Chinese stocks attractive but investment managers cautious before US election

NEW YORK – Asset managers of public and private funds believe that certain Chinese stocks are trading at attractive prices, but they are not buying just yet because of uncertainty around the upcoming US elections, an investment adviser said.

Christopher Ailman, the former chief investment officer of the California State Teachers’ Retirement System (CalSTRS), said China was the focus of a regular discussion that he moderated last week for more than a dozen money managers at the 300 Club, which describes itself on its website as a group of leading investment professionals who aim to raise awareness about current investment issues.

The group consists of representatives from global investment funds such as French asset manager Amundi, which manages 2.16 trillion euros and the Canada Pension Plan, which manages USD 632.3 billion.

A representative for the group said he had nothing further to add when reached for comment.

Although the conversation was intended to be about the risks that investors face if tensions between Israel and Iran worsened, Ailman said the dialogue quickly turned when investors realized that Iran’s oil exports are mostly consumed by China.

“When you think about geopolitical risks as an investor, China is at the forefront of your mind,” said Ailman, who retired from the USD 347-billion CalSTRS fund at the end of June. “Everything almost links back to China.”

Ailman said money managers on the call agreed that the prices of certain Chinese stocks looked attractive from the technical and fundamental perspectives, but no one indicated they were increasing their Chinese investments.

“No one wants to go rushing in before the US election,” said Ailman, who is the chairman of the North American chapter of the 300 Club. He did not say which were the Chinese stocks that investors found attractive.

Due to heightened Sino-US political tensions and China’s cooling economy, Ailman said many asset managers have reduced their Chinese investments or eliminated them altogether, adding that US and Canadian funds were particularly “gun shy” about investing in China right now.

But given that Chinese investments do not usually account for more than 5% of the portfolios of North American funds, he said asset managers’ analysis of Chinese equities was not as important as their views on real estate or the valuations of US technology stocks.

China’s stock market has been on a roller-coaster ride, soaring more than 20% since a slew of policy announcements on Sept. 24 fanned expectations that the Chinese government was unveiling a major rescue effort to revive the ailing economy.

Market euphoria about a large stimulus effort has petered out, though some analysts hoped that stock market gains will give way to a more steady — and sustainable — rebound.

(Reporting by Koh Gui Qing)

Investor optimism sees biggest jump since June 2020, survey shows

MILAN – Global investor optimism posted its biggest jump since June 2020 in October due to Federal Reserve rate cuts, stimulus pledges from China, and expectations of a soft landing for the US economy, a BofA survey of fund managers published on Tuesday showed.

Cash allocations dropped to 3.9% from 4.2% in September month, while equity allocations rose to a net 31% overweight, and bond allocations suffered a record drop to a net 15% underweight, according to the survey.

“Our broadest measure of (fund manager survey) sentiment, based on cash levels, equity allocation, and economic growth expectations, rose from 3.8 to 5.6, its largest monthly rise since Jun’20,” BofA said.

The survey showed investors expect the upcoming US election will most likely impact trade policy (47%), followed by geopolitics (15%) and taxation (11%).

In terms of how investors are positioning in light of the soft-landing narrative, the survey showed the biggest rise in global equity allocation since June 2020.

However, the steep drop in cash levels has triggered the first contrarian “sell signal” since last June, based on the bank’s own metrics.

“Since 2011, there have been 11 prior ‘sell’ signals which saw global equity (ACWI) returns of -2.5% in the 1 month after and -0.8% in the three months after the ‘sell’ signal was triggered,” the bank said, in reference to the performance of MSCI’s All-World index (ACWI), which is up 0.6% so far in October, heading for its sixth monthly rise.

The survey, which took place from Oct 4 to Oct 10, polled 231 panelists with USD 574 billion in assets under management.

(Reporting by Danilo Masoni and Amanda Cooper; Editing by Christina Fincher)

Triple dose of central banks as tech, oil slump

Three monetary policy decisions dominate Asian markets on Wednesday, with investor sentiment and risk appetite likely to be kept in check by a selloff on Wall Street and worries over tech and the global economy the day before.

