U.S. & EU "Moving in Different Directions" on Rate Cuts, China Sees "A.I. Excitement"

Economic Overview - The US and Eurozone are experiencing divergent economic trends, particularly in growth, inflation, and monetary policy [2][5] - The core CPI in the US was reported at 3.1% for August, while the Eurozone's was lower at 2.3% [3] - The US labor market is showing signs of deterioration, contrasting with the Eurozone where unemployment is projected to continue falling [3][6] Monetary Policy - ECB President Lagarde indicated that the Eurozone's inflation is on target, suggesting that the ECB may be done with rate cuts [4][5] - The Eurozone's economy has shown resilience, with the manufacturing PMI increasing and returning to expansion territory for the first time since June 2022 [4][6] - The US is facing discussions about potential rate cuts, while the Eurozone appears to be stabilizing its monetary policy [5][8] Currency Impact - The US dollar fell following the CPI data release and the ECB press conference, with expectations of more Fed rate cuts potentially exerting downward pressure on the dollar [7][8] - A weaker dollar is beneficial for international stock investments, as it enhances returns [8][10] International Stock Performance - International stocks have outperformed the US market by over 200 basis points this year, primarily due to currency effects [9][10] - The outperformance of international stocks was initially driven by weakness in the US tech sector and strength in European cyclicals [10] Specific International Markets - Chinese stocks are highlighted as top performers, with significant investments in AI and cloud computing, leading to a potential 60% increase in spending by major companies [11][12] - The MSCI China index is trading slightly above its 10-year average, indicating that while there is excitement, earnings are still being revised down [12]