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In our Market Insights, Prosperity Investment Management examines the latest developments across the globe's biggest financial markets - providing you with all the latest information you need to know.
Chinese economy looks to gain momentum in October
Unexpected growth in China’s manufacturing sector and a boom in travel during the annual ‘Golden Week’ holiday is now fueling hopes that the economy could be regaining momentum after the major slowdown observed earlier this year.
China’s official manufacturing purchasing managers’ index (PMI) rose to 50.2 from 49.7 in August, the first time it has indicated growth since March, according to the National Bureau of Statistics on Saturday.
Activity in services and construction also accelerated quickly last month, according to a separate index that hit 51.7, its best level in over three months.
A private gauge of activity released on Sunday also showed the world’s second biggest economy is continuing to grow, although at a slower pace than the previous month. PMI data released by Caixin Media and S&P Global showed both manufacturing and services losing some momentum as a result.
Many economists around the country now believe the official PMI survey covers mostly larger, state-owned enterprises, while the Caixin reading is focused on smaller, private firms.
The PMI readings have added to signs that the Chinese economy may be picking up momentum again after GDP growth slowed to just 0.8% for the June quarter compared to the three months prior, as the post-pandemic boom faded, consumers lost confidence and a deep property slump continued to weigh heavily on ongoing economic activity.
Bumper travel figures have also given analysts cause for cautious optimism, with Chinese officials hoping the record domestic road and rail travel could help boost an economy that has been struggling with poor domestic demand since the end of zero-Covid restrictions in December.
Recent data have shown signs of stabilisation after the government intensified efforts to spur consumer spending and accelerate infrastructure projects. Profits at industrial firms jumped 17.2% in August, reversing a 6.7% drop in July, according to data published by the NBS last week.
Industrial production also increased 4.5% in August from a year earlier, accelerating from the 3.7% growth registered in July. Retail sales rose 4.6% in August, the fastest growth since May.
Federal Reserve observes welcome economic figures as gas prices continue to rise
Higher gas prices heated up overall inflation last month, but the Federal Reserve has received welcome news that its preferred inflation gauge cooled to its lowest level in two years.
The core Personal Consumption Expenditures index, a closely watched inflation measure that excludes gas and food prices, rose 3.9% for the 12 months ended in August. It’s the lowest annual increase that index has seen in two years and is a positive step toward the Fed’s target of 2% inflation, according to Commerce Department data released Friday.
On a monthly basis, core PCE grew 0.1%, its slowest month-on-month increase since a 0.3% decline observed in April 2020.
Since March 2022, the US central bank has hiked the federal funds rate to its highest level in decades in an effort to bring down the highest inflation seen in 40-plus years. The overall PCE index, which includes the more volatile food and energy categories, increased 0.4% from July and 3.5% annually as a result of these ongoing efforts.
This saw an observed acceleration from the respective 0.2% and 3.4% rates seen in July. However, it also was largely expected due to gas prices increasing last month as well. Energy goods and services prices shot up by 6.1% in August from July, according to the latest published report.
Economists estimated that the headline PCE index would rise 0.5% monthly and 3.5% annually, with the rising cost of energy continuing to put upward pressure on inflation. Earlier this month, oil prices surged even further after Saudi Arabia and Russia announced plans to extend production cuts.
Alongside this, the Commerce Department’s latest Personal Income and Outlays report also showed that consumers have pulled back their spending in August, rising 0.4% versus the upwardly revised 0.9% increase in July. Incomes ramped up by 0.4%.
The personal saving rate declined for the third consecutive month and fell to 3.9% from an upwardly revised 4.1% in July. As such, savings are now at their lowest level since December of last year.
