Last week, Chinese stocks declined as the absence of new fiscal stimulus measures weighed on the market, with the CSI 300 Index dropping by 3.3%. In contrast, the U.S. S&P 500 Index continued to hit new highs, buoyed by gains across various sectors. In the bond market, easing concerns about the economy pushed the U.S 10-year Treasury yield back above 4%, while the spread between 10-year and 2-year Treasury yields widened to around 13 basis points. The U.S. Dollar Index also edged up slightly to approximately 103.

Key Economic Data Review for Last Week:

U.S. CPI:
The September CPI rose 2.4% year-over-year (previously 2.5%), slightly above market expectations of 2.3%, but still the lowest level since February 2021. This increase primarily reflected higher prices for apparel, medical services, and transportation services.

Meanwhile, rent inflation, which is closely watched by the Federal Reserve, rose 4.8% year-over-year (previously 5.0%), while owners’ equivalent rent increased 5.2% (previously 5.4%), both continuing their gradual decline.

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U.S. Michigan Consumer Sentiment Index:
The preliminary reading for the October University of Michigan Consumer Sentiment Index came in at 68.9, down 1.2 from September. The report showed that consumer optimism about the current economic situation was up 8% compared to the same period last year, although dissatisfaction with high prices remains.

Optimism about business prospects reached its highest level in six months, but confidence in personal finances, both current and future, showed slight declines. With the presidential election approaching, some consumers are finding it difficult to make long-term economic forecasts.

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Key Economic Data Review for This Week:

U.S. Retail Sales (10/17):
September employment data showed that the labor market remains balanced, while services PMI continued to expand, reflecting the resilience of the service sector in supporting U.S. consumption and employment. The market currently expects September retail sales to show a year-over-year decline to 1.8% (previously 2.1%) due to last year’s high base, but strong consumer resilience is likely to support a monthly increase of 0.3% (previously 0.1%).

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Eurozone Monetary Policy Meetings (10/17):
For the first time, the Eurozone’s September Harmonised Index of Consumer Prices (HICP) fell below the 2% target range. With the region’s economy weakening and several central bank officials expressing support for a rate cut, the market expects the European Central Bank to lower rates by 25 basis points in October, with a further 25 basis point cut anticipated in December.

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China GDP (10/18):
Recent monthly data for China’s industrial output, retail sales, and fixed asset investment have all continued to decline. The market expects China’s third-quarter GDP to grow by 4.6% (previously 4.7%) due to weak demand, making the 5% annual growth target increasingly challenging to achieve.

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Last week, Chinese equities continued to reflect the positive effects of easing policies, with the CSI 300 Index surging nearly 9%.In contrast, the U.S. S&P 500 Index saw a modest increase of only 0.22% due to uneven gains across sectors. In the bond market, the yield on the 10-year and 2-year Treasury note rose as expectations for rate cuts receded, narrowing the 10-year to 2-year yield spread to approximately 5 basis points. Meanwhile, the U.S. dollar index climbed to around the 102 level.

Key Economic Data Review for Last Week:

China PMI: China’s manufacturing PMI for September stood at 49.8 (previous: 49.5), marking the fifth consecutive month of contraction. Among the sub-indices, only the production index returned to expansion territory, while the other indices remained in contraction, indicating that China’s overall manufacturing sector continues to face challenges. Meanwhile, the non-manufacturing PMI came in at 50 (previous: 50.3), ending a two-month rebound. All major indices declined in September, reflecting weak consumer demand, which remained subdued even after a brief summer boost.

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U.S. ISM PMI: The U.S. manufacturing PMI for September was 47.2 (previous: 47.4), remaining in contraction for the sixth consecutive month. While the new orders index and production index improved slightly to 46.1 (previous: 44.6) and 49.8 (unchanged), they remained in contraction, reflecting restrictive financial conditions and uncertainty around the upcoming presidential election, which continued to dampen business investment. In contrast, the services PMI increased to 54.9 (previous: 51.5), reaching its highest level since February 2023. Key sub-indices, such as the business activity index and new orders index, rose to 59.9 (previous: 53.3) and 59.4 (previous: 53.0), respectively, marking the third consecutive month of expansion, with both indices showing gains of more than 6%, highlighting strong demand for U.S. services.

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U.S. Employment Situation: The U.S. unemployment rate for September fell to 4.1%,  better than the previous month and the market expectation of 4.2%. Nonfarm payrolls increased by 254,000 (previous: 159,000), significantly surpassing market expectations of 142,000. Employment growth in September was mainly driven by the leisure and hospitality sector, which added 78,000 jobs, and the education and healthcare sectors, which added 81,000 jobs. Additionally, initial jobless claims have shown a downward trend recently, indicating some improvement in the labor market slowdown.

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Key Economic Data Review for This Week:

U.S. CPI (October 10): The annual growth rate of the August CPI was 2.5% (previous: 2.9%), with a monthly growth rate of 0.2% (unchanged). Core CPI, excluding food and energy, remained stable at an annual growth rate of 3.2% (unchanged), with a monthly growth of 0.3% (previous: 0.2%). Both CPI and core CPI growth rates were the lowest since February 2021. According to the Cleveland Fed, September’s CPI is expected to decrease to 2.25% (August: 2.56%), and core CPI is projected to fall to 3.11% (August: 3.21%).

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FOMC Minutes from September Meeting (October 10): Recent data indicate that inflationary pressures have gradually eased, while the labor market shows no significant signs of deterioration. The focus of the minutes will be on the Federal Reserve’s outlook on the labor market and the economy following the recent 50-basis point rate cut.

University of Michigan Consumer Sentiment Index (October 11): The final reading of the University of Michigan’s consumer sentiment index for September was 70.1, up 2.2 points from August, marking a five-month high. The report highlighted growing consumer optimism about the future, with more consumers expecting a Harris victory in the upcoming election. Inflation expectations for one year ahead fell to 2.7% (previous: 2.8%), while the five-year inflation expectation edged up to 3.1% (previous: 3.0%). The market expects the consumer sentiment index to remain around the 70 level in October.

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The U.S. Consumer Confidence Index for September dropped sharply to 98.7 from 105.6 in the previous month, a decline of 6.5%, marking the largest decline since August 2021, according to data released by the U.S. Conference Board on September 24.

According to the report, the decline primarily reflects concerns among consumers regarding the outlook for the U.S. labor market. The percentage of consumers who believe jobs are currently hard to get increased to 18.3% (from 16.8%), while those expecting fewer job in the future rose to 18.3% (from 17%).

Despite the unemployment rate remaining at historic lows and layoffs being relatively limited, the proportion of consumers who think the economy has already entered a recession increased slightly compared to the previous month.

Inflation remains a critical factor influencing consumer confidence. Although inflation is steadily returning to the Federal Reserve’s target range, the report indicated that consumers’ inflation expectations for the next 12 months rose to 5.2% (from 5.0%). However, the percentage of consumers expecting inflation to decrease saw a slight increase.

Additionally, after the stock market’s volatility in August, the proportion of consumers expecting stock prices to fall over the next year declined to 25% (from 26.7%).

On the family’s financial situation, the survey revealed that consumer purchasing plans have shown a divided trend. There has been a slowdown in plans to purchase electronics, particularly smartphones and laptops/desktops. However, purchasing plans for homes and new vehicles have improved slightly, likely reflecting the Federal Reserve’s recent rate cuts.

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