Welcome to this edition of Your Next Trade. In this episode, we delve into the long-awaited Chinese stimulus package impact on global markets. If you missed this week’s episode, here are the key takeaways and market insights you need to know.

China’s $560 Billion Stimulus: Market Impact and What’s Next

·         Key sectors impacted: Chinese equity markets surged nearly 15% in response.

Shanghai CSI 5 days move.

·         Europe’s exposure: European markets benefited indirectly, especially sectors tied to luxury goods, automobiles, and industry, as China’s economic performance impacts Europe.

Goldman Sachs Europe Luxury ytd.

What’s next? The big question is whether China will further increase its fiscal stimulus in the coming months. We’ll be watching.

China Stimulus in numbers.

Global Market Movements: U.S., Europe & Beyond

While the Chinese markets surged, the U.S. and European markets had more tempered reactions:

• S&P 500: Up only 0.6% despite China’s big move.
• European Markets: Benefited significantly due to their ties to China’s economy—especially in luxury goods and automotive sectors.
• Emerging Markets: Up 7%, heavily influenced by China’s growth prospects.

Sector Performance Highlights

• Materials: Top-performing sector globally, driven by China’s economic resurgence.
• U.S. Markets: Showed broadening performance, with industrial and cyclical stocks like steel and mining seeing gains.
• Healthcare & Consumer Discretionary: Diverged with mixed results in defensive sectors.

Commodities Update: Oil & Copper

• Copper: Strengthened, in line with expectations for increased Chinese industrial demand over the next 6–12 months.
• Oil (WTI): Surprisingly weaker despite potential demand from China, as Saudi Arabia increases supply, keeping prices below $70.

Interest Rates & Bond Market Overview

• U.S. 10-Year Yield: Held steady around 3.75%, signaling minimal change in bond markets this week.
• Federal Reserve Outlook: Markets expect a 0.25% rate cut in November and another in December. All eyes are on the next FOMC meeting for further insights.

Key Insights: The VIX & S&P 500 Volatility

Friday brought a sharp move in the VIX from 15.5 to 17.0%, driven by expectations surrounding JP Morgan’s 5750 collar, which influenced the S&P 500’s range-bound trading. Historically, such VIX moves are rare, happening only 4 times in the last 20 years, making it an event worth noting.

VIX last 5 sessions.

Stock to Watch: Nike (NKE)

With earnings due on Tuesday, all eyes are on Nike’s performance:

• Key concerns: Flat sales, EPS, and free cash flow over the past few years.
• CEO Transition: Optimism surrounds potential turnaround under new leadership, supported by key investors like Bill Ackman.

• 

  Upcoming Catalysts: Jobs Data, Earnings & Market Volatility

  ·         Economic Data: U.S. PMI reports (Thursday) and job numbers (Friday) will provide key economic insights.

  ·         Market Volatility: With elections in November, expect uncertainty to drive more volatility in October, traditionally a strong month for markets but less so in election years.

  Historical data shows an average 2% decline in election years during October, so brace for potential market downturns.

S&P 500 October Performances since 1995.

Final Thoughts & Trading Strategy

For those following the Chinese stimulus, there are plenty of opportunities—but stay cautious with China-related assets due to potential risks in ADR structures.

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Have a great trading week!

Greg

greg@duponttrading.com