US

US stocks lagged behind global equities this week, the S&P 500 and NASDAQ were only up around 0.4% over the past 5 days ending Thursday, while the Dow recorded a 0.8% decline. US corporate earnings season continued, among the 192 index companies that have announced earnings, more than 80% companies posted positive earnings surprises, although the overall corporate earnings growth is down 0.4% year-on-year. This implies that although profits surpassed expectations, there is still non-existent growth. The market will focus on the upcoming “Super Data Week”: In addition to the preliminary Q3 GDP, non-farm payrolls, various PMI, and consumer confidence figures, the US Federal Reserve will announce the latest interest rate decision. According to the Bloomberg interest rate futures data, there is almost a 90% chance of a rate cut in October.

Europe

With declining chances of a “hard Brexit”, UK stocks rebounded for three consecutive days. Over the past 5 days ending Thursday, British stocks rose more than 2%, while the DAX also rose about 1.7%. Earlier, the House of Commons agreed to delay voting on Brexit arrangements, after which Prime Minister Boris Johnson’s second attempt on a Brexit agreement was voted down in the Commons. While sources reported that the EU will approve postponing the Brexit deadline, Johnson said that if Brexit is delayed until 31^st January, the UK will hold a general election. On the monetary side, the European Central Bank maintained its monetary policy unchanged at this week's meeting. President Draghi painted a pessimistic outlook of the Eurozone economy. Claiming that the growth momentum of the Eurozone has weakened and the overall inflation remains sluggish, it is necessary to keep the monetary policy dovish for a longer period. After the ECB meeting, the Euro slightly weakened against the Dollar. Next week, the Eurozone Q3 GDP, CPI and unemployment figures will shed more light on the European economic health.

China

The market sentiment on the Sino-US trade negotiations has improved. Earlier in the week, US President Donald Trump expressed hopes of signing relevant agreements with China in November, the White House economic adviser Kudlow also pointed out that it is possible to cancel the scheduled tariff plans in December. Later, it was reported that China is willing to purchase US$20 billion of US agricultural products within one year after signing the partial agreement, and will consider increasing further purchases. As the easing trade tensions boosted market confidence, mainland stocks performed better this week. The official Chinese PMI and Caixin PMI data will be released next week.

• Recent activities include : Attended The Private Wealth Asia Forum, Harris Fraser Hong Kong Property Market Outlook andInvestment Strategy Seminar and Press Conference, Taiwan Immigration Seminar etc.
• Media include : SCMP、imoney、AAStocks、TVB、HKEJ、MingPao、HKET、Metro Broadcast、Commercial Radio Hong Kong etc (including but not limited to the above)
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Investment Research -  Harris Fraser Group 

United States

US stocks are still in a correction period, but the three major indices recorded a rise over the past 5 days ending Thursday. The market is focusing on if there are any breakthroughs in the latest round of Sino-US trade talks. Representatives on both sides have showed a cautiously optimistic attitude towards reaching a partial agreement, providing support to the equity markets. The US Federal Reserve Chairman Jerome Powell is another point of focus, as he mentioned that the Fed would resume expanding its balance sheet soon, driving the short-term US Treasury bond prices up, the announcement of the plan also improved equity market sentiment. The US will release the economic Beige Book and September retail sales data next week.

Europe

Trade worries have eased and European stock markets have performed relatively better than global stocks recently. Over the past 5 days ending Thursday, both the French CAC and German DAX recorded cumulative gains of over 2%, while the FTSE 100 also recorded a 1.54% rise. Earlier, the European Central Bank (ECB) announced after the September meeting that it would restart quantitative easing in November. The ECB minutes released last week showed that ECB officials have differing opinions over the composition of the monetary stimulus, about 30% of the 25 members of the management committee actually opposed to the restart of quantitative easing. On the other hand, the Brexit fiasco, which is about to reach the deadline, has took a dramatic turn. The British and Irish leaders issued a statement after the talks, claiming that they have found a way to reach a potential agreement, driving the GBP/USD up sharply from about 1.22 to a level above 1.24.