The central banks of Indonesia, Thailand, and the Philippines all set interest rates on Wednesday, while the latest New Zealand inflation, South Korean unemployment, and Japanese machinery orders are also on deck.

Oil prices are on the slide again, partly reflecting soft demand, particularly from China. Crude futures slumped nearly 5% on Tuesday, pushing US crude below USD 70 a barrel and bringing the year-on-year decline back to 20%.

Tech worries pushed US shares into the red, despite upbeat earnings from financial heavyweights Goldman Sachs, Citi, and Bank of America. Nvidia and ASML shares led the global tech slump, and attention later in the week turns to Taiwan Semiconductor Manufacturing Co, the contract manufacturer that produces Nvidia’s processors.

It is expected to report a 40% leap in quarterly profit on Thursday, thanks to soaring demand.

On Wednesday, meanwhile, Bank Indonesia is expected to leave interest rates unchanged despite inflation falling to its lowest level since 2021, with the exchange rate at the forefront of policymakers’ thinking.

Inflation is down to 1.84% and has been within BI’s target of 1.5% to 3.5% all year, but the rupiah has fallen more than 3% from a September peak.

The Bank of Thailand is also expected to stay on hold and leave its one-day repo rate at 2.50% for the rest of the year. Four out of 28 economists in a Reuters poll predicted a quarter-point cut.

The Philippine central bank, on the other hand, is expected to cut its overnight borrowing rate by 25 basis points to 6.00%, and again in December as policymakers strive to support economic growth as inflation remains under control.

The central bank kicked off its easing cycle in August, and since then inflation has dropped below the bank’s 2%-4% target.

Meanwhile, investors continue to digest the details and steer from China at the weekend about its stimulus measures, and the recent slew of data. None of that has been particularly encouraging and Chinese markets are drifting lower, although equities are still up substantially from ‘pre-stimulus’ levels.

Beijing on Tuesday announced that a press conference will be held on Thursday to discuss promoting the “steady and healthy” development of the property sector. If this announcement was aimed at reassuring investors, however, it has fallen flat.

Shanghai’s blue chip index is down 13% from last Tuesday’s peak, but is still up 20% from the day before Beijing first unveiled its measures to support markets, the property sector, and growth.

Here are key developments that could provide more direction to markets on Wednesday:

– Indonesia, Thailand, Philippines rate decisions

– Bank of Japan’s Seiji Adachi speaks

– New Zealand inflation (Q3)

(Reporting by Jamie McGeever)

Nvidia notches record close, could unseat Apple as most valuable company

Shares of Nvidia closed at their highest ever on Monday, putting the heavyweight AI chipmaker on the brink of dethroning Apple as the world’s most valuable company.

With investors betting on strong demand for its current and next-generation AI processors, the Santa Clara, California company’s stock climbed 2.4% to end the day at USD 138.07.

In June, Nvidia briefly became the world’s most valuable company. It was overtaken by Microsoft, and the tech trio’s market capitalizations have been neck-and-neck for several months.

The latest gains lifted Nvidia’s market value to USD 3.39 trillion, just below Apple’s USD 3.52 trillion value and above Microsoft’s USD 3.12 trillion.

Nvidia has been Wall Street’s biggest winner from a race between Alphabet, Microsoft, Amazon, and other major tech companies to dominate emerging AI technology.

“We believe the major companies in AI … face an investment environment characterized by a Prisoner’s Dilemma — each is individually incentivized to continue spending, as the costs of not doing so are (potentially) devastating,” TD Cowen analysts wrote in a report on Sunday.

TD Cowen reiterated its USD 165 price target for Nvidia, which it called its “Top Pick”, and it said demand for the company’s current generation of AI chips remained strong.

Nvidia in August confirmed reports that a ramp-up in production of its upcoming Blackwell chips was delayed until the fourth quarter, but downplayed the impact, saying customers were snapping up existing chips.

As investors gear up for quarterly reporting season, Apple rose almost 2% and Microsoft added 0.7%, helping propel the S&P 500 up 0.8% to its own record-high close.

