Newscasts - Market Insight: The impact of Chinese stimulus on US markets

CBIZ

30/09/2024 18:13

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Source: 'Reuters - Business videos'

Description: Thirty-nine percent of economists surveyed by the NABE cited a
mistake by the Federal Reserve as the biggest risk to the U.S. economy in the
next twelve months, followed by the U.S. election and geopolitical tensions.
Anna Rathbun of CBIZ explains why she thinks investors should also be paying
attention to what's happening in China.
Short Link: https://refini.tv/3N8TXHi

Video Transcript:

Worries about the future of the US economy fail to dampen markets. Welcome to
Market Insight. I'm Ludovica Brignola. It's the last trading day of the third
quarter, stocks are up, gold is at a record, interest rates are falling, and
benchmark oil prices look set for another quarter of losses. But among the 32
professional forecasters surveyed recently by the National Association for
Business Economics, 39% cited a monetary policy mistake as a greatest risk to
the US economy over the next 12 months. By contrast, 23% regarded the outcome
of the US election and the same numbers cited an intensification of the
complex in Ukraine and the Middle East. So, what are the risks? Let's ask Anna
Rathbun, Chief Investment Officer for CBIZ. Thank you very much for being with
us today, Anna. So, let's first talk about that NABE survey, where do you see
the biggest risks coming from our monetary policy, the elections or
geopolitical risks, and why?

You know of those three, I would probably put geopolitical risk in the back
burner because that's more of a slow-moving risk and actually a risk that
changes every day. But the first two, the Federal Reserve as well as the
election and the outcome of the election. And I don't mean just the White
House, I mean also Congress. I think that's going to be very important to the
economy. First the Fed, I can understand why economists feel that way, because
the Fed has a history of being late. Just a few years ago, they were slow to
respond to inflation, and there is a full expectation by a lot of experts that
the Fed will also be late in responding with a cut or cutting cycle. And
that's because the Fed is data dependent and the data that they're looking at
tend to also be backward looking. So, it's not so much that the Fed isn't
doing its job, it is. But it's just the nature of those things. And as for the
election, I think it really will come down to whether we have a one-party
rule, what kind of Congress we will have and what kind of laws are able to be
passed, especially on the tax cuts from 2017, the fate of it will depend on
what Congress looks like.

Right, and backward looking, you say. And what did you make of Friday's
inflation reading? How data sensitive is the Fed really at the moment, in your
opinion?

Yes, I think the Fed needs more confirmation of the things that they have done
- number one, that's the 50-basis-point cut. And then the things that they've
said afterwards. So, if you look at some of the Fed officials and what they've
been saying. They've been sort of supporting that 50-basis-point rate cut and
potentially more for the rest of the year. And so, the Friday PCE number
definitely confirmed all of those things, and that was really, great for the
markets except for the fact that we had already priced a lot of that in and
you didn't see too much market action. But fundamentally the question really
is how much of the fall in inflation is actually a correction from when
inflation was too high and we're going back to normal? And how much of it is
have we passed that point and things are actually slowing down and some of the
softer inflation ratings are more reflective of a slowing economy. And that is
a question that we can't answer today, but we'll probably find out in the next
several months.

Right, at the beginning of this interview, you yourself said that geopolitical
tensions are pretty important and prominent at the moment, but so far both oil
and equity markets really seem unperturbed by the escalation that we are
seeing in the Middle East. Do you think that's wise?

So, in terms of the equity markets, there isn't too much exposure to the
Middle East, right? So, if you look at the S&P 500, I mean the big worry is
really China and the rightfully so because a lot of the revenue is derived
from China. So, I think from even from a fundamental perspective, the markets
are not going to pay that much attention to it. What was surprising was
actually the oil market. But if you think about oil production as well, it's
really Iran that we have to worry about, and things have not escalated so much
and hopefully never will. And so crude oil market has been relatively calm
compared to how much disruption has been going on there, and the other piece
of this is really on the demand side. China's economy has been slowing down
and China is a big consumer of crude oil. So, that the slowing down of Chinese
demand has had an impact on oil prices as well. So, there are a lot of things
that are going into these prices.

Right Anna on this very point, right, China. So, US listed Chinese stocks are
tracking domestic indices higher, a bazooka of government stimulus. But
economic data really remains poor. So, is this good news or bad news, then for
investors in Chinese stocks?

Yes, I mean, if you think about the 50-basis-point rate cut from the Fed
having done it after raising rates understandable. And then you've got the
PBOC, that's cut 50 basis points without ever having raised rates, that tells
you something about the ailing economy, right? So fundamental view is not very
good. Now, this was a lot more. The stimulus was a lot more than what people
expected and what the markets expected. So, there's clearly excitement not
only rate cuts, but also $115 billion to support the stock market. And there's
there was a whole bunch of it and also to support certain industries like the
EV industry as well. There's a lot of promises, but the problem there is
structural it's not necessarily a monetary right? So, a few structural
problems. You've got the balance sheet problem of having too much debt. They
still haven't figured that out yet. They've got a population growth problem or
lack thereof, and then they have a geopolitical problem. So, let's say that
they're flooding the global markets with very, very cheap EVs. Can they get it
to the United States or to Europe. If the countries, there actually enact
protectionist policies. And that's where the geopolitical problem really is
going to be a sticking point for China as well. No matter how much they're
flooding the markets with cheap exports. So, I'm not entirely sure that this,
as you call it a bazooka, a stimulus would actually have an impact on the
fundamentals of the economy.

Thank you very much, Anna Rathbun, CIO of CBIZ, for all your insight. And that
is your Market Insight