China

The Chinese stock market resumed on Tuesday after the long holiday, and recorded a good performance. Both the CSI 300, SSE Composite and SZSE Component Indices rose for four consecutive days. On the contrary, the performance of HSI was mixed, with the best performance recorded on Friday. This week, the market has been focusing on the Sino-US economic and trade talks, yet there were still rumors on the eve of the talks. It was reported that the White House is looking into restricting government pension funds from investing in Chinese stocks. However, after the conclusion of the first day of trade talks, both representatives hinted that they were cautiously optimistic on reaching an agreement, and the US President Donald Trump also remarked that the talks went smoothly. The news drove the overall Asian stock market up on Friday. Next week, China will release a number of important economic data, including Q3 GDP, CPI, Fixed Asset Investment, Industrial Production, Retail Sales etc.

Recent activities include : Attend The Private Wealth Asia Forum, Harris Fraser Hong Kong Property Market Outlook and Investment Strategy Seminar and Press Conference, Taiwan Immigration Seminar etc.

Media include :  SCMP、imoney、AAStocks、TVB、HKEJ、MingPao、HKET、Metro Broadcast、Commercial Radio Hong Kong etc (including but not limited to the above)

Publishing on newspapers, magazines and online sections  : “Capital”, “SingTao Newspaper”, “Sing Tao Investment Weekly”, “Headlines News”  , “ET Net”, “OrangeNews”, “Quamnet” and online videos collaborated by Mason Securities limited and Harris Fraser Group.

US

As Chinese trade negotiators cancelled the US farm visit last week, stock markets tumbled as the prospects of an early trade deal diminish. President Trump later on reassures the market, claiming that a deal to end the trade war “could happen sooner than you think” on Wednesday, he also mentioned reaching an early trade agreement with Japan on agricultural products, relieving the tensions built up and providing support to the market. All 3 major indices recorded a slight drop of 0.75-1.86% over the past 5 days ending on Thursday. Economic figures released over the week came as a surprise. While Manufacturing PMI and Q2 Core PCE (QoQ) posted surprisingly strong figures, the more important Services PMI and Consumer Confidence Index both missed expectations, which highlights possible economic downturn in Q3 2019. Durable Goods, August Core PCE and University of Michigan Consumer Sentiment figures will be released later tonight, while ISM Employment & Manufacturing, Unemployment, and Non-farm Payroll figures will be released next week. From the figures, investors will be able to catch a better glimpse of the US economic health.

Europe

As of Thursday, most European markets has recorded a drop with STOXX 600 dropping 0.76% over the past 5 days. As the Supreme Court ruled that the prorogation of the parliament was unlawful, MPs resumed work on Wednesday amongst Brexit chaos. While EU leaders agree there is likely to be another extension to the Brexit deadline, the defiant UK Prime Minister Boris Johnson insists on leaving the EU on 31 October “no matter what”. Investors should continue to keep an eye on the further development as the deadline closes in. European economic figures were terrible, with all major PMI figures missing expectations. In particular, Markit Germany Manufacturing PMI even fell to 41.4, which is the lowest point ever since mid-2009. Poor economic figures due to global political uncertainty will likely plague the markets in the coming months as the trade war and Brexit continues. Next week the market will be mainly focusing on European retail, PMI, and CPI figures, plus UK PMI and GDP figures.

China

Chinese markets recorded a dip over the week ending on Friday, with drops ranging from 1.82-3.77% across major indices. Industrial profits dropped by 2% YoY in August, mainly due to a 3.2% drop in the manufacturing sector, combining that with the negative PPI figures and we could catch a glimpse of the trade war effects building up. China’s Foreign Minister Wang Yi mentioned that China is willing to increase the purchase of US goods, hoping both sides can reach a trade deal soon, echoing Trump’s earlier remarks. With positive news building up in the background, we could expect Chinese markets to react positively, especially as the National Day closes in, the government is expected to provide better support to the markets. Just right before China enters the weeklong holiday, Caixin PMI data is scheduled to release on Monday, which could provide further insight into the manufacturing sector health.

