The Confidence Board sends an ominous signal, but Nvidia and China steady the ship for now

The S&P 500 climbed to a new record high on Tuesday, brushing off a weak consumer confidence report, largely thanks to a surge in Nvidia. Still, broader markets moved in lockstep after Chinese stocks soared, thanks to a slew of bold moves by the Chinese central bank to prop up the world’s second-largest economy. Investors welcomed the surge, and it sent a clear message—China's ready to pull out all the stops to keep growth alive. The ripple effect was immediate, with global markets following suit as traders cheered on the fresh injection of stimulus.

While rate cut fervour continues to pulse through markets, pushing the US index to all-time highs, the moves were cautious. The index danced up and down after a surprisingly bleak consumer confidence report showed a three-year low, as Americans grow more nervous about a cooling labour market.

This report was a disaster by any economic measure, but here we are, in that sweet spot where bad news means bigger rate cuts—and the market’s already eyeing that golden ticket to S&P 6000, as long as we can hang onto the soft landing narrative. Still, today’s labor market signals from the consumer confidence report are flashing neon red. The unemployment rate is almost guaranteed to break above 4.6%, and the employment component of the Richmond Fed Manufacturing Index just plunged below its 2020 pandemic low, now sitting at its weakest since April 2009. If that doesn’t scream recession, I’m not sure what will. Cue the safe-haven yen and back the truck up to load more gold—it’s about to get bumpy into the next NFP report.

Treasury yields slipped following the dismal confidence numbers in the bond market, erasing earlier gains. The 10-year yield dipped to 3.73%, down from 3.75% on Monday, while the two-year yield—more sensitive to Fed rate expectations—fell to 3.55% from 3.59%. The dollar also took a hit, knocked down by the confidence shock and already under pressure from the anticipated aggressive Fed rate cuts.

Meanwhile, China's latest move has lit a temporary fire under investors, injecting much-needed adrenaline into the local market. Chinese policymakers are throwing everything they've got to fight off deflation and breathe life into growth. Do you think it will work long-term? Who knows. But for now, Chinese stocks are gobbling up these stimulus efforts like they're at an all-you-can-eat buffet.

Whenever the People's Bank of China pulls another surprise stimulus rabbit out of its hat, it's like popping champagne for a midday rally in stocks and commodities. But let’s not get ahead of ourselves—leading the horse to water doesn’t mean it’ll drink. We've seen plenty of property support measures this year, yet they’ve barely made a dent in the ongoing slump. The PBoC’s latest moves are promising, but it feels like we’re still waiting for the main event. Maybe what’s needed is some good ol' helicopter money—like the U.S. COVID relief checks—that might be the true magic bullet.

To truly stabilize the property market, two things need to happen: home prices must stop their freefall and ideally start recovering, and those bloated housing inventories need to slim down to historical norms. Until that happens, the drag on growth will be like an anchor slowing the ship.

China’s policymakers finally delivered on the month-long speculation, dropping fresh monetary easing measures that have markets buzzing. Coupled with the Fed’s jumbo rate cut, it temporarily added fuel to the reflationary fire, boosting commodities, equities, and pro-cyclical currencies. It’s a rising tide lifting all boats, for now.

Still, for this global rally to take off, the U.S. and China must align their stars perfectly. The U.S. has to nail that elusive soft landing, while China needs to pull off a major revival in its housing market—a tall order, no doubt.

Yesterday’s PBOC moves felt more like panic than the Fed’s 50bps rate cut. It’s like they hit the “shock & awe” button, which only deepens the worry about China’s slow-motion slowdown. Deflation, de-leveraging, and sluggish growth already have investors on edge, but when you toss in surprise measures like this, it starts feeling more like a scramble than a solution. It’s almost as if they’re trying to extinguish a fire with a flame thrower.

For US markets, all roads lead to US payroll reports. Traders are glued to that magic 150,000 figure—the "replacement level." Once the job count drops below that mark (spoiler alert: we’re already flirting with it), unemployment starts creeping in like that uninvited guest who won’t leave.

Things get spicy here: four of the last five payroll reports have been dangerously close to that line. So the million-dollar question is—how low does this number need to go before the 10-year yield and the US dollar take a nosedive? A negative print would be the market’s version of a mic drop. But even if we land somewhere in the 50k to 100k range, it could still set off alarm bells loud enough to send traders into a frenzy. And in a hypersensitive market, even a slight wobble in the jobs data could ripple through everything from yields to equities like a stone skipping across a pond.