Last week, following TSMC’s release of better-than-expected third-quarter earnings, the U.S. S&P 500 index hit a new record high. In the bond market, U.S. Treasury yields remained largely unchanged, with the 10-year minus 2-year yield spread holding at 13 bps. Meanwhile, the U.S. dollar index continued to rise to around 103, reflecting the weakened economic outlook in Europe, which has led the European Central Bank (ECB) to adopt a more accommodative stance.

Key Economic Data Review for Last Week:

U.S. Retail Sales (September): Retail sales in September grew by 0.4% month-over-month (previous: 0.1%), surpassing the market expectation of 0.3%. Core retail sales increased by 0.7% (previous: 0.3%). Overall, U.S. consumer spending remains robust. According to a Federal Reserve survey, the current growth in retail sales is likely driven by higher-income groups, whose asset prices have risen significantly due to the wealth effect during the pandemic, making their consumption more resilient.

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Eurozone Interest Rate Decision: As expected, the ECB cut interest rates by 25 bps, bringing the deposit facility rate, the main refinancing rate, and the marginal lending facility rate down to 3.25%, 3.40%, and 3.65%, respectively. The ECB indicated that inflation is expected to rise in the coming months before falling back to the target range next year. Recent data, however, shows that economic growth has been weaker than anticipated, particularly in the manufacturing sector and exports. Although easing policy restrictions and rising real wages may boost economic growth, overall risks to growth remain tilted to the downside.

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China’s Monthly Data & GDP (10/18): China’s September economic data showed initial signs of improvement. Retail sales grew by 3.2% year-over-year (previous: 2.1%), exceeding the market expectation of 2.5%. Industrial output grew by 5.4% year-over-year (previous: 4.1%), also beating the market expectation of 4.6%. However, third-quarter GDP grew by 4.6% year-over-year (previous: 4.7%), with cumulative GDP growth for the first three quarters at 4.8%, still below the full-year target of 5.0%.

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Key Economic Data Review for This Week:

China LPR (10/21): In mid-September, the People’s Bank of China (PBoC) implemented a series of large-scale monetary easing policies, including interest rate cuts, reserve requirement ratio (RRR) reductions, and housing loan rate cuts. At the end of September, the PBoC also lowered the 7-day reverse repo rate by 0.2% to 1.5%. The market expects that the 7-day reverse repo rate will guide the 1-year and 5-year Loan Prime Rates (LPR) down by 25 bps to 3.1% and 3.6%, respectively.

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Canada Interest Rate Decision (10/23): In its September monetary policy decision, the Bank of Canada cut interest rates by 25 bps to 4.25%. With inflation and growth risks in Canada continuing to rise, the market expects the central bank to implement its fourth consecutive rate cut this month, with the possibility of a larger 50 bps cut this time.

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