One of the more notable policies enacted in the EM sphere was the unexpected corporate tax cut in India, amounting to more than US$ 20 billion. This has created a short-lived euphoria in the India markets, rising almost 8% over 2 days. Similar policy stimulus and structural reforms are taking place across the globe, such as the recent pension reform bill in Brazil, to counteract against the effects of the receding global economy via boosting confidence and investment. This is positive for EM going forward as the structural reforms offers great opportunities for their markets.

Yet warning signs continue to exist. The ongoing trade war remains one of the biggest threats to the EM economy, represented by the falling global manufacturing PMI, being in the downtrend and remaining in the contraction zone for 5 consecutive months. A recent regional outlook report released by the Asian Development Bank has scaled down the growth forecasts of most of the economies in the region, citing a more intensified impact from the trade war fallout. The Bank expects the effects to persist well until 2020, cutting forecasts by 0.3% for developing Asia in 2019 and 0.1% in 2020

Despite the shaky fundamentals globally, we believe that the trade war beneficiaries like Vietnam and Taiwan should continue to benefit from the effects of the trade war as production lines move out of China. Caution is needed before investing in EM due to the higher systematic risk.

The economic data of Eurozone remains poor, Markit Eurozone manufacturing PMI worsened to 45.7 in September, staying in the contraction zone for 8 consecutive months. The leading indicator of Eurozone economy, Economic Sentiment Indicator in Eurozone, worsened by 1.4 to 101.7 in September, continuing the downtrend from late 2017. Growth stays sluggish and shows poor signs of improvement, domestic demand is expected to be limited reflecting the continued stagnant economy in the Eurozone.

As for the never-ending Brexit matters, UK prime minister Boris Johnson claimed he has prepared a plan to resolve the “Irish Backstop”, though sources say the EU authorities are going to reject the proposal as it does not actually solve the issue. With the deadline for Brexit closing in, although the Benn Act is in place to force Johnson to request for an extension from the EU in the case of a “No-deal” Brexit, we are still not yet certain how the events will unfold. We have no idea if Johnson will be able to strike a deal with the EU, will he try to push for a hard Brexit, or if there will be a no-confidence vote alongside a caretaker government to delay the Brexit deadline. With all the uncertainties, we suggest investors to stay vigilant and prepare for all possibilities.

Moving on to the monetary policy, while the ECB’s rate cut of 0.1% from -0.4% to -0.5% was widely anticipated and mostly priced in over the month, the restart of asset purchase was a pleasant surprise, with the total amounting to EUR 20 billion per month starting from November. The central bank also introduced a tiered deposit rate to help out European banks. That said, while additional liquidity could provide support to the market, geopolitical factors and the sluggish growth in the Eurozone would likely continue to drag the market down in the last quarter of the year.

 China's overall economic data was still somewhat mixed. In September, both the official manufacturing PMI and Caixin China Manufacturing PMI posted positive surprises, coming in at 49.8 and 51.4 respectively. Yet, growth in the manufacturing industry in China is still expected to be relatively muted. While the August PPI of -0.8% was slightly better than market expectations, it remains in the contraction zone, together with the falling export figures of -1.0% YoY in August, this could mean further weakening in the exporting sectors.

After raising the currency manipulation controversy in August, it was reported that the White House is considering limits to fund flows into China or Chinese related entities via 3 major measures. The measures include limiting Chinese company’s weighting in various Indices, limiting pension funds investment in China, and limiting or even delisting ADRs currently listed in the US exchanges. While these measures do seem farfetched at the moment, the reports could possibly outline future US actions to be taken in order to further pressure China in the trade war.

As the downward pressure continue to mount, the Chinese government has once again introduced policies to stimulate the economy. The People's Bank of China announced further lowering of reserve ratios in early September, releasing RMB 900 billion to the system. While the act is likely going to provide support to the markets, many question the incremental benefits of further cuts. With the large level of cash released back to the system, some experts are also concerned over the rising inflation as the CPI is currently on the higher end. The Premier of the State Council Li Keqiang reiterated the importance of “Six Stabilities” at the State Council, and further supported the local government bond issuances as means to boost the local economy. In light of the recent developments, we continue to suggest investors to stay cautious with regards to the possible economic growth drop off.

