Generate's Investment Specialist Greg Smith was on ZB with Mike Hosking this morning, reviewing what drove very strong industrial profit numbers in China, and a significant milestone for the Nikkei in Japan which has hit 50,000 for the first ever. He also discusses what the Fed is likely to do at its meeting this week.
Listen here or read the transcript below:
From Generate Greg Smith, welcome to Tuesday morning.
Thanks, Mike. Good morning.
China, we got some good news. Hallelujah.
Yeah, talking of profits, so Chinese industrial profits up 21.6% year on year in September. That was the biggest rise in almost two years. So it was pretty good. It's actually five times what was forecast and follows a similar gain in August. So it's lifted profits to 3.2% year to date. So that's positive. So manufacturers, they led the way. Earnings they’re up 10% high tech firms drove things.
I suppose, yeah, the rebound is flattered by, I suppose last year's weak base. But you know, some optimism that, you know, the stimulus which is amounting to trillions being rolled out by Beijing is working, as well as efforts to clamp down on inefficient firms. So, you know probably it provides a bit of a bit of the upper hand when Xi meets with Trump this week.
China's economy remains under pressure in places, it's still fragile a little bit when you look at that recovery and it's something that that he will be mindful of. And also they came out of that five-year planning meeting last week saying there are major test for the economy. But hopefully those storms are sort of subsiding this week with that meeting. Of course there have been some olive branches – Treasury Secretary Scott Bessent has said 100% tariff is off the table.
Beijing is also delaying rare earth export curbs, and ramping up US soybean purchases. So motivations on both sides to get a deal before year. Will we get that or we may just give an extended truce? Time will tell.
OK. Then we come to Japan. The Nikkei. I mean there's a number of markets around the world doing records at the moment. Is this this something to do with the new PM? Do they like her?
Oh, absolutely, although you know, Japan's been rallying sort of all year. So it's gone from 50,000 for the first time ever. It had already had a big run, I suppose with deflation looking like it's ending. You've had Bank of Japan moving away from its ultra loose policy.
You had a softer yen driving large exporters’ earnings and you've actually seen money going back into Japan from foreign investors who've been underweight for some time. You've also had AI paying, bit of a theme as well. So high tech supply chains have been moving. But yeah, the latest optimism has come from the new PM, Senai Takaichi. She's pushing a pro growth agenda. She's also very pro security. Defence firms, they underpinned these gains yesterday. So the governments bring forward plans to hit defence outlays of 2% of annual GDP by two years. It's a clear break from the historic cap of 1%.
She wants Japan, which accounts for just 2% global arms sales to become an international powerhouse. She's rolling back long-standing defence export restriction. She's building weapons factories. Well, that's the plan, to accelerate military investment. And Mike export traction there had already picked up prior to her arrival. So Japanese consortium that's a preferred bidder for 11 warships to Australia and little old New Zealand, we're evaluating the same frigates.
So meanwhile, I suppose this defence budget and export reform will get a bit of attention as she's also meeting with Trump this week. Of course he is a big fan of defence burden sharing.
Yes, indeed. And then we come to the Fed. Are they going to cut and what are they basing it given they've got no data?
Yeah they’ve got no data, have they? So they've been flying a bit blind. But Powell did say last week that they continue to monitor a broad set of indicators. He reckons not much has changed since the September meeting. The US government is in shutdown mode. They expected to cut rates by 25 basis points, take the range of 3.75 to 4%. What they did have, Mike, was a lower than expected inflation print on Friday. So .3% for September.
And inflation rate at 3%, that's lower than 3.15 expected. So that's probably a tick in the box. The they had to actually produce this, that data. The Social Security Administration uses it as a benchmark for cost of living adjustments and benefit cheques. So that was good news. It's pushed the US record indices to record highs on Friday again also on Monday as well as we start the week. So cut looks certain third one pegged for December as well.
Commentary, that will be a bit hamstrung. They'll be looking to probably reaffirm reliance on future data for future decisions. But let's see about that. And just by the by, we're getting a decision from the Bank of Canada as well. They're also expected to cut. I guess they'll be mindful of re escalating trade tensions. So Trump's threatened additional teams in tariff, isn't he? Following at that ad featuring Reagan criticising tariffs. ECB they're expected to hold as well. So yeah, a bit going on in Central bank land, Mike.
Numbers please.
So we have record highs and all three indices in the US to start the week, Dow up half percent, 47457. We've got the S&P 500 up 1%. We've got the NASDAQ roaring ahead, up 1.6%. AI chips, Qualcomm, they're getting in on it. They're going to try and sort of compete with NVIDIA. They’re up 13%. Footsie flat, 9649. Nikko as mentioned up 2.5 percent 5512. CSI 300 in China that was up 1.2%. ASX 200 up .4 percent 9055. NZX50 obviously that was closed but was up .1% on Friday.
Gold that's come back from record levels down another 120 dollars, 3994 an ounce. Oil up $0.15, 61.65. And the currencies, Mike, we are higher against the US dollar 57.8, but we're back lower against the Aussie dollar 87.9, against sterling we’re 43.2 up slightly and up against the yen 88.2. Lots going on this week. Central banks, of course, and a deluge of earnings. We've got Apple, Amazon, Alphabet, Microsoft and Meta amongst the big tech.
Good times. We'll see Greg Smith out of Generate for us this morning.