Surprising Rate Cut from South Korea, Lagarde's Tariff Assessments, and Expectations for China's Economy: What's Happening in Global Markets?

Global markets are being shaped by the interest rate decisions of central banks and economic expectations. While the Bank of Korea has cut interest rates, Japan is experiencing record tax revenues, and confidence in the service sector in the UK is declining, JPMorgan is optimistic about US equities.

The Bank of Korea has lowered interest rates The Bank of Korea has reduced the base interest rate by 25 basis points, from 3.25% to 3%. The bank cited weak exports and moderate domestic recovery as factors influencing the country's growth while making this decision. It has set growth forecasts for 2024 and 2025 at 2.2% and 1.9%, respectively, highlighting currency fluctuations, global oil prices, economic growth trends, and potential changes in public utility fees as key risks. This rate cut is viewed as a measure to support economic growth, aiming to balance geopolitical and financial challenges through such economic interventions.

Japan's record tax revenue expectations Tax revenues in Japan are expected to reach record levels for the fifth consecutive time in the fiscal year ending in March 2025. This will enable the government to fund part of a ¥13.9 trillion (approximately $91.7 billion) spending package aimed at alleviating the impact of rising living costs on households. It is anticipated that total nominal tax revenues may rise to around ¥73.4 trillion due to strong corporate profits and increasing inflation. This growth indicates that as Japan's tax base expands, its financing sources are becoming more sustainable, with the government planning to use the increased revenues to strengthen social and economic structures.

Expectations for rate hikes from the Bank of Japan JPMorgan analysts predict that the Bank of Japan (BOJ) will increase interest rates in the near future. They anticipate that the BOJ will raise rates to 1% by the end of 2025 and to 1.5% in 2026. Evaluating the economic situation in Japan, JPMorgan indicated that the country’s yields may perform lower compared to global developed markets next year. The effects of the BOJ's gradual rate hike policy are a matter of curiosity, as this move is part of strategies aimed at strengthening Japan's economic stability.

Decline in the service sector confidence index in the UK The Confederation of British Industry (CBI) announced that business sentiment in the UK's service sector has experienced the fastest decline in two years. The confidence index has fallen due to the tax increases announced by Chancellor Rachel Reeves in the budget dated October 30, indicating that consumer services may bear the burden of a £25 billion payroll tax. A similar drop in confidence is also observed in business and professional services firms. The decrease in economic confidence could impact the job capacity and growth potential within the service sector, signaling the economic challenges the country may face in the short term.

Positive outlook for US stocks from JPMorgan JPMorgan's equity strategy team has revised its outlook for the US markets positively. Setting a target of 6,500 points for the S&P 500 index by the end of 2025, JPMorgan expects influences from a healthy labor market, potential interest rate cuts, and the competitive landscape of artificial intelligence technology. Led by strategist Dubravko Lakos-Bujas, the team built its bullish expectations on these factors. Lakos-Bujas noted that geopolitical uncertainty and changing policy agendas might pose challenges, but he expressed optimism that opportunities would outweigh risks, indicating that US stocks could strengthen further in the future.

Lagarde assesses the impact of global trade wars European Central Bank (ECB) President Christine Lagarde shared her views on the adverse consequences of trade wars and tariffs that could affect the global economy. In a statement to the Financial Times, she noted that a general trade war could have negative effects not only on countries targeted by the US but globally. Lagarde emphasized that tariffs would have detrimental long-term effects on global economic growth. She mentioned that managing trade with mutual benefits in mind, especially between Europe and China, is particularly appealing and could enhance the potential for such agreements. Lagarde remarked that over time, US tariffs might become a more interesting consideration, potentially prompting Europe to negotiate increased purchases of liquefied natural gas from the US. She emphasized that considering mutual interests could expand Europe's energy trade strategies.

Effects of Trump's tariff threats towards China ING China's Chief Economist Lynn Song stated that Trump's tariff threats directed at China have generally not produced the expected effects in the markets. Song indicated that Chinese stocks did not pay much attention to initial tariff threats, suggesting that the 60% tariff threats are already reflected in prices and that a 10% increase might have brought some relief. She also noted that Trump's threats were aimed at achieving specific effects rather than being ideologically driven, linking them to issues such as the fentanyl crisis in the US. Trump's tariffs are considered significant factors shaping global trade balances. Despite these threats, there have been no changes in China's economic strategies, while the future of trade relations between the two countries remains uncertain.

Deposits in China offer hope for stock markets The head of HSBC's Asia-Pacific equity strategy emphasized the substantial household deposits in China, highlighting their potential to flow into stock markets or the real economy. The size of household deposits, reaching $20 trillion in September, is twice the size of the A-share market. HSBC officials mentioned that if the economy improves and new policy measures are effective, some of these deposits could flow into the stock markets. This potential influx could serve as a significant driving force for Chinese equities, with increased confidence in the economy potentially leading to substantial rises in stock prices.

Growth expectations for the Chinese economy Experts expect China’s Gross Domestic Product (GDP) to grow between 4.8% and 5.0% in 2025. According to a report by Yicai Global, a 5% GDP increase aligns with China's goal of doubling its per capita GDP by 2035. The research was prepared by Zhang Ming from the Chinese Academy of Social Sciences. Zhang anticipates that the central government of China will raise its budget deficit target to between 4% and 4.5% in 2025. These projections shed light on China's long-term economic planning.