China plans stimulus as Fed signals potential rate cuts ahead

Investors are preparing for potential rate cuts from the Federal Reserve as inflationary pressures ease.

Recent Inflation Data

Recent data shows mixed inflation numbers, with the core consumer price index (CPI) rising by 0.3% in September, surpassing expectations and remaining unchanged from the previous month. Despite concerns about the Fed's willingness to cut rates aggressively, the overall trend suggests a gradual move towards lower rates, as headline inflation has dropped to 2.4%, the lowest level since 2021.

Fed's Confidence in Inflation Trend

Officials at the Federal Reserve have expressed confidence in the moderating inflation trend, with New York Fed President John Williams noting "pretty steady" progress. The Fed's preferred inflation measure, the personal consumption expenditure index, also shows positive signs. The minutes from the Fed's last meeting indicate a desire among officials to reduce rates from their current levels, which could support equity markets.

China's Economic Measures

China's government plans to increase central government debt issuance to support its economy. While specific details are lacking, the recent press conference revealed positive developments, including measures to stabilize the property sector and alleviate the debt burden on local governments. A program to assist major state banks in rebuilding their core tier-one capital positions is expected to enhance their lending capabilities.

Impact on Oil and Gold Prices

Oil and gold prices have lost some momentum due to potential ceasefire developments between Hezbollah and Israel. However, geopolitical tensions are likely to sustain hedging demand for these commodities. Fundamental factors are expected to support both oil and gold prices in the coming months, with modest supply growth and solid economic growth driving demand.

Investment Recommendations

Investors are advised to approach the Chinese equity market with caution and consider using market dips as an opportunity to increase exposure. Maintaining exposure to oil and gold within a well-diversified portfolio is recommended as both commodities can serve as effective hedges against market uncertainty. The interplay between monetary policy and commodity prices will be crucial for investors looking to optimize their portfolios.

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