rate of 2.4%, according to the Labor Department. This was 0.1 percentage point higher than forecast and marked the lowest annual inflation rate since February 2021, though slightly below August’s rate. The increase in inflation was largely driven by rising food and shelter costs, which offset a 1.9% decline in energy prices. Meanwhile, jobless claims hit a 14-month high, mainly due to disruptions caused by Hurricane Helene and the Boeing strike, indicating potential softness in the labor market. Core inflation, which excludes food and energy, also rose 0.3% for the month, with the annual rate at 3.3%. Stock markets dipped after the report as the Federal Reserve continues its rate-cutting strategy, though future cuts remain uncertain.
• The U.K. economy grew by 0.2% in August on a month-on-month basis, aligning with economists’ forecasts, according to flash data from the Office for National Statistics. Over the three months to August, economic growth also increased by 0.2%, compared to 0.5% in the previous three months. Despite slight growth in services (0.1%) and stronger rises in production (0.5%) and construction (0.4%), the economy flatlined in June and July. Sterling dipped slightly against the U.S. dollar, and U.K. government bond yields fell. Finance Minister Rachel Reeves, who leads the newly elected Labour government, welcomed the data, emphasizing that economic growth is a top priority. She is set to deliver the Autumn Budget later this month, with tax hikes and spending cuts expected to address a £22 billion public finance shortfall, which the Conservative opposition disputes.
• On 12/10/2024, The U.S. 10-year Treasury yield dipped below 4.10% on Friday, settling at 4.088%, as investors reacted to cooler-than-expected inflation data. The producer price index (PPI), which measures wholesale prices, remained unchanged in September, falling short of the anticipated 0.1% increase. The 2-year Treasury yield also fell by about 5 basis points to 3.949%. Earlier in the week, the 10-year yield briefly surpassed 4.1% after Atlanta Federal Reserve President Raphael Bostic hinted that the Fed might consider skipping a rate cut at its upcoming meetings. This came after hotter-than-expected consumer inflation data, with the Consumer Price Index (CPI) rising 0.2% in September and 2.4% year over year, slightly exceeding forecasts.
• On 14/10/2024, China’s Ministry of Finance recently emphasized its focus on addressing local government debt issues rather than implementing broad economic stimulus measures. During a press briefing, Finance Minister Lan Fo’an outlined support measures for managing local government debt, with a secondary mention of potential increases in debt and fiscal deficit. Analysts, including those from Morgan Stanley, suggest that while the central government may play a larger role in restructuring debt and stabilizing the housing market, any increases in consumption support will be gradual. The think tank CF40 notes that these measures are aimed at structural reforms rather than large-scale stimulus, and they believe that with existing spending plans, China can still achieve its 5% growth target without additional fiscal intervention.
• On 16/10/2024, U.K. inflation fell significantly to 1.7% in September, below the expected 1.9% and marking the first time since April 2021 that it dipped under the Bank of England’s (BOE) 2% target. This decline follows four months of inflation hovering near 2.2%, with core inflation—excluding volatile items—falling to 3.2% from 3.6% in August, under the anticipated 3.4%. Services inflation, a key metric for BOE decisions, also eased to 4.9%, its lowest since May 2022. The data has increased the likelihood of a 25-basis-point BOE rate cut in November, with markets now pricing in a 91% chance of this move and another cut in December, potentially bringing the rate to 4.5% by year-end. The British pound declined following the report, dropping 0.6% against the U.S. dollar and 0.5% against the euro, reflecting expectations for a more dovish BOE stance.
• On 17/10/2024, The European Central Bank (ECB) is expected to announce its third interest rate cut of the year at its upcoming meeting on Thursday, following signs of reduced inflation risks and a weaker economic outlook. Eurozone inflation fell to 1.8% in September, dipping below the ECB’s 2% target for the first time in three years. This anticipated rate cut would mark the first time in 13 years that the ECB has lowered rates at consecutive meetings. Market expectations for accelerated monetary easing have grown since the ECB’s meeting on September 12, with two cuts now anticipated by year-end instead of just one. Contributing to this sentiment shift were dovish remarks from ECB President Christine Lagarde, who highlighted confidence in inflation returning to target, and the ECB’s downgraded growth forecast for 2024, now predicting 0.8% GDP growth, down from 0.9%. Economic challenges in key eurozone countries, like manufacturing struggles in Germany and fiscal adjustments in France, have also influenced expectations for further easing.
• Australia’s unemployment rate held steady at 4.1% in September, matching the revised August figure, as reported by the Australian Bureau of Statistics (ABS). According to Bjorn Jarvis, ABS head of labour statistics, the employment increase of around 64,000 people, alongside a reduction of about 9,000 in the number of unemployed, kept the rate stable. This rise in employment contributed to a 0.1 percentage point increase in the participation rate, which reached a record high of 67.2%. Employment grew by 3.1% over the past year, outpacing the civilian population growth of 2.5%, leading to a new high in the employment-to-population ratio at 64.4%. Jarvis noted that job vacancies remain above pre-pandemic levels, allowing more people to join the labor force and secure work. Despite a slight decrease in the number of unemployed people to 616,000 in September, unemployment has grown by roughly 90,000 since September 2023, though it remains lower than pre-pandemic levels when the unemployment rate was 5.2%.
