Overnight Headlines

*US stocks rose as gains continued for a third day

*USD closed lower on the week, but DXY is stabilising around 94

*Bitcoin is eyeing up record highs at $64899

*China Q3 GDP hits a one-year low, growing 4.9% y/y

US equities closed higher last week with the S&P500 enjoying its best five-day performance since late July (+2.2%). Cyclicals were the clear outperformers with financials and industrials leading the gains. Upbeat earnings from Wall Street banks and iPhone chipmaker TSMC have tempered fears of inflation. The negative GDP surprise in China is holding Asian markets back this morning. US futures are modestly in the red to kick off the week.

USD is mildly bid this morning after closing lower last week. The DXY had seen five straight weeks of gains. EUR/USD traded through resistance last week at 1.1604 but has rolled over and is now trading back below. USD/JPY is holding recent gains after making a new high on Friday at 114.46. NZD traded above 0.71 this morning and the 200-day SMA before pulling back. New Zealand released a decade-high quarterly inflation reading earlier today.

Market Thoughts – China confirms post-pandemic slowdown

China’s third quarter GDP disappointed today printing +0.2% q/q versus 0.5% expected and 4.9% y/y versus 5.2%. Growth weakened due to the property slowdown and energy shortages, posing a challenge to President Xi’s “common prosperity” agenda. The crackdown on leverage in the property sector could mark the beginning of the end of the country’s debt-fuelled model. Some economists forecast Q4 growth will likely drop to 3%-4% with the investment side of demand remaining weak.

An energy crisis is also adding to policymakers’ concerns and has led to power rationing across China. This has pushed factory gate inflation to its highest level since 1995. It has also forced the government to raise coal production despite pledges to cut carbon emissions made last year. The impact of this power crunch on the supply side is increasingly severe.

Chart of the Day – Bitcoin back near all-time highs

Bitcoin is back in the headlines and rising for a fourth consecutive week. A new exchange-traded fund (ETF) is set to be launched which will hold bitcoin futures and use mutual fund rules. It is hoped this regulatory sign-off will give investors “significant protections” that previous funds lacked.

The speed of the recent rebound is prompting some commentators to suggest something is changing. “This time is different” is always a phrase of interest! BTC is vaunted as an inflation hedge. It is also regarded as protection against currency debasement. But there is less reason to worry about this if the Fed raises rates more aggressively. The digital asset has also behaved like a “risk on asset” rising in price when stocks are doing well and the market is optimistic. That said, there should then be less need for a hedge against disaster and debasement.