Nvidia, Apple, and Microsoft account for about a fifth of the S&P 500’s weight, giving them a hefty influence in the index’s day-to-day gains and losses.

Taiwan Semiconductor Manufacturing Co., the contract manufacturer that produces Nvidia’s processors, is expected to report a 40% leap in quarterly profit on Thursday, thanks to soaring demand.

Analysts expect spending to build out AI data centers will help Nvidia’s annual revenue more than double to nearly USD 126 billion, according to LSEG data.

While Nvidia’s rally has lifted the S&P 500 to record highs, investors worry optimism about AI could evaporate if signs emerge of a slowdown in spending on the technology.

(Reporting by Noel Randewich; Editing by David Gregorio)

Gold edges lower as US dollar rally curbs upside

Gold prices eased on Monday as broad economic stimulus measures in China, the biggest bullion consumer, failed to invoke investor confidence and a US dollar rally to two-month highs capped upside momentum.

Spot gold fell 0.2% to USD 2,649.98 per ounce by 14:35 p.m. ET (1835 GMT), having hit its highest in over a week earlier in the session.

US gold futures settled eased 0.4% lower at USD 2,665.6.

The dollar rose to its highest since mid-August, while the euro extended its fall ahead of a central bank meeting this week.

Phillip Streible, chief market strategist at Blue Line Futures, said there were “a lot of little headwinds for gold,” including the China stimulus, stronger dollar, weaker euro, weaker base metals, and profit-taking.

Gold’s record price rally in the last few months has dampened investor sentiment and bullion demand in China. A stronger dollar makes gold more expensive for other currency holders.

Chinese data is double-edged. Weak Chinese data could reduce demand for gold, but a broader slowdown in China could unsettle markets, enhancing gold’s appeal as a safe haven, Zain Vawda, market analyst at MarketPulse by OANDA, said.

“Overall, there are still more factors supporting higher gold prices than those weighing against it,” Vawda said.

Investors will also monitor comments from Fed officials this week for more hints on the upcoming rate cuts, along with US retail sales data.

Traders see a roughly 82% chance of the Fed cutting rates by 25 basis points at its November meeting. Lower interest rates reduce the opportunity cost of holding bullion.

However, geopolitical tensions and the global drivers of gold (western investors) are still actively working to support the gold price, said World Gold Council market strategist Joseph Cavatoni.

Spot silver fell 1.1% to USD 31.2 per ounce, while platinum rose 0.9% to USD 994.03.

Palladium dropped more than 3.8% to USD 1,027.16.

(Reporting by Anushree Mukherjee, Swati Verma, and Rahul Paswan in Bengaluru; Editing by Barbara Lewis and Shreya Biswas)

Tokyo reopens to S&P 500 record, yuan down

While Chinese shares did not quite know how to react to Beijing’s weekend stimulus update, Wall Street extended its breakneck rally to give Tokyo something to key off when it reopens on Tuesday from a three-day weekend.

While the Treasury market and US government offices were closed on Monday for America’s Columbus Day holiday, the S&P 500 and Dow roared to record high closes led by chip stocks and high hopes for the third-quarter earnings season that kicked off in earnest on Friday with beats by JP Morgan and Wells Fargo.

On Tuesday, other big money-center banks including Citi, Bank of America, and Goldman Sachs report quarterly results.

Later this week, earnings from American Express, Netflix, United Airlines, and Procter & Gamble will show any resilience in consumer spending, which dominates US economic activity, before the release of retail sales data on Oct. 17, the main indicator for US investors this week.

The dollar index hit its highest since mid-August in holiday-thinned trade, buoyed by the conviction that the Fed would choose its smaller rate cut option next month, given that the economy continues to grow and create jobs, without overheating.

The dollar may have been the only safe-haven beneficiary of China’s “Joint Sword 2024B” war games around Taiwan, which the Pentagon called “destabilizing” on Monday. Gold and crude ended down.

The US rate futures market has priced in an 87% chance the Fed will ease by 25 bps at the November meeting, and a 13% chance it will pause and keep the fed funds rate at the target range between 4.75% and 5%, where it has stood since last month’s outsized 50-basis-points cut.

The greenback also rose against the onshore yuan after investors found China’s weekend announcements that it would increase debt to revive its economy fell short on detail.

The yuan ended at its low for the day at 7.09 per dollar, also its lowest since Sept 19. It is down about 1% against the dollar since Sept. 24, when the People’s Bank of China kicked off China’s most aggressive stimulus measures since the pandemic.

The dollar closed in on 150 yen, ending Monday up about half a percent as the Japanese currency continued to grind lower.

MSCI’s broadest index of Asia-Pacific shares outside Japan was 0.02% lower late on Monday, with trading in Asia thinned by Japan’s holiday and a weaker Hang Seng Index close offset by rallies in the CSI300 blue-chip index and Shanghai Composite Index.

Numerous US-listed shares of Chinese firms fell on Monday, including ADRs from Alibaba, PDD Holdings, NIO, and Baidu.

The S&P 500 ended up 0.77%, the Dow up 0.47%, and the Nasdaq 0.87%, with the Philadelphia Semiconductor Index up almost 2%.

Shares of Nvidia closed at record highs, putting the heavyweight AI chipmaker on the brink of dethroning Apple as the world’s most valuable company.

All that leaves signals positive, although not uniformly so, for Tokyo’s Nikkei to keep the party going, top Friday’s two-week high, and extend the already 27% advance since it bottomed in early August.

Here are key developments that could provide more direction to markets on Tuesday:

– Japan industrial production (Aug)

– South Korea unemployment (Sept)

– Citi, Bank of America, Goldman Sachs report Q3 earnings

(Reporting by Alden Bentley; Editing by Bill Berkrot)

Oil falls 2% as OPEC cuts oil demand growth view, China concerns

HOUSTON – Oil prices fell 2% on Monday as OPEC again lowered its outlook for 2024 and 2025 global oil demand growth while China’s oil imports fell for the fifth straight month.

China’s stimulus plans failed to inspire investor confidence while markets kept watching for potential Israeli attacks on Iranian oil infrastructure.

Brent crude futures settled USD 1.58, or 2%, lower at USD 77.46 per barrel. US West Texas Intermediate crude futures fell USD 1.73, or 2.29%, to USD 73.83 per barrel. Brent had gained 99 cents last week, while WTI climbed USD 1.18.

Brent fell 5%, or more than USD 4, in after-hours trading following a media report that Israeli Prime Minister Benjamin Netanyahu told the US that Israel is willing to strike Iranian military targets and not nuclear or oil ones.

US heating oil futures fell 5% in late trading. US gasoline futures eased over 4%.

OPEC on Monday cut its forecast for global oil demand growth in 2024 and also lowered its projection for next year, marking the producer group’s third consecutive downward revision.

China, the world’s largest crude oil importer, accounted for the bulk of the 2024 downgrade as OPEC trimmed its growth forecast for the country to 580,000 barrels per day (bpd) from 650,000 bpd.

China’s crude imports for the first nine months of the year fell nearly 3% from last year to 10.99 million bpd, data showed.

Declining Chinese oil demand caused by the growing adoption of electric vehicles (EV), as well as slowing economic growth following the COVID-19 pandemic, has been a drag on global oil consumption and prices.

China’s deflationary pressures also worsened in September, according to official data released on Saturday. A press conference the same day left investors guessing about the overall size of a stimulus package to revive the fortunes of the world’s second-largest economy.

“The lack of a clear timeline and the absence of measures to address structural issues, such as weak consumption and reliance on infrastructure investments, have only increased ambiguity amongst market participants,” noted Mukesh Sahdev, the global head of commodity markets-oil at Rystad Energy.

The negative news from China outweighed market concerns over the lingering possibility that an Israeli response to Iran’s Oct. 1 missile attack could disrupt oil production.

The US said on Sunday it would send troops to Israel along with an advanced anti-missile system in a highly unusual deployment meant to bolster the country’s air defenses.

“While an attack by Israel into Iran is likely to happen, the latest reinforcing measures by the US military may have calmed the responses on both sides,” said Dennis Kissler, senior vice president of trading at BOK Financial.

