China’s Latest Round of Property Stimulus Fails to Inspire Markets Markets largely shrugged off the new measures, which were milder than expected

Authorities plan to fast-track credit for struggling property developers, and aim to renovate 1 million apartments in so-called urban shantytowns, a strategy used during the prior real-estate slump, the housing ministry and other policymakers said Thursday at a highly anticipated press conference.

More funds will be deployed for housing projects on the government’s “white list,” with 4 trillion yuan, equivalent to $550 billion, in loans to be available by the end of this year, Minister of Housing and Urban-Rural Development Ni Hong said, urging banks to lend to as many projects as possible.

Projects on Beijing’s “white list” are eligible for government-backed financing to complete unfinished apartments and ensure delivery of homes.

Markets largely shrugged off the news, which was milder than what many expected after an aggressive round of economic stimulus last month. (…)

China launched a similar state-financed slum redevelopment program in 2015. Back then, local governments compensated the residents of demolished homes with cash or new housing, and state policy banks provided loans to local governments to finance the program. (…)

“This is because the proceeds of the loans will be parked at the escrow accounts and cannot be used to service debt or fund new projects,” she said. “The aim of the white list is to accelerate the construction of pre-sold but incomplete homes,” so its expansion won’t help reduce China’s excess property inventory or lift expectations about home prices, she added. (…)

The urban-renewal project is also smaller than the previous reconstruction program in 2015-2018, and may take much longer to implement due to developers’ strained liquidity and local governments’ squeezed wallets, she added. (…)

“Homebuyers’ demand is tougher to control,” she said. “The government can roll out favorable policies, but whether households bite depends on a lot of factors.” (…)

  

  

• Japan’s Exports Fall Most Since 2021 Amid Global Slowdown Shipments to China, US, Europe all decline amid weak demand

(…) Shipments to China sank 7.3%, reversing gains of 5.2% the month before, while those to the US and Europe fell 2.4% and 9%, respectively. (…)

Japan’s Wage Deal Timeline May Shape BOJ View on Next Rate Hike Largest labor union reportedly seeks 5% or more in wage hikes

The country’s largest labor union federation is reportedly seeking 5% or more in wage hikes again next year, an early indication that upward pressure on pay will remain at least as strong as this year. Negotiated wage gains tracked by the Rengo federation hit a 33-year record of 5.1% in 2024. (…) Still, the scale of those pay deals hasn’t spread to all parts of the country’s workforce. Average cash earnings through August this year have averaged 2.3%, leaving wage gains trailing behind even stronger growth in prices.

AI CORNER

TSMC Hikes Revenue Outlook in Show of Confidence in AI Boom

The main chipmaker to Nvidia Corp. and Apple Inc. now expects sales to climb roughly 30% in US dollar terms this year, up from previous projections for about a mid-20% rise. That’s after TSMC reported better-than-predicted earnings for the September quarter. And it foresees capital expenditure rising in 2025 from roughly $30 billion this year.

“The demand is real and I believe it’s just the beginning,” Wei said, echoing a number of executives including Nvidia’s CEO. In terms of overall chip demand, “everything’s stabilized and start to improve.” (…)

Wei said he expects revenue from AI server processors to more than triple this year, yielding a mid-teens percentage of total sales in 2024.

It’s planning more plants in Europe with a focus on the market for artificial intelligence chips, according to a senior Taiwanese official. That’s on top of construction underway in Japan, Arizona and Germany.

Amazon joins the nuke party

Amazon has become the third tech company in as many weeks to announce a massive nuclear investment to fuel the energy-sucking data centers that bring you generative AI.

Amazon Web Services, still the world’s largest cloud computing provider, said it will spend $500 million to fund nuclear projects in Virginia and Washington state. The news follows recent nuclear announcements from peers Google and Microsoft, the latter of which recently inked a deal to reopen a shuttered nuclear reactor at Pennsylvania’s infamous Three Mile Island.

