British Prime Minister Keir Starmer is about to initiate a significant government reset as he navigates a tumultuous first 100 days in office marred by policy missteps, public criticism, and a “freebie” scandal.

To regain momentum, Starmer has made critical changes to his leadership team, including the departure of Chief of Staff Sue Gray, who faced scrutiny for her management style and performance.

Morgan McSweeney replaces Sue Gray

Starmer has appointed Morgan McSweeney, the mastermind behind the Labour Party’s election victory, as Gray’s replacement and added two deputy chiefs of staff to strengthen his office.

To enhance communication strategies following backlash over gifts received by Starmer and senior ministers, Downing Street’s media relations team has also been revamped with the appointment of James Lyons, who previously led policy communications at TikTok.

This restructuring comes as the Labour administration grapples with the need to present a more robust policy platform and a clear direction, with analysts expressing skepticism about whether these changes will suffice.

All eyes on Finance Minister Reeves

As the government prepares for the upcoming Autumn Budget, set to be unveiled on October 30, all eyes are on Finance Minister Rachel Reeves.

She is expected to outline her spending plan, aiming to instill confidence in a government that has struggled to define its fiscal policies.

Both Starmer and Reeves have attempted to temper negative rhetoric about the UK economy, suggesting a period of national renewal is on the horizon.

Reeves has also hinted at revising proposals that could deter wealth, including reconsidering tax hikes for private equity leaders and plans to eliminate the UK’s controversial non-domicile status.

Furthermore, Reeves is promoting initiatives to stimulate investment, including a new national wealth fund and potential changes to pension regulations, in response to speculation regarding amendments to the UK’s fiscal rules.

‘Tough decisions’

Labour has previously committed to a fiscal guideline established by the former Conservative government, which mandates that national debt must decrease as a share of GDP within five years.

Despite these efforts, the government faces an uphill battle as negative sentiment looms over the country.

Starmer’s recent warning of “tough decisions” to come, alongside the Treasury’s revelation of a £22 billion ($29 billion) fiscal gap allegedly inherited from the Conservatives, has contributed to the unease.

Former Finance Minister Jeremy Hunt has labeled these claims as “fictitious.”

In light of these challenges, analysts at Citi have urged the government to act swiftly on its growth strategy.

They warned that the UK is at a critical juncture, stating, “A transition from the low growth, low investment equilibrium is increasingly urgent.”

A recent survey by KPMG and the Recruitment & Employment Confederation revealed that British businesses have stalled hiring due to uncertainty surrounding government tax policies, industrial strategy, and workers’ rights.

Consumer confidence has also plummeted, with GfK data indicating the largest decline since Russia’s invasion of Ukraine, despite a drop in interest rates that has eased some pressure on households.

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Oil prices have had a strange year since the war broke out between Israel and Hamas on October 7, 2023. 

Exactly a year ago, Hamas, a Palestinian political and militant outfit, launched an attack on southern Israel, killing 1,200 people.

That marked the beginning of the war between Israel and Hamas, which still rages on. 

Though Israel and Palestine are not oil producers, there have always been risks that the conflict in the Middle East could become wider, involving prominent oil producers, Iraq and Saudi Arabia in the region. 

The Middle East is home to more than half of the world’s oil reserves. 

Oil prices have declined since October 2023

Interestingly, even with the ongoing conflict between Israel and Hamas, oil prices have declined since last year.

Brent crude oil is down nearly 10% since the beginning of the war, while the US benchmark, West Texas Intermediate has fallen 12%. 

On October 20, 2023, Brent crude oil prices hit $93.79 per barrel, which is the highest in the last 12 months.

Prices had risen as Israel launched its large-scale ground assault in the Gaza Strip in Palestine, marking the beginning of its invasion into the territory. 

On October 20 last year, the price of WTI also hit $90.78, a level that it has failed to breach since then. 

Both oil benchmarks hovered between $80-$90 during the first month and a half of the Israel-Hamas war.

However, poor global oil demand and no real disruptions to oil supply from the Middle East began to weigh on sentiments.  ANZ Research said in a report:

However, the oil market has viewed the risk of supply disruptions as low, as both sides worked to contain the conflict.

Since the beginning of 2024, oil prices have become more resilient to news coming out of the Israel-Hamas war.

The geopolitical risk premium on oil prices had somewhat worn off during the last few months as the market turned its attention to demand concerns.       

