Sell-Off Continues

Sell-off continues

The stock market sell-off remains centred in developed economies. The Euro Stoxx 600 was down 0.42%, driven by Brexit deadlock and growing confrontation between the EU executive and the Italian populist coalition over the latter’s 2019 spending plan. The biggest loser in Europe remains the DAX, with a drop of nearly 1% amid a weakening CDU-CSU coalition following Bavarian elections. Geopolitical tensions pushed US shares lower. Tech stocks were hit hardest with the NASDAQ down -2%, DJIA -1.20% and S&P 500 -1.45%. The US decline was also induced by Treasury Secretary Steven Mnuchin’s announcement that he won’t participate at an investment conference in Saudi Arabia, due to the disappearance of journalist Khashoggi. Asian shares remained solid aside from Japanese Nikkei 225, down 0.56%. Chinese shares remained solid following Chinese regulators statements that they will be supporting the economy. The Shanghai CSI 300 index closed at +2.97% after dropping to a 3-year low in early trading. Hong Kong’s Hang Seng remained up +0.42%. Australian shares fell slightly at -0.05%.

China’s economic growth lowest since 2009

The Chinese economy expanded in Q3 by 6.50% yearly and 1.60% quarterly (prior: 6.70%, 1.80%), signalling a slowdown in growth, driven by weakness in manufacturing. The impact of US sanctions (total: 10% tariffs on USD 200 billion Chinese imports, implemented on 24 September) are weighing on the economy and expected to reach 25% by year-end if no agreement between both counterparts is found. High expectations relate to the G20 meeting in Argentina (30 November-1 December), where the US and Chinese presidents will discuss the matter. Although the economic outlook remains tough for the Chinese economy given trade war and credit risk, Chinese regulators maintain a reassuring tone, as central bank governor Yi Gang confirmed financial support of private companies (i.e. credit granting), thus sustaining the economy via stimulus. For now, Chinese authorities remain on track with their GDP growth target of 6.50% for 2018. Accordingly, CNY is under pressure but still remains below USD/CNY fixing at 6.9387, which means that the Renminbi remains in place, despite further depreciation risk amid a weaker economic outlook.