“A nervous trade will remain with most fund managers remaining on the sidelines,” Kissler said.

Washington has been privately urging Israel to calibrate its response to avoid triggering a broader war in the Middle East, officials say, with President Joe Biden publicly voicing his opposition to an Israeli attack on Iran’s nuclear sites and his concerns about a strike on Iran’s energy infrastructure.

The dollar also hit a nine-week high on Monday in thin trading. A firmer US currency can hurt demand for dollar-denominated oil from buyers using other currencies.

US crude oil stockpiles were expected to have risen last week, while distillate and gasoline inventories likely fell, a preliminary Reuters poll showed on Monday.

(Reporting by Arunima Kumar and Robert Harvey in London, Colleen Howe, and Sudarshan Varadhan; Editing by Jan Harvey, Sharon Singleton, Kirsten Donovan, David Evans, Tomasz Janowski, and David Gregorio)

US yields slide as markets price in near-certainty of Fed cut in November

NEW YORK – US Treasury yields slipped on Friday after an unchanged producer prices data reading that was trending lower and a consumer-sentiment report maintained chances of an interest-rate cut by the Federal Reserve at next month’s monetary policy meeting.

The Treasuries market is closed on Monday for Columbus Day.

The unchanged reading in the producer price index for final demand last month followed an unrevised 0.2% gain in August, the Labor Department said. Economists polled by Reuters had forecast the PPI edging up 0.1%. In the 12 months through September, the PPI increased 1.8%, after climbing 1.9% in August, more than the expected 1.6% rise.

The data followed news on Thursday that consumer prices rose slightly more than expected in September, lifted by higher food costs. The two reports supported views the Federal Reserve would cut interest rates again by the more standard 25 basis points, after September’s aggressive 50-bps reduction.

Recent US economic data is “creating confusion and will create doubt” as to what the Fed does from here, said Christian Hoffmann, head of fixed income at Thornburg Investment Management in Santa Fe, New Mexico, with USD 46 billion in assets under management.

“The market is still pricing in a high probability that we cut at all because the Fed has built a shrine to data dependence and unless you want to tear that down, the two important data points (the consumer price index and the strong nonfarm payrolls report) that we got make a tough case for cutting at all,” Hoffmann noted.

He pointed out that the labor market “does not feel like it’s falling off a cliff,” and it’s “certainly too soon to declare victory on inflation.”

The fed funds futures have priced in a 91% chance of a 25-bps easing next month, with a 9% probability that the Fed will keep the policy rate in the 4.75%-5.0% target range, according to LSEG calculations.

The futures market also showed about 48 bps of easing this year, down from more than 50 bps early this week. It priced in about 102 bps of Fed cuts in 2025, a steep decline from the roughly 200 bps of reductions estimated prior to last Friday’s blowout US nonfarm payrolls report.

In afternoon trading, the yield on benchmark US 10-year notes was off 2.1 bps from late Thursday at 4.073%. It rose for a fourth-straight week, with gains of 9.6 bps.

A separate survey from the University of Michigan on Friday showed its preliminary consumer sentiment index slipped to 68.9 in October from a final reading of 70.1 in September. Economists had forecast a preliminary reading of 70.8.

Consumers’ 12-month inflation expectations rose to 2.9% from 2.7% last month.

US yield stayed lower after the consumer sentiment data

The US 30-year bond yield was flat at 4.386%, hitting a 10-week high earlier in the session of 4.421% and rising for eight straight days. For the week, it gained 12 bps.

On the short end of the curve, the two-year note yield, which is typically sensitive to Fed policy expectations, fell 5.4 bps to 3.945%, on track for its biggest daily fall since Sept. 27. On the week, the two-year yield has dropped about 6.7 bps.

The yield curve has bull-steepened, with the spread between US two- and 10-year yield at 13.2 bps. In a bull-steepening, short-term rates fall more sharply than those on the long end, suggesting more rate cuts are expected.