Poor demand and high supply weigh on demand

In the last few months, oil prices have struggled as demand from the largest importer, China, remained sluggish. Beijing’s economy has been a matter of concern for oil bulls as the country tries to navigate out of a crisis. 

In addition, robust oil supply from the largest producer, the US, and other countries have halted oil’s march. 

Top energy organizations have cut their forecasts for oil demand growth this year and the next, citing a poor recovery in China’s economy and adequate supply with producers. 

Additionally, OPEC+ has enough spare production capacity of crude oil to offset any kind of supply disruptions in the Middle East. 

OPEC+ has been withholding around 5.86 million barrels per day of oil from the market. That is nearly 6% of the world’s total supply. 

Iran’s attack on Israel renews tensions in Middle East

Last week on Tuesday, Iran fired ballistic missiles toward Israel in response to the killing of a prominent Tehran-backed Hezbollah leader, which escalated the conflict in the region two-fold. 

Oil prices soared 8% last week as tensions escalated and traders waited for Israel to respond to Iran’s attack by targeting Tehran’s oil facilities. 

Before last week, Brent prices had plunged to below $70 per barrel on demand concerns for the first time since August 2021. 

Last week’s escalation proved that even though there has not been a significant disruption in oil supply from the Middle East since last October, a wider conflict can pose a serious threat. 

With Iran’s involvement in the Israel-Hamas conflict, there is a possibility of Iraq and other major oil producers in the region getting involved. 

Additionally, about 17 million barrels per day of crude oil transits the Strait of Hormuz trade route, which is between the Persian Gulf and the Gulf of Oman. 

In case of further escalations, oil tankers transiting the Strait of Hormuz could be targeted and supply could be hit simultaneously. 

As we complete a year of the Israel-Hamas conflict, oil is rising again. This time, other countries in the region–Lebanon and Iran–are involved in the conflict too. 

According to ANZ Research, the situation could blow out of proportion if Iraq joins the war. Iraq is the second largest oil producer after Saudi Arabia in the OPEC group, and it is home to several Iran-backed proxy groups. 

At the time of writing, the price of Brent was $80.58 per barrel, up 3.5%, while WTI prices were 3.6% higher at $77 per barrel.  

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After a strong start, with shares surging over 10% following the Golden Week holiday, Chinese stocks reversed course as the much-anticipated news conference failed to deliver substantial details about boosting the country’s sluggish economy.

In a session marked by volatility, the Shanghai Composite Index in mainland China climbed about 5% by late morning, while Hong Kong’s Hang Seng Index tumbled 5%, reflecting a split in investor sentiment.

Unmet expectations from China’s economic planners

Market participants had eagerly awaited further insights into the Chinese government’s plans to reignite economic growth.

However, the National Development and Reform Commission (NDRC) offered little clarity.

NDRC Chairman Zheng Shanjie attempted to strike a confident tone, asserting that China will achieve its economic and social targets for the year.

However, he acknowledged mounting pressures, stating, “The downward pressures on China’s economy are also increasing.”

Zheng also confirmed plans to allocate 200 billion yuan ($28bn; £21.5bn) for spending and investment projects by the year’s end.

Despite the announcement, investors were left disappointed by the absence of a more robust fiscal stimulus package.

Market reaction to stimulus shortfall

“The market really expected more,” said Alicia Garcia-Herrero, chief economist for the Asia Pacific region at Natixis.

“The correction will be even stronger if the data on the Golden Week in terms of consumption is weak,” she added, emphasizing the market’s reaction to the perceived lack of tangible measures.

Garcia-Herrero also critiqued the government’s timing, stating, “I would not have organized a press conference not to announce anything new.”

Growing concerns over China’s economic trajectory

China’s leadership has been under pressure to revive confidence in the world’s second-largest economy as fears mount that the country might fall short of its 5% annual growth target.

In recent months, authorities have unveiled a range of measures aimed at shoring up the economy, including support for the embattled property sector, stock market interventions, direct financial aid to low-income households, and increased government spending.

However, some economists remain skeptical about whether these moves will be sufficient to tackle the deep-rooted issues facing China’s economy.

Many argue that the country needs broader structural reforms to achieve sustainable, long-term growth.

China’s economic expansion has been decelerating, weighed down by a struggling real estate market, deflationary trends, and other significant challenges.

