In today’s briefing:
- An Ominous Sign for U.S. Equity Returns?
- Peering into Corporate Financing Conditions in 2025
- Trump and China: It’s Going to Get Interesting!
- Some Preliminary Thoughts on Q3 Earning Season
- Iron Ore Tracker (21-Oct-2024): China Positive Sentiment Waning
- Copper Tracker Oct 21st, 2024: The China Malaise Sets In
- South Africa: Medium Term Budget Policy Statement to Be Announced on October 30
An Ominous Sign for U.S. Equity Returns?
- U.S. household equity allocations are becoming extended relative to their own history, which warns of a challenging long-term return outlook.
- Demographically adjusted allocations are less extended and similar episodes have resolved in either minor pullbacks or sideways consolidations.
- Equity valuations are stretched compared to bonds and the long-term outlook will depend on the future advances in productivity.
Peering into Corporate Financing Conditions in 2025
- The global economic outlook for 2025 is mixed. Central bank policy rates will be lowered gradually and settle at an underlying level higher than what prevailed before the COVID-19 pandemic.
- While US markets are discounting a soft landing, financing conditions for corporations next year will be impacted by the magnitude of the slowdown and the prospective conduct of fiscal policy.
- Conditions in the Eurozone are expected to improve next year, while the outlook for refinancing activity in the Asia Pacific remains nuanced, courtesy of differing regional central bank policy outlooks.
Trump and China: It’s Going to Get Interesting!
- China’s trade is growing strongly and has become less dependent on the US. The EU and Mexico now exceed China’s monthly exports to the US.
- Taiwan as a flashpoint between the US and China will decline in coming years as each country ramps up its semiconductor manufacturing capabilities.
- Tariffs and the Yuan will be important negotiating points between the US and China, but the good news is they will be talking.
Some Preliminary Thoughts on Q3 Earning Season
- The tactical bullish set-up that we outlined last week has triggered a buy signal.
- Diverse leadership by financial, industrial and technology stocks points to further gains in stock prices.
- Investors should be aware of the key risk of earnings disappointment during Q3 earnings season, and signs of resurgent inflation that puts upward pressure on interest rates.
Iron Ore Tracker (21-Oct-2024): China Positive Sentiment Waning
- After a brief spell of iron ore prices rising to 108 USD/ton, prices have retraced to 102 USD/ton (-3% WoW) but remain broadly in the 95-130 USD/ton band.
- Investors were disappointed with China’s announced stimulus measures, citing their vagueness and lack of a specific timetable, resulting in the positive sentiment waning over the last two weeks.
- We update investors on Vale’s (VALE US) recent proposal to the government to settle the Mariana Dam disaster.
Copper Tracker Oct 21st, 2024: The China Malaise Sets In
- Copper prices were down slightly, WoW, by 0.3% YoY, as the effect of China’s stimulus plan announcements waned, with investors viewing them more skeptically.
- With 58% of the metal’s demand arising from China, we expect the short-term malaise to be felt unless China makes punchier fiscal stimulus announcements soon.
- We believe high-quality equities like Southern Copper (SCCO US) and Ivanhoe Mines (IVN CN) will continue to be resilient and prefer exposure to copper in those names.
South Africa: Medium Term Budget Policy Statement to Be Announced on October 30
- The coalition government will announce its first Medium-Term Budget Policy Statement (MTBPS) in Parliament on October 30.
- It is anticipated to set government policy goals and priorities and forecast macroeconomic trajectory and the fiscal framework over the next three years.
- We continue to think the fiscal deficit in South Africa is projected to remain elevated contributing both to the GDP and inflation prospects, given rising debt service.
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