• On 18/10/2024, China’s National Bureau of Statistics reported a year-on-year GDP growth of 4.6% for the third quarter, slightly above the 4.5% expected by economists polled by Reuters, but below the 4.7% growth in the second quarter. On a quarterly basis, the economy expanded by 0.9% in Q3, up from 0.7% in Q2. Deputy Commissioner Sheng Laiyun highlighted positive growth signs in September, boosting confidence in achieving the annual growth target of around 5%. Other indicators, such as retail sales and industrial production, also exceeded expectations, offering hope for economic stability. Tianchen Xu, a senior economist at The Economist Intelligence Unit, noted that with 4.8% growth over the first three quarters, achieving the 5% target is attainable with additional Q4 stimulus. Xu emphasized that despite challenges, China’s economic prospects remain optimistic due to the government’s commitment to support growth.
• On 19/10/2024, The United States Securities and Exchange Commission (SEC) has filed an appeal in its case against Ripple, focusing on certain aspects of the court’s previous judgment but not challenging the ruling that XRP is not considered a security. The SEC’s Form C appeal, submitted on October 16, seeks a review of the court’s decisions concerning Ripple’s XRP sales on exchanges and personal sales by Ripple’s CEO Brad Garlinghouse and co-founder Chris Larsen. Ripple’s chief legal officer, Stuart Alderoty, confirmed that the appeal does not contest XRP’s non-security status, which remains legally binding. Ripple plans to submit its own Form C response the following week. The SEC’s appeal alleges that Garlinghouse and Larsen violated securities laws through their XRP transactions and claims they contributed to Ripple’s violations. The appeal requests that the court reassess these issues from the beginning (“de novo”).
• On 21/10/2024, On Monday, China’s central bank, the People’s Bank of China (PBOC), lowered its key benchmark lending rates by 25 basis points, cutting the one-year loan prime rate (LPR) to 3.1% and the five-year LPR to 3.6%. These rates guide most corporate and household loans as well as mortgage rates in China. The rate cut was anticipated, following remarks by PBOC Governor Pan Gongsheng at a recent forum where he suggested a potential reduction. He also mentioned possible further cuts to the reserve requirement ratio (RRR) by 25 to 50 basis points before the end of the year, alongside decreases in the seven-day reverse repurchase and medium-term lending facility rates. While the rate cuts indicate ongoing monetary support, economists like Shane Oliver of AMP believe they are insufficient without additional fiscal stimulus, highlighting China’s demand-side challenges. Zhiwei Zhang of Pinpoint Asset Management also pointed out that real interest rates remain high, anticipating further rate cuts in 2024. These monetary moves follow recent PBOC measures aimed at boosting an economy facing weak consumer sentiment and a protracted property market slump, despite slightly better-than-expected GDP growth of 4.6% in the third quarter.
• On 26/10/2024, Russia’s central bank raised its key interest rate by 200 basis points to 21%, citing significantly higher-than-expected consumer price increases and persistent inflation risks. This follows a 100 basis-point hike to 19% in September, bringing the rate to its highest level since February 2003. The decision, which surpassed analysts’ expectations of a 100 basis-point increase, reflects a hawkish stance, with the possibility of further hikes in December. Annual inflation reached 9.8% in September, up from 7.5% in August, and the bank expects it to stay elevated in 2024. Despite anticipating inflation to ease to 4.5-5.0% in 2025, the central bank remains cautious due to risks like high inflation expectations and external trade challenges, especially in light of sanctions and depressed global oil prices. The move contrasts with policy easing by the European Central Bank and the U.S. Federal Reserve and raises concerns about potential impacts on Russia’s economic growth, as the IMF projects a decline in GDP growth from 3.6% this year to 1.3% in 2025.
• On 28/10/2024, Japan’s ruling Liberal Democratic Party (LDP) lost its majority in the lower house during Sunday’s elections, marking a setback not seen since 2009. Despite this, analysts believe it is unlikely to deter the Bank of Japan (BOJ) from continuing its interest rate hike cycle. Although the LDP, along with its coalition partner Komeito, may need to seek support from other parties to form a government, the party remains the dominant force in the legislature. Prime Minister Shigeru Ishiba has indicated his intention to remain in his role despite the election loss. Meanwhile, the upcoming BOJ meeting is expected to keep rates steady, with 86% of economists in a Reuters poll anticipating no immediate change. However, Izumi Devalier, chief Japan economist at Bank of America, noted that while political instability could delay hikes, the BOJ is likely to stay focused on the yen’s sustained weakness. Devalier suggested that hikes might still be on the horizon, potentially as soon as December or January, depending on market developments.
• On 31/10/2024, Oil prices rebounded over 2% on Wednesday, with Brent crude closing at $72.55 per barrel and U.S. West Texas Intermediate at $68.61, following unexpected declines in U.S. crude and gasoline inventories. The Energy Information Administration reported U.S. gasoline stockpiles fell to a two-year low due to increased demand, while crude inventories declined amid lower imports, particularly from Saudi Arabia, which hit their lowest since January 2021. Analysts noted strong demand for gasoline as a key factor supporting prices. Reports also indicated that OPEC+ may delay a planned 180,000 bpd production increase scheduled for December, given softening global demand and economic concerns, especially in China. OPEC+ is expected to confirm or revise its production plan at its Dec. 1 meeting.