While the government’s stimulus efforts signal a commitment to addressing these concerns, the lack of clear and decisive action has left many investors cautious about the future trajectory of the economy.

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Indian equity benchmarks were slightly higher on Tuesday, tracking gains in Chinese stocks. 

At the time of writing, the BSE Sensex was up 0.6% at 81,502.37, while Nifty50 was also 0.6% higher at 24,949.60. 

“Looking ahead, several important data releases and events could influence market direction. Investors will be closely monitoring developments in the geopolitical situation and its impact on crude prices,” The Times of India quoted Ajit Mishra, SVP, research at Religare Broking. 

Asian markets dip, China outperform

Most Asian markets fell on Tuesday, tracking overnight losses in Wall Street. 

Asian technology stocks saw the biggest losses on Tuesday, tracking overnight weakness in their US peers amid some regulatory jitters and negative analyst comments, Investing.com said in a report. 

Meanwhile, China’s Shanghai Shenzhen CSI 300 and Shanghai Composite rose around 6-8% after opening nearly 13% higher on Tuesday. 

Trade resumed after the Golden Week holiday on Tuesday as sentiments were supported by a slew of major stimulus measures announced by Beijing recently. 

Investing.com said:

But investors were still watching for more stimulus measures in the country, especially targeted fiscal measures. 

Tata Motors shares drop on muted sales

Shares of Tata Motors dropped today as the company’s Jaguar Land Rover segment’s retail sales were muted during July-August. 

Retail sales of Tata Motors-owned Jaguar Land Rover dipped 3% during the September quarter as compared to the year-ago period. 

Additionally, the Indian operations of Tata Motors are experiencing a slowdown in local demand, which weighed on sentiments as well. 

Shares of Tata Motors were down 1.7% at 912.85 on Tuesday. 

Metal stocks decline as iron ore prices slip

Shares of metal companies declined on Tuesday as a sharp fall in SGX iron ore prices weighed on manufacturers of the steel-making material. 

Also, China’s state planner announced a roadmap to boost its economy, but lacked new fiscal stimulus measures, which dented hopes of investors.

This weighed on metals stocks too as China is the top consumer of base metals. 

Shares of NMDC, NALCO, JSW Steel and Tata Steel were down around 1-4% on Tuesday. This also dragged down the Nifty Metal index over 2% lower. 

Other metal stocks such as Hindalco, Vedanta and Jindal Steel also fell. 

Nifty Bank rebounds 1%

The Nifty Bank index rebounded 1% on Tuesday, snapping a six-day losing streak. 

Shares of HDFC Bank rose 1.8% on Tuesday, while ICICI Bank gained 0.4%. Axis Bank’s stock rose over 1.5% as well.

SBI shares also rose nearly 1%. 

Nifty Infra index also gained on Tuesday, after declining for the past five sessions. 

Shares of hotel companies and Tata Power rose, which aided the performance of the Nifty Infra index. 

RVNL, M&M and Bharat Electronic among major gainers

Shares of Rail Vikas Nigam Limited rose more than 4% on Tuesday. Bharat Electronics’ stock also gained nearly 3% on Tuesday and was among the top gainers. 

Meanwhile, shares of Suzlon Energy also rose 1.3%, while those of Trent jumped more than 3.5%. 

Shares of Mahindra and Mahindra surged more than 2.3% on Tuesday after CLSA upgraded the counter to ‘outperform’ from ‘sell’ and raised the price target as it sees multiple growth triggers for the auto major, Moneycontrol said in a report. 

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After years of sluggish growth, China is  now making bold moves to reignite its faltering economy. 

In a dramatic push, Beijing has rolled out massive stimulus measures aimed at boosting consumer spending, rescuing the crumbling real estate market, and reviving its stock markets. 

The Hang Seng Index, which had been languishing for four consecutive years, recently surged by over 18%, marking its biggest two-week rally in nearly two decades. 

But with consumer confidence at historic lows and businesses reluctant to invest, it’s still unclear whether China’s economy is truly turning a corner, or are these measures just a temporary illusion?

Why is China struggling?

China’s economic troubles are deep-rooted. Decades of rapid growth built on property speculation, high debt, and manufacturing have left the country vulnerable. 

The real estate sector, which accounts for 70% of household wealth, has been in freefall since 2021, with property prices in Tier 1 cities dropping as much as 30% from their peak. This has wiped out significant wealth for families and eroded consumer confidence.