Source: Bloomberg, Harris Fraser, Data as of :7-10-2019

While the Nikkei Japan Service PMI was 52.8, Manufacturing PMI further worsened and stayed in the contraction range. Japanese corporate confidence remained weak, machine tool orders fell 37.1% YoY in August, and industrial production went negative YoY once again. Overall, the Japan-wide manufacturing sector’s outlook continues to stay negative. Although CPI, household spending and cash earnings figures remained low, retail sales is surprisingly strong as the sole saving grace, which could be further bolstered by the ongoing Rugby World Cup held in the country. That said, the underlying issues with the Japan economy still exist, the existing trend continues and we have yet to see significant recovery in the Japanese economy, thus we retain our neutral rating for the market.

Sources reported that Japanese Prime Minister Shinzo Abe will not hold a meeting with Korean President Moon Jae-in during the ASEAN conference later this month, further plunging the relations into deep freeze. On the other hand, US president Trump claimed that he had reached agreement with Japan on a “mini trade deal” with agricultural products in focus. While the “deal” was not an official document, the gesture does show further improvement in relations between the two countries, with possible further amendments to be made to the “deal”. This does come in timely as Japan faces stronger headwinds in the economy, not only from worsened relations in Korea, the ongoing trade war, but also the increasing value-added tax from 8% to 10% starting in October. It is expected that the economy, especially industrial and retail sectors, will be more impacted in light of the recent events. Thus, investors should reconsider the situation more carefully and could consider reducing exposure to the region.

Economic figures continue to show warning signs in the US economy, as Markit and ISM PMI figures continue their downtrend in September. ISM manufacturing PMI missed expectations and remained in the contraction zone at a low of 47.8, which is the second contraction in a row, and the lowest point since July 2009. ISM non-manufacturing was 52.6, which missed the expected figure of 55, and marks the continuing downtrend for non-manufacturing figures. This is important as the US economy is dominated by the service industry. The weakening consumer confidence figures in September, coming in at 125.1 which missed the market consensus by 9 points, further shows a possible faltering economy.

As for the latest trade war development, September has been a relatively calm month as both sides are waiting for trade talks to recommence. Although Chinese trade parties have cancelled planned US farm visits earlier in September, causing a brief panic as the markets were concerned over the strained relations. Still, the scheduled trade talk in mid-October will continue as planned, we might see a positive but limited rally early in October. Overall, we expect limited progress in the trade agreement as fundamental differences remain. Even though the US market remains the most robust equity market from a global perspective, as complex existing issues remain, alongside with the weakening global economy at hand, we do not expect the US markets to sky rocket, investors should continue to stay cautious when investing.

Source: Bloomberg, The Conference Board, Harris Fraser, Data as of: 30-9-2019

United States

One of the focus in the market this week is the commencement of the US earnings season. Mixed performance is observed for big Wall Street names, JP Morgan’s Q3 net profit is up 8% year-on-year beating expectations; Citi’s earnings also bested market estimates. However, Goldman Sachs' earnings per share fell sharply by 24%, missing the mark by quite a margin; Q3 profit for Wells Fargo also dropped 26% YoY. Among the 66 S&P 500 constituents which have already announced earnings, about 83% recorded an earnings beat, which is outstanding considering the macro environment. Over the past 5 days ending Thursday, all three major US stock indexes rose more than 2%. In terms of economic outlook, after the IMF lowered its forecast for the 2019 global economic growth to a 10-year low, the Beige Book released by the US Federal Reserve also lowered its economic outlook moderately. The US retail sales falling for the first time in seven months also worried markets. Investors should continue to pay close attention to corporate earnings.