The nuclear industry has been in decline for years because of concerns over safety in the event of a meltdown. But the gen AI boom’s massive energy needs have rekindled interest in the carbon-free energy source.

For Amazon, that includes partnering with Virginia’s Dominion Energy utility company to develop small modular nuclear reactors, or SMRs. These small-scale fission facilities are a fraction of the size of a traditional nuclear plant, quicker to fire up, and less expensive to build.

Amazon has previously committed to spending $40 billion on a data center expansion in Virginia through 2040, which might partly explain the state’s warm embrace.

World Set for Cheaper Energy on Shift From Oil and Gas, IEA Says

The world is heading into an era of cheaper energy prices as a shift towards electricity use leaves behind surpluses of oil and gas, the International Energy Agency predicted.

Global demand for all fossil fuels will stop growing this decade, while supplies of oil and LNG are set to climb, the IEA forecast in its annual long-term report. Meanwhile, an ongoing surge in electricity consumption led by China is on track to accelerate, it said.

“The world is set to enter a new energy market context in the second half of this decade because underlying market balances for oil and gas are easing,” IEA Executive Director Fatih Birol said in an interview. “Bar major geopolitical conflicts, we will be entering a period where prices will see significant downward pressures.” (…)

Electricity use has grown at twice the pace of total energy demand over the past decade, and, driven by China, will increase six times as fast during the coming 10 years, according to the agency. Electric vehicles will account for 50% of new car sales worldwide by 2030, up from 20% currently, it predicted.

“In energy history, we’ve witnessed the Age of Coal and the Age of Oil – and we’re now moving at speed into the Age of Electricity,” said Birol.

The agency reiterated its view that demand for oil and gas will hit a plateau this decade. Nonetheless, oil supplies are climbing amid new output from the US, Brazil, Canada and Guyana, and there is a looming “wave” of liquefied natural gas projects.

A “huge addition” of around 270 billion cubic meters of new LNG capacity is scheduled by 2030, according to the report. Even some clean energy technologies, like solar photovoltaic, will see a surplus.

Crude prices can continue to trade between $75 and $80 a barrel, but only if OPEC and its allies restrain output further, according to the report.

Led by Saudi Arabia, OPEC+ is already holding back record spare capacity of around 6 million barrels a day following a series of production cutbacks, a level that the IEA expects will reach 8 million barrels by 2030.

“The rise of electric mobility, led by China, is wrong-footing oil producers,” it said. (…)

Goldman Sachs Group Inc. forecasts that oil demand will continue rising through to 2034. (…)

Related: Power Play

The state of corporate insiders

The insider activity database we use is from Bloomberg and goes back to March 2010. This is not a lot of data to work with. However, we have chosen to use it as it provides the most reliable database we could find. Some of what follows is based on my earlier work with data from a different source.

Our Corporate Insider Buy/Sell Ratio indicator shows a ratio of the total number of corporate insiders of S&P 500 companies that have bought shares on the open market during the past six months versus those that have sold shares. Because insiders typically only buy if they have confidence that their company (and stock) will do well, insider buying is considered a stronger signal than insider selling. When buying picks up quickly and dramatically, it tends to be an excellent sign for the stock market, so quick increases in this ratio tend to be a positive sign for stocks.

The chart below highlights all dates when the indicator registered a weekly reading of 0.14 or higher. We see five distinct periods.

The table below summarizes S&P 500 performance following all dates (including overlaps) highlighted in the chart above. Note the very favorable performance results, particularly for six and twelve months.

For comparison, the table below summarizes SPX performance for all database dates starting in 2010. Note that results are lower across the board.

The bottom line: When insiders aggressively buy shares, you should probably consider doing the same. (…)

It bears repeating that corporate insider activity is best used not as a standalone trading “system” – triggering “All In” or “All Out” signals – but as a “weight of the evidence” tool. Insider buying can often be “too early” – i.e., they may start buying into a market decline and keep buying as the market tanks.

Because they typically have a multi-year time frame, this almost invariably works out well as they buy when their companies’ shares are down or in the process of bottoming out and then wait patiently for a rebound and rally.