In addition, years of strict COVID-19 lockdowns stifled economic activity and left businesses reeling. Even after the pandemic, Chinese consumers have been reluctant to spend, with the country’s consumer confidence index down nearly 30% from 2022 levels. Unemployment, especially among young people, remains high, and the property crisis continues to cast a long shadow over the economy.

What’s inside China’s stimulus package?

In late September, China’s leadership, under President Xi Jinping, unveiled a comprehensive set of fiscal and monetary policies aimed at halting the country’s economic decline. 

The stimulus package includes the issuance of 2 trillion yuan (approximately $284 billion) in sovereign bonds, with half of the funds allocated to relieve heavily indebted local governments and the other half directed toward consumer support programs. 

Additionally, the People’s Bank of China (PBOC) announced interest rate cuts, reducing the 1-year medium-term lending facility rate to 2% and lowering the main policy rate to 1.5%. These rate cuts are intended to ease borrowing costs and stimulate lending.

In an effort to address the struggling real estate market, the government has also reduced the minimum down payment for second-time homebuyers from 25% to 15%, a move designed to encourage more home purchases and stabilize the property sector. 

Furthermore, Beijing is taking steps to support its financial markets by making 500 billion yuan available for lending to investment funds and brokers, alongside an additional 300 billion yuan to finance share buybacks by listed companies. 

These measures aim to boost market confidence and offset the wealth losses caused by the ongoing property crisis.

These policies build on earlier efforts introduced in May, which were largely seen as inadequate in turning the tide. This time, however, Beijing appears to be signaling its determination to take stronger action, adopting a “whatever-it-takes” approach to stabilize the economy and achieve the government’s ambitious goal of 5% growth for 2024.

Are investors overreacting?

Following the stimulus announcements, investors rushed back into Chinese stocks, sparking a short-term rally. Hedge funds with big bets in China saw returns of up to 25%, and the Hang Seng China Enterprises Index jumped more than 35% in just a few weeks, outperforming over 90 global equity indexes tracked by Bloomberg. 

The stock surge has led some analysts, like Goldman Sachs, to predict even more gains—potentially another 15-20%—if the government delivers on its promises.

However, many major players, including JPMorgan Asset Management and Invesco, remain skeptical. While they acknowledge that the stimulus measures have improved sentiment, they warn that many stocks may now be overvalued and disconnected from the reality of China’s long-term economic challenges. The focus, they argue, should be on fundamentals, not short-term market rallies.

Can this stimulus truly resurrect China’s economy?

The real question is whether these measures can spark sustainable growth. Analysts agree that China’s biggest problem isn’t a lack of liquidity or access to loans—it’s the lack of consumer and business confidence. Households, burdened with real estate debt and faced with declining property values, are simply unwilling to spend. Businesses, meanwhile, have scaled back capital investments, wary of an uncertain future and remembering past political crackdowns on private enterprise.

A key part of the government’s strategy is to fix the property market, which has been a cornerstone of China’s economy for decades. By cutting mortgage rates and lowering down payment requirements, Beijing hopes to revive home buying. But with real estate prices continuing to fall and oversupply remaining a problem, many believe this is just a temporary fix.

In addition, consumer-focused measures, such as cash allowances for low-income families and subsidies for families with multiple children, are unlikely to drive long-term demand. These payments will provide a short-term boost, but they won’t solve the deeper issues affecting China’s economy.

What are the potential scenarios to consider?

The recent market rally has been encouraging for investors, but significant risks in China’s economy persist. Looking forward, there are a couple of potential paths that could unfold.

One possibility is that Beijing continues to introduce stronger fiscal measures, such as direct cash payments to households, larger infrastructure investments, or further restructuring of the real estate market. These actions could help stabilize the economy and drive further growth in the stock market. 

If this happens, the current rally may extend beyond a temporary boost, offering potential opportunities for investors, particularly in sectors like technology and green energy, where the government has shown a clear commitment to development.

On the other hand, if consumer confidence remains weak and businesses continue to hesitate on investing, the economy could struggle to gain momentum. In this case, the recent stock market gains could be short-lived, with the economy facing prolonged slow growth or even deflation. 

Investors might want to approach Chinese equities with caution in this scenario, considering safer investment options like bonds or diversifying into other markets to manage potential risks.

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