China’s Economic Stimulus Sparks Rally, But Strike May cause Drop (Weekly Cheat Sheet)

What a week it’s been! China took center stage, rolling out a series of measures to boost its economy. The People’s Bank of China cut several key rates, and we saw a flood of fiscal spending announcements. This sent Chinese equities soaring, with the Shanghai Composite and Hong Kong’s Hang Seng both jumping 13% for the week.

Over in the U.S., we saw some interesting developments too. The key Fed inflation gauge, PCE, dropped to 2.2% in August – the lowest since 2021. This has sparked hopes for future rate cuts, with the fed funds futures market now pointing to a 54.8% chance of another 50-basis point cut in November.

In the tech world, Micron beat quarterly expectations and issued strong guidance, giving semiconductor stocks a nice boost. The PHLX Semiconductor Index ended the week up 4.3%.

Looming East Coast Dock Strike Threatens to Disrupt U.S. Economy and Global Trade

As the clock ticks down to a potential massive dock worker strike along the U.S. East Coast and Gulf ports, markets brace for significant disruptions that could ripple through the global economy. The International Longshoremen’s Association (ILA), representing approximately 45,000 dockworkers, is set to walk off the job on Tuesday, October 1, 2024, barring a last-minute agreement with port management.

Economic Stakes Higher Than Ever

The potential strike, which would be the first of its kind on the East Coast since 1977, threatens to paralyze operations at 14 major ports from Maine to Texas. Economic analysts project daily losses to the U.S. economy ranging from $3 billion to $4 billion, with weekly GDP reductions estimated between $4.5 billion and $7.5 billion.”This is not just a local issue; it’s a national economic crisis in the making,” says Dr. Emily Chen, chief economist at Global Trade Insights. “The ripple effects could touch every sector of the economy and even influence monetary policy decisions.”

Markets on Edge

Wall Street is closely monitoring the situation, with several sectors poised for significant impacts:

1. Shipping and Logistics: Paradoxically, some shipping stocks may see gains. ZIM Integrated Shipping Services and A.P. Moeller-Maersk have already seen upticks in their stock prices as investors anticipate tighter market conditions and potential rate hikes.
2. Retail: With the holiday shopping season on the horizon, major retailers are scrambling to mitigate potential inventory shortages. “We’re looking at a potential perfect storm for retailers,” warns Sarah Johnson, retail analyst at MarketWatch Advisors. “Supply chain disruptions coupled with potential price increases could severely impact holiday sales forecasts.”
3. Agriculture: The U.S. agricultural sector stands to lose big, with an estimated $318 million in weekly containerized agricultural exports at risk. “This couldn’t come at a worse time for farmers,” says John Deere, spokesperson for the American Farm Bureau Federation. “We’re talking about significant losses in poultry, soybean, and cotton exports.”
4. Automotive: European automakers are particularly vulnerable, as the strike threatens to choke off the flow of imported vehicles and parts. BMW and Mercedes-Benz have already announced contingency plans to reroute shipments through Canadian ports.

Inflation Concerns Resurface

The Federal Reserve is closely monitoring the situation, concerned that widespread supply chain disruptions could reignite inflationary pressures just as they seemed to be cooling. “If this strike persists, we could see a significant uptick in consumer prices across various categories,” notes Federal Reserve Governor Lisa Cook. “This may force us to reassess our monetary policy stance in the coming months.”

Race Against Time

As the deadline approaches, both sides remain entrenched in their positions. The ILA is demanding better wages and job protections in the face of increasing automation, while port operators argue that such concessions would make U.S. ports less competitive globally.

US Market Highlights

• The U.S. Department of Justice accused Visa of monopolizing debit payments, alleging it inflates prices by suppressing competition. Visa controls over 60% of U.S. debit transactions, which is no small potatoes.
• New home sales dropped 4.7% in August, but there’s a silver lining. Lower mortgage rates and declining prices could drive demand soon. The median house price fell 4.6% from a year ago to $420,600.
• Consumer confidence took a nosedive, falling 6.9 points in September. It’s the biggest drop in three years, with folks earning less than $50,000 feeling the most pain.
• In M&A news, Blackstone and Vista are set to acquire Smartsheet for a cool $8.4 billion. That’s a 41% premium on the share price – not too shabby!

Global Highlights

China’s making waves again. They’re ramping up economic support with rate cuts, $70 billion in loans, and plans for a $142 billion capital injection into state banks. It’s like they’re throwing everything but the kitchen sink at their economic woes.Meanwhile, in Europe:

• The Eurozone economy is showing signs of strain. Private-sector activity is shrinking, and job cuts are on the rise. High borrowing costs and weakening demand are painting a challenging picture, especially in manufacturing.
• HSBC is betting on the European Central Bank to cut rates at every meeting from October to April. If they’re right, we could see the key deposit rate drop to 2.25% by next spring.

Across the pond, Canada’s GDP growth stalled in August, missing targets after July’s 0.2% rise. It’s got folks talking about deeper interest rate cuts to jumpstart growth.

Commodities & Crypto Corner

In the commodities world, it’s been a bit of a mixed bag:

Oil prices are under pressure despite China’s economic initiatives. Brent crude oil has fallen back close to the $70 mark, shedding around 4.30% in five days.

Industrial metals are having a party, benefiting from China’s stimulus announcements. Copper rose sharply in London, back above $10,000 a tonne.

Gold continued its rally to $2,660, setting new record highs. As they say, all that glitters is not gold – but in this case, it just might be!

In the crypto sphere, Bitcoin is on a tear, topping the $65,000 mark. It’s now just 12% shy of its all-time high. Bitcoin Spot ETFs have seen over $600 million in net inflows this week. Ethereum, Solana, and Binance Coin are also riding the wave.

Calendar

As mentioned above, the potential strike could cause a lot of issues. Looking ahead, this week’s going to be a doozy:

• The U.S. jobs report for September drops on Friday. Economists expect 140K job additions and for the unemployment rate to hold steady at 4.2%.
• Earnings season kicks off with some big names. Nike reports on October 1, followed by Carnival, Levi Strauss, and Constellation Brands later in the week.
• Keep an eye on those China-focused stocks I mentioned earlier. After this week’s rally, next week could be interesting.

That’s all for this week, folks. Remember, in investing, as in life, it’s not about predicting the future – it’s about preparing for it. Stay curious, stay diversified, and most importantly, stay invested. Until next time, this is Irving Wilkinson, signing off.

Here is a table listing the economic events by day and time: