FED: Bessent Says Trump May Announce New Fed Chair Before Christmas - FoxNews

Technicals: All major onshore equity bourses remain elevated on a P/E basis, though with falls last week have dipped below the 20-day EMA with Shenzhen near to the 50-day EMA for the first time since June.  The Hang Seng by comparison is trade through the 50-day EMA and is near to the 100-day EMA which it last broke below in April. 

Fig 5: Hang Seng Index vs 20, 50, 100 and 200-day EMA

Source: Bloomberg Finance LP / MNI

The bond market has for best part of this year seen the 10-Yr trading in a +18bps range, with no signs of a breakout.  The move above 1.90% in the CGB 10-Yr at the beginning of the month was short lived with it moderating back to 1.82% at the bottom end of recent ranges.  Having had a period of relative consistent liquidity injections via the daily OMO, last week saw two significant withdraws late in the week, which may be contributing to the downward move in yields and could be indicative of things to come.   Central Government bond issuance this week is focused on the 5-10 Year maturities, with significant size to be issued. 

• China to Sell CNY127 Bn 2028 Bonds
• China to Sell CNY149 Bn 2035 Bonds
• China to Sell CNY55 Bn 91-Day Bills
• China to Sell CNY55 Bn 182-Day Bills
• China to Sell CNY118 Bn 2032 Bonds
• China to Sell CNy129 Bn 2030 Bonds 

Sentiment: The strength of the equity market has seen people rushing to open equity accounts. Signs of life in the Shanghai real estate market are encouraging but will need to see a more sustained recovery in multiple key cities. Margin trade account openings have grown, though in context the size of China’s stock market also has nearly doubled in the past decade. The number of leveraged purchases as a proportion of total market capitalization was 2.2% as month end, slightly above the 10-year average but far below 2015’s peak of 4.6% (as reported by BBG).  

The ongoing announcements by President Trump on Chinese tariffs will be monitored closely though at this stage seems to be not being ignored by local investors with the CSI 300 down -2.26% on Friday.  Comments from President Trump on Friday may aid firmer China sentiment today. In an interview with Fox News, Trump stated that 100% tariffs on top of what is in place already is "not sustainable", while adding that "We have to have a fair deal" with China. From late last week it also emerged that US Treasury Secretary Scott Bessent and CHina Vice Premier He Lifeng will meet this wee (in Malaysia) ahead of the two Presidents meeting. Via BBG: "Bessent said he spoke virtually with He on Friday evening. The Treasury chief earlier described the discussions with He as “frank and detailed” and reaffirmed plans to meet in-person next week. US Trade Representative Jamieson Greer also took part in the online talks." 

Macro Preview:  This week could be a pivotal week for policy for the remainder of the year with the loan prime rate decision and GDP third quarter released. The current forecast for GDP 3Q is for it to moderate to 4.7% from 5.2%.  The decline from Q2 is likely as much about the upside surprise in Q2, then a dramatic slowdown with 4.7% a somewhat fairer reflection. Exports have rebounded with September expanding by +8.3%, from 4.4% the month prior though retail sales and industrial production out next week also is forecast at the weakest pace of expansion this year.

The outlook for retail sales and service-related data releases could be revised up following the October Golden week holiday numbers showing a surge in spending on travel and retail, despite long standing property woes.  The Chinese party officials are to meet at the fourth plenum in Beijing. The output will provide guidance for the next 5-years and may be the catalyst for further policy intervention, specifically targeting domestic consumption (which has declined as a percentage of GDP) whilst mindful of the impact of the trade war on manufacturing and exports.

We don't expect any change in the LPR given the pressure on bank margins and look for signals from the party meeting as guide for potential moves in monetary or fiscal policy.

New and Used home prices for September will be released and it is not expected that the long-standing deflationary trend will change.  The last time this data release saw a positive print was May 2023 for New Homes as the backlog of unsold properties weighs heavy on the market. 

September industrial production is set to be released and could show upside surprise given the robust export result released last week. Industrial production YoY has averaged 5.6% increases over the last 3 years and having dipped below to 5.2% in August, could see an upside surprise. 

Other data releases include Fixed Assets (ex rural) YTD YoY, Residential Property Sales YTD YoY and the Surveyed Jobless Rate.  Fixed assets investments have moved positive in recent months, a trend likely to continue whereas Property Investment and Residential property sales are set to remain deeply negative. 

Fig 1:  China New & Used Home Prices MoM 

Source: Bloomberg Finance LP / MNI 

Fig 2:  China Industrial Production YoY

Source: Bloomberg Finance LP / MNI