MyStratWeekly – July 30th 2024

Topic of the week: China: remember August 2015

• The third plenum of the Chinese Communist Party failed to address the causes of persistent imbalances in the Chinese economy;
• The supply-centric model has been reaffirmed with priorities set to make supply chains more self-reliant and enhance investments in advanced manufacturing;
• Domestic demand remains weak whilst central government transfers are needed to make up for local governments’ revenue shortfall;
• The PBoC keeps easing monetary policy adding to downward pressure on the Chinese yuan;
• Devaluation of the yuan could be the end game.

Market review: Markets need a Fed nod

• Fed, BoE and BoJ to hold important meetings this week;
• US growth surprises on the upside (2.8% in 2Q) but most surveys are downbeat;
• Curve steepening resumes amid tensions on euro sovereign debt markets;
• US mega-cap earnings disappoint.

Chart of the week

French business confidence dropped by 5.2 points in July to stand at 93.9. It is at its lowest level since February 2021. Business confidence had been hovering near its long-term average since May 2023, signaling a lackluster but resilient growth amidst various shocks. However, the drop is traceable to political uncertainty. The survey was conducted from June 27 to July 22, therefore incorporating the results of the elections. The lack of visibility on the economic policy has led business leaders to adopt a wait-and-see approach. The deterioration in activity and demand prospects is clear. All sectors are affected, most notably services and retail trade. The employment index also fell, dropping by 3.5 points to 96.2, well below the long-term average of 100, and at its lowest level since April 2021.