Not every investor is wired to invest this way. Likewise, corporate insider selling does not necessarily generate “timely” sell signals anywhere near a notable market top.

The simple method highlighted above does an excellent job of allowing investors to designate insider activity as “favorable” or “not meaningful” at any given time. For now, that approach is still sitting in the “favorable” camp.

CONSUMER WATCH

• we’re not seeing weakening, for example, in retail spending. So overall, we see the spending patterns as being sort of solid and consistent with the narrative that the consumer is on solid footing and consistent with the strong labor market.” – JPMorgan Chase ($JPM ) CFO Jeremy Barnum
• “Both our consumer and commercial customers have remained resilient… Both credit card and debit card spend were up in the third quarter from a year ago. And although the pace of growth has slowed, it is is still healthy.” – Wells Fargo ($WFC ) CEO Charlie Scharm

Then this:

US consumers see higher long-run inflation, rising delinquency risk

Americans said they expected higher inflation over the longer run last month, as their expectations of credit turbulence rose to the highest level since April 2020, the Federal Reserve Bank of New York said in a report on Tuesday.

While inflation a year from now is seen holding steady at 3%, three years from now it is seen at 2.7% from August’s 2.5% estimate, and at 2.9% in five years, from 2.8% in the August survey, the bank said in its latest Survey of Consumer Expectations.

Meanwhile, while perceptions and expectations for credit access improved, the report found that expected credit delinquency rates continued to rise and hit the highest level in over four years. The report noted the average expected probability of missing a debt payment over the next three months rose for a fourth straight month to 14.2%, from August’s 13.6%, suggesting some Americans are facing increased issues with managing their borrowing.

While that perceived probability was highest among households with incomes below $50,000, the largest increase was among respondents with household income above $100,000. Those respondents saw the greatest chance of falling into delinquency in 10 years. (…)

Speaking of consumer confidence, LVMH yesterday told analysts:

Chinese consumer confidence has sunk to COVID-era lows, noting a “marked deterioration” at its fashion and leather goods business, home to Louis Vuitton and Dior, with sales in mainland China at the division falling by a mid-single digit percentage.

New York Manufacturing Contracts as Orders, Shipments Weaken

• October index of business conditions slumps to five-month low
• At same time, near-term outlook climbs to three-year high

The Federal Reserve Bank of New York’s October general business conditions index slid 23.4 points to a five-month low of minus 11.9, figures issued Tuesday showed. Readings below zero indicate contraction, and the figure was weaker than all estimates in a Bloomberg survey of economists.

At the same time, the six-month outlook for overall activity increased to a three-year high of 38.7, indicating the state’s manufacturers are more upbeat about the economy’s prospects. (…)

A measure of current new orders dropped nearly 20 points to minus 10.2 after climbing a month earlier to the highest since April 2023. The index of shipments decreased almost 21 points to minus 2.7.

The employment index, however, rebounded to 4.1 — the first expansion in a year — while a measure of hours worked also climbed.

Meanwhile, the New York Fed’s gauge of prices paid for materials increased to a six-month high of 29, while an index of prices received by state manufacturers also accelerated. (…)

An Easier Path For Bank of Canada Monetary Policy

Canada’s September CPI offers a decisive data point, in our view, that should see the Bank of Canada (BoC) step up the pace of easing, and lower its policy interest rate by 50 bps at next week’s monetary policy announcement.

September headline inflation slowed more than consensus economists expected to 1.6% year-over-year, and while that deceleration was driven by an 8.3% decline in energy prices, there were also indications that underlying price pressures are contained. Services inflation slowed to 4.0%, the smallest increase in services prices since September of last year.

Meanwhile, the average core CPI remains close to the central bank’s 2% inflation target, rising 2.4% over the past 12 months, by a 2.4% annualized pace over the past six months, and by 2.1% annualized over the past three months.

Meanwhile, while Canadian activity data is a bit more mixed, we also believe it is consistent with a 50 bps rate cut next week.

