The Dow Jones Industrial Average futures, S&P 500 futures, and Nasdaq futures each inched up by a modest 0.1% this morning, after robust overnight gains in Asian markets, with Hong Kong's Hang Seng Index soaring 4.1% after Beijing unveiled fresh monetary-stimulus measures. European markets followed suit, trending higher by midday.

Tuesday's economic calendar is packed, with the Case-Shiller Home Price Index and the Federal Housing Finance Agency House Price Index, as well as the Conference Board's consumer confidence report and the Richmond Fed Manufacturing Index. Federal Reserve Governor Michelle Bowman is also slated to speak.

Yesterday, Western stock indexes edged up, recovering from the shock of last Wednesday's significant U.S. rate cut. Investors are pleased that the plan is on track, though some are growing wary of the U.S. Federal Reserve's frequent strategy shifts. Traders are betting on another significant Fed rate cut by year-end, interpreting recent speeches by Fed members as dovish. Chicago Fed President Austan Goolsbee's soft stance was expected, but Neel Kashkari's dovish comments were surprising. Traders are now eyeing a 75-point easing by year-end, implying a 25 basis point cut and a 50 basis point cut in the remaining two meetings. This shift from a 25bp cut to a possible 125bp cut in three meetings raises questions about what spooked the Fed over the summer, as it’s not evident in the economic data.

But today, the spotlight is on the People's Bank of China (PBOC), not the Fed. China is struggling to hit its 5% growth target this year without stimulus. Consumption is weak, the real estate sector is floundering, industrial production is stagnant, and deflation looms. This toxic mix has already impacted other economies, particularly the luxury and automotive sectors.

Beijing's previous attempts to jumpstart the economy have fallen flat, largely because they were too timid to inspire confidence. However, today's announcements might mark a turning point. While skepticism is warranted—past Chinese measures have often underwhelmed—the new plan appears more substantial. It follows the first U.S. rate cut of the current cycle, offering a window of opportunity for the PBOC. "Rather than spacing out several small easing measures, the PBOC announced a multitude of measures today," notes Robert Carnell, ING's chief Asia Pacific economist. The bank cut the benchmark 7-day repo rate by 20 basis points, a significant move given that Chinese rate cuts usually come in 10-point increments.

Additionally, the reserve requirement ratio for major state-owned banks was reduced from 10% to 9.5%. Carnell suggests this announcement is largely psychological, as banks have funds but lack customers willing to borrow. The PBOC is also opening its lending to financial intermediaries to support risky assets and boost local indices. A large-scale support package for the real estate market is also in play, including a confirmed reduction in the down-payment rate for second homes and full principal loans for state-owned enterprises buying unsold property. These initiatives could pave the way for more, especially as Western central banks are also cutting rates, allowing China to follow suit without upsetting the global equilibrium. Critics will note that these are once again monetary and real estate measures, with no political stimulus program in sight.

This morning, markets are buzzing about the Bank of Australia's rate status quo, the near-parity of French and Spanish debt costs, and the potential for widespread conflict in the Middle East following Israel's offensive in Lebanon. Unicredit's swift takeover of Commerzbank is also causing a stir in Germany. We’ll be watching stocks tied to the Chinese economy, especially European cyclicals like luxury goods, and the defense sector, as Ukrainian President Volodymyr Zelensky suggests peace may be closer than expected.

In the Asia-Pacific region, Tokyo gained 0.5%, Hong Kong's Hang Seng jumped 4%. South Korea rose 1.1%, outpacing Taiwan (+0.9%) and India and Australia, which both closed near zero.

Economic highlights of the day:

The IFO business confidence index in Germany, the FHFA house price index and the Conference Board consumer confidence and Richmond Fed manufacturing indices are on the agenda. 

The dollar is down to EUR 0.8975 and GBP 0.7469. The ounce of gold remains firm at USD 2,631. Oil is steady, with North Sea Brent at USD 75.28 a barrel and US light crude WTI at USD 71.82. The yield on 10-year US debt is at 3.79%. Bitcoin is trading at USD 63,500.

In corporate news:

  • Chevron is expected to authorize Chevron's takeover of Hess, according to Reuters.
  • Boeing offers 30% wage increase to end strike.
  • An Intel-Qualcomm merger is unlikely to be approved by regulators, according to specialists.
  • Constellation Energy is to reopen the Three Mile Island nuclear power plant, with Microsoft's support, to meet AI's enormous energy needs.
  • General Motors and Ford are expected to stop exporting Chinese vehicles to the US if new regulations on automotive software come into force.
  • California accuses Exxon Mobil of misrepresenting its recyclable plastics.
  • Visa faces antitrust proceedings from the U.S. Department of Justice over debit cards, according to Bloomberg.
  • Levi Strauss is behind schedule in achieving its $10 billion sales target, according to the FT.
  • Canadian antitrust regulator wins case against Cineplex for misleading ticket prices.
  • Textron employees in Wichita go on strike after rejection of their labor contract.
  • Luminar Technologies to cut 30% of its workforce this year.
  • Meta's AI chatbot will start speaking with the voices of Judi Dench, John Cena and others, according to Reuters.

Analyst recommendations:

  • Catalent, Inc.: Baird downgrades to neutral from outperform with a target price of USD 63.50.
  • Cnh Industrial N.v.: Raymond James upgrades to outperform from market perform with a target price of USD 14.
  • Exxon Mobil Corporation: Redburn Atlantic downgrades to neutral from buy with a target price raised from USD 119 to USD 120.
  • Juniper Networks, Inc.: Citi upgrades to neutral from rating suspended with a target price of USD 40.
  • Kenvue Inc.: RBC Capital downgrades to sector perform from outperform with a target price of USD 24.
  • Lowe's Companies, Inc.: Oppenheimer upgrades to outperform from market perform with a price target raised from USD 230 to USD 305.
  • Mckesson Corporation: Baird downgrades to neutral from outperform with a price target reduced from USD 603 to USD 531.
  • Seagate Technology Holdings Plc: Zacks downgrades to neutral from outperform with a price target reduced from USD 117 to USD 110.
  • Starbucks Corporation: Jefferies downgrades to underperform from hold with a target price reduced from USD 80 to USD 76.
  • Constellation Energy Corporation: Barclays maintains its overweight recommendation and raises the target price from 211 to USD 280.
  • Vistra Corp.: Jefferies maintains its buy recommendation and raises the target price from USD 99 to USD 137.
  • BP Plc: Redburn Atlantic downgrades to neutral from buy with a target price reduced from GBX 570 to GBX 500.
  • BT Group Plc: Redburn Atlantic upgrades to buy from neutral with a target price raised from GBX 140 to GBX 230.
  • Hunting Plc: Kepler Cheuvreux downgrades to hold from buy with a target price reduced from GBX 555 to GBX 450.
  • Shell Plc: Kepler Cheuvreux downgrades to hold from buy with a price target reduced from EUR 39.50 to EUR 32.50.