Market Update – 30th May 2024.

This week, the International Monetary Fund (IMF) upped China’s growth forecast for this year to 5% from a previous estimate of 4.6%. The increase has been informed in large part by strong data coming out of the region in Q1 as well as the host of policy measures authorities have begun to implement to stimulate the economy. As we’ll remember, China’s growth in the first quarter surpassed expectations, coming in at 5.3% off the back of strong improvement in industrial activity and increased demand.  Since then, policymakers have prioritised plugging any proverbial holes in the economy through initiatives like providing 300 billion yuan to support enterprises to buy unsold apartments and issuing loans to finish the construction of whitelisted projects. It is perhaps the kind of action that the IMF’s deputy managing director was calling for when she stated that China’s government needs to focus on structural reforms to ‘counter headwinds and address underlying imbalances.’

Chinese policymakers this week have also constructed another state-backed investment fund to further aid growth in the semi-conductor industry, with a registered capital of 344 billion yuan.

On Wednesday, a Bank of Japan’s board member indicated that policymakers could look to raise interest rates if the yen weakens to a level that results in upwards pressure on inflation (which may begin to increase from summer due the possibility of wage growth and rising import costs). The ideal scenario, the policymaker noted, would be that inflation heads towards the Bank’s 2% target in a stable fashion, allowing authorities to increase levels of monetary support in an incremental way. His speech came close on the heels of Japan’s consumer confidence index, which fell for the second consecutive month in May, coming in at 36.2 from 38.3 in April and showed that price increases are taking their toll on Japanese households.

Despite the US’ higher for longer interest rate environment (at 5.25%-5.5%), it may be the case that the American consumer’s confidence in the economy is now beginning to return after three months of deterioration. On Tuesday, the consumer confidence index showcased an increase in May. This consumer confidence index differs from the consumer sentiment survey in that it samples a larger amount of people, although it uses less in-depth questions than the sentiment survey. The index rose to 102.0 in May from 97.5 in April with improvement seen across all age groups. Consumers seem to be shrugging off the effects of monetary tightening and sticky inflation and continuing to spend, with many indicating they anticipate making a major appliance purchase in the next 6 months – even as they anticipate a possible slowdown in the economy over the next year.

Still to come this week we have Japan’s CPI data, China’s manufacturing and non-manufacturing PMI data and Eurozone’s CPI data.

Nicola Tune, Portfolio Specialist 

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