July GDP rose 0.2% month-over-month, although the advance estimate is for a flat outcome in August, which, if realized, would leave the level of July-August GDP just 0.25% above its April-June average—tracking well below the Bank of Canada’s Q3 growth forecast of around a 0.7% quarter-over-quarter (not annualized) gain.

More recent activity and survey data are not quite as soft. September employment rose by 46,700, driven by full-time jobs, and the unemployment rate fell to 6.5%. Offsetting that strength to some extent, the labor report also showed that wage growth eased by more than expected, to 4.5% year-over-year. Finally, the BoC’s Q3 business outlook survey showed a modest improvement in expectations for future sales, and the headline business outlook indicator improved to -2.3, although that reading for the business outlook indicator is still reflective of overall net pessimism rather than net optimism. (…)

Accordingly, we now forecast the BoC will lower its policy rate by 50 bps to 3.75% at its October 23 announcement, and by a further 25 bps to 3.50% in December. In 2025, we expect 25 bps rate cuts in January, March and June, which would bring the policy rate to 2.75% by middle of next year.

Among the factors we think will see the Bank of Canada revert back to smaller 25 bps increments following the October move are policy interest rates that are moving somewhat closer to neutral, hints of improvement in some of the more recent activity data, and the potential for (and desire to avoid) excessive Canadian currency weakness.

That said, relative to our prior forecast we see the Bank of Canada lowering interest rates more quickly to the same 2.75% terminal rate we had previously anticipated. Moreover, we view the risks as still tilted toward even faster monetary easing should inflation remain contained, and if growth in economic activity disappoints.

NBF concurs with Wells Fargo but sees 2 consecutive 50s:

September’s inflation data further confirms that Canada’s generalized inflation problem has been solved.

Energy prices certainly contributed to September’s weakness, and a certain reversal is to be expected in October as geopolitical tensions rose. That said, it was rather encouraging to note the trend in food prices, which have been contained for the past two months, and the shelter component, which posted its lowest rise in 25 months.

For their part, the Bank of Canada’s core inflation measures (CPI-trim and CPI-median), which are designed to eliminate the impact of the most volatile components, moved on average at a pace in line with the Bank of Canada’s target between August and September. On a three-month annualized basis, the pace of the average of those two measures is running essentially on target at 2.1%.

The effect of the restrictive monetary policy and the cooling of the economy currently underway are even more apparent when we look at inflation excluding the housing component, which is evolving at a rate of just 0.4% year-on-year.

Note that 4 provinces are now in deflation based on this measure: Quebec, Manitoba, New Brunswick and Saskatchewan.

More specifically, rents and mortgage interest costs are the two components that have driven up shelter over the past year. On an annual basis, inflation excluding mortgage interest costs fell from 1.2% to just 1.0% in September. Since mortgage interest costs are directly related to central bank actions, we have long argued that annual inflation should be analyzed without this category.

The same applies to the analysis of real policy rates, and recent developments are a cause for concern, as recent rate cuts have not been significant enough to make monetary policy less restrictive. Indeed, the inflation-adjusted policy rate excluding mortgage interest cost is the tightest since 2007.

With widespread inflation a thing of the past in Canada, and inflation expectations having continued to improve in the light of consumer and business surveys published by the BoC last Friday, we believe that the door is wide open for the Bank of Canada to bring its policy rate back to neutral (between 2.5% and 3.0%) as quickly as possible. Job gains in September were not enough to stabilize the employment rate, and surveys do not point to any improvement in the medium term.

The Canadian economy needs oxygen from the central bank to stabilize. We expect a 50bps cut in October and another of the same magnitude in December.

Goldman Sachs:

With softer inflation likely to raise the Governing Council’s concerns about inflation undershooting its target and Q3 GDP growth likely to miss the BoC’s forecast, we now expect that the BoC will deliver a 50bp cut at next week’s meeting before resuming a 25bp per-meeting pace until reaching a terminal rate of 2.5% in June 2025 (lowered from 2.75% previously).