(Reporting by Alden Bentley; Editing by Andrea Ricci, Chris Reese and Rod Nickel)

Gold extends gains over 1% as US PPI data solidifies rate cut hopes

Gold rose over 1% on Friday after a US inflation data cemented prospects of a rate cut next month, restraining the dollar below recent highs, while safe-haven demand stemming from the geopolitical tensions in the Middle East also lifted the bullion.

Spot gold rose 1.1% to USD 2,658.42 per ounce by 1:42 p.m. ET (1742 GMT), up for the second straight session, and US gold futures settled 1.4% higher at USD 2676.30.

“The economy is still relatively strong, and the Fed is still in a paradox where they’re looking at cutting rates because some sectors have slowed down significantly, like housing,” said Daniel Pavilonis, senior market strategist at RJO Futures.

US producer prices were unchanged in September, pointing to a still-favorable inflation outlook and supporting expectations of Fed rate cut next month.

“The PPI numbers leaned friendly for the precious metals market bulls and suggest the Fed remains on track for two quarter-point interest rate cuts this year,” Jim Wyckoff, senior market analyst at Kitco Metals, said.

This follows data on Thursday showing US consumer prices rose slightly more than expected last month, but the annual increase in inflation was the smallest in more than 3-1/2 years.

“Gold is expected to reach USD 3,000 by 2025 due to geopolitical tensions, inflation concerns, and election uncertainties,” Pavilonis added.

The dollar held below a two-month high against a basket of peers on Friday.

On the physical front, gold dealers in India charged premiums for the first time in two months this week as the upcoming festival season attracted some jewelry buying.

“Gold ETF holdings rose by almost 95 tons in the third quarter. This means that ETFs are making a positive contribution to gold demand again for the first time in ten quarters,” Commerzbank said in a note.

Spot silver rose 1.1% to USD 31.54 per ounce and platinum climbed 1.9% to USD 986.15. Both metals were headed for weekly declines.

Palladium fell 0.5% to USD 1,063.55, but was up nearly 5% for the week.

(Reporting by Anushree Mukherjee and Swati Verma in Bengaluru; Editing by Vijay Kishore, Tasim Zahid, and Shreya Biswas)

Global money market funds draw inflows for third week in a row

Global investors made large investments in money market funds in the week to Oct. 9 driven by a push back in Federal Reserve rate cut expectations and caution over the Middle East conflict.

Investors also channelized capital into liquid money market funds as they awaited a much-anticipated update on Beijing’s stimulus measures this weekend.

According to LSEG data, global money market funds gained a net USD 24.55 billion worth of inflows during the week after witnessing about USD 22.78 billion of net purchases in the prior week.

Investors readjusted their views on future Fed rate cuts last week following a stronger-than-expected US nonfarm payrolls report for the last month, boosting demand for low-risk assets.

Asian money market funds saw a significant USD 12.88 billion inflow, the highest since Jan. 10. European and US funds also witnessed USD 7.78 billion and USD 2.54 billion worth of net purchases, respectively.

Demand for riskier equity funds, however, cooled as investors purchased just USD 3.65 billion of global equity funds compared with USD 35.97 billion of net acquisitions in the prior week.

Tech, financials, and metals and mining sector funds received a notable USD 572 million, USD 417 million and USD 148 million, respectively, while the healthcare sector suffered USD 520 million worth of net sales.

Overseas China equity funds attracted a sharp USD 8.52 billion, the biggest amount for a week since at least December 2020.

Global bond funds attracted investments for the 42nd consecutive week as investors pumped USD 12.43 billion into these funds.

Investors snapped up short-term bond funds of a net USD 2.16 billion following USD 3.3 billion of net sales a week ago. Government, high yield, and loan participation funds, meanwhile, experienced USD 1.96 billion, USD 906 million and USD 737 million worth of net purchases, respectively.

Gold and other precious metal funds retained their appeal for a ninth successive week, attracting about USD 780 million in inflows. Energy funds, however, saw a marginal outflow of USD 11 million.

Data covering 29,545 emerging market funds showed equity funds attracted a massive USD 8.55 billion, the largest amount since January 2021. Investors also purchased USD 1.76 billion of bond funds.

(Reporting by Gaurav Dogra; Editing by Mrigank Dhaniwala)

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