Europe

In Europe,  Brexit matters continue to take the centre stage, as the whole Brexit process taken a dramatic turn. The EU and the UK announced on Thursday that they have reached a Brexit agreement. After the announcement, the pound rose alongside the European stock market, GBP/USD even closed in the 1.30 level on Thursday. Over the past 5 days ending Thursday, the general European stock markets went positive. Apart from the dampening effect on UK stocks due to a strong pound, the German DAX rose 4% and the French CAC rose nearly 2%. However, the deal is yet to complete, the Northern Irish Democratic Unionist Party (DUP) has expressed that they will not accept the new deal, and the British Parliament will vote on the deal this Saturday. The short-term volatility of the Pound Exchange is expected to be very high.

China

On Friday, mainland China released a number of important economic data on economic growth. While Chinese Q3 GDP growth continued the slide to a new low in 27 years, slowing down to 6% YoY, industrial production growth accelerated, and retail sales remained stable. Premier Li Keqiang has set the economic growth target for this year at 6% to 6.5% in the “Report on the Work of the Government”. As for Sino-US relations, both sides have reached a consensus on the outline of the first phase of the trade agreement. It was reported that China and the US might conduct further negotiations as early as the end of October, they might even formally sign the agreement at the APEC summit in November. The market will continue to follow the progress of the trade negotiations closely.

• Recent activities include : Attend The Private Wealth Asia Forum, Harris Fraser Hong Kong Property Market Outlook and Investment Strategy Seminar and Press Conference, Taiwan Immigration Seminar etc.
• Media include : SCMP、imoney、AAStocks、TVB、HKEJ、MingPao、HKET、Metro Broadcast、Commercial Radio Hong Kong etc (including but not limited to the above)
• Publishing on newspapers, magazines and online sections : “Capital”, “SingTao Newspaper”, “Sing Tao Investment Weekly”, “Headlines News” , “ET Net”, “OrangeNews”, “Quamnet” and online videos collaborated by Mason Securities limited and Harris Fraser Group.

United States

US economic data unexpectedly weakened. NASDAQ fell nearly 2% over the past 5 days ending Thursday, while S&P 500 and the Dow fell more than 2%. The US ISM manufacturing PMI released this week surprisingly fell to a 10-year low. In addition, the World Trade Organization lowered its global growth forecast for this year and the next, worsening market sentiment and causing US equities to fall sharply for two consecutive days over the week. The US ISM non-manufacturing PMI released afterwards also brought bad news, falling to the lowest level in three years. The weak economic data drove market's expectation of two Fed rates cuts in 2019 up, driving the 10-year US bond yield back down to the 1.52% level. The market will focus on the non-farm payroll figures released later tonight.

Europe

The WTO authorized the United States to impose tariffs on up to $7.5 billion of EU products, goods such as aircraft will face up to a 10%-25% tariff. The French finance minister said that the EU will make a firm response over the matter. The incident worsened market confidence, causing large drops in European equities on Tuesday and Wednesday. Over the past 5 days ending Thursday, the FTSE 100 and CAC fell more than 3%, while the DAX also dropped more than 2%. The UK Prime Minister Boris Johnson requested the EU to make concessions on Brexit, claiming that the UK is well prepared for a case of “No Deal Brexit”. The European Parliament on the other hand is concerned about the details of UK's Brexit plan. It was reported that even if the EU rejects Johnson’s proposal, the UK administration still has a backup plan. As the Brexit deadline approaches, market uncertainty rose, and GBP/USD is fluctuating between 1.22 and 1.44.

China

Due to the National Day holiday in China, the Shanghai and Shenzhen stock markets will be closed from Tuesday until next Tuesday, Hong Kong markets was closed on the National Day. Due to drop offs in international markets, Hong Kong equities performed poorly this week, but still outperformed the global markets. The Hang Seng Index fell 0.85% in the week while the H-Share Index fell 0.64%. In terms of economic data, Hong Kong retail sales in August recorded the largest year-on-year decline ever. As for the Sino-US trade relations, US soybean exports rebounded to the highest level in seven months as the tension between the two sides eased temporarily. On the week ending September 26, total sales increased from 1.04 million tons to 2.08 million tons week-on-week. China will release figures on foreign exchange reserves and Caixin Services PMI next week.

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