Last week, U.S. equity markets experienced a pullback, primarily driven by declines in the tech sector, leading the S&P 500 to drop 1.37%. In the bond market, decreasing election uncertainty and a resilient labor market caused yields on 2-year and 10-year Treasuries to rise to 4.212% and 4.386%, respectively, slightly widening the yield spread to 16 basis points. Meanwhile, the dollar index remained steady around 104.

Key Economic Data Review for Last Week:

U.S. Q3 GDP: U.S. Q3 GDP grew at an annualized rate of 2.8% (previous: 3.0%). Consumption rose by 3.7% (previous: 2.8%), contributing 2.46 percentage points, while imports grew by 11.2% (previous: 7.6%), with a negative contribution widening, reflecting strong consumer demand. Residential investment and inventory changes acted as primary drags, but as rate expectations ease and election uncertainty dissipates, the housing market and corporate investment are expected to strengthen.

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Bank of Japan Rate Decision: The Bank of Japan held rates steady at 0.25%, in line with market expectations. BOJ Governor Kazuo Ueda indicated that if economic performance aligns with projections, further rate hikes could be implemented. He also stated that with a more stable market environment, the BOJ no longer needs extra time to observe market dynamics.

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U.S. October Employment Data: Due to the impacts of hurricanes and the Boeing strike, October nonfarm payrolls increased by only 12,000 (previous: 223,000), while the unemployment rate held at 4.1%. However, ADP data shows private-sector employment rose by 233,000 (previous: 159,000), suggesting a robust labor market when unaffected by temporary factors.

 
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Key Economic Data Review for This Week:

China NPC Standing Committee (11/4 – 11/8): Markets will closely watch for additional fiscal stimulus measures and debt issuance aimed at boosting domestic demand. According to Reuters, the upcoming policies could total approximately 10 trillion yuan ($1.4 trillion).

U.S. Presidential Election (11/5): Odds from RealClear Politics and various betting platforms indicate Trump as the likely winner of this election. Polls, however, show both candidates in close contention, with results from key states expected between 11/6 and 11/8.

U.S. Monetary Policy Decision (11/7): Recent U.S. economic data has been strong, with core PCE growth in Q3 easing to 2.2% (previous: 2.8%). Despite a lower-than-expected nonfarm payroll increase of 12,000 in October (due to hurricanes and strikes), the unemployment rate remains at 4.1%. With the labor market still stable, markets anticipate the Fed will cut rates by 25 basis points at this meeting, with another 25-basis-point cut expected in December.

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• Exclusive: China considers over $1.4 trillion in extra debt over next few years

China’s manufacturing PMI rebounded into expansion territory, ending a five-month contraction, according to data released by the National Bureau of Statistics on October 31. The October manufacturing PMI reached 50.1, up by 0.3 percentage points from the previous period, exceeding market expectations of 49.9 and signaling an initial recovery in manufacturing activity.

Among sub-indices, all components saw improvements. The production index remained in expansion, rising 1 percentage point to 52, and the new orders index increased from contraction at 49.8 to 50.0. However, inventory, employment, and supplier delivery time indices continued in contraction.

Additional indicators reflected varied conditions, the new export orders index dipped slightly to 47.3, indicating slower global demand, while the producer price index rose 5.9 percentage points to 49.9, reflecting higher raw material costs and a recovery in domestic demand. The raw material purchase price index climbed 8.3 percentage points to 53.4, and the Operation expectations index improved by 2 percentage points to 54.

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In the non-manufacturing sector, October’s PMI came in at 50.2, up by 0.2 percentage points from the prior period. While most key indices improved, only the input prices index reached expansion, with new orders, sales prices, and employment still in contraction territory.

Industry-specific analysis showed the construction sector’s business activity index declined by 0.3 percentage points from the previous month to 50.4, while services edged up by 0.2 percentage points to 50.1. Transportation, capital market services, and public utility management sectors had business activity indices above 55, whereas accommodation, software and IT services, and real estate sectors remained in contraction.

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Overall, large-scale equipment upgrades and policies promoting consumer goods replacement are gradually supporting a recovery in manufacturing. Accommodative monetary policies also bolster manufacturing and services to some extent. China’s National People’s Congress Standing Committee is set to convene from November 4 to November 8, and the strength of any new policies released will be crucial for sustaining demand recovery and meeting the 5% annual GDP growth target.

China industrial profit continued to decline in September due to expanding deflationary pressure, according to data released by China’s National Bureau of Statistics on October 27.

Profits for large-scale industrial enterprises fell by 27.1% year-on-year in September, down 9.3 percentage points from the previous month’s decline of 17.8%. Cumulatively, profits for the first nine months of the year dropped by 3.5%, compared to a 3.0% decrease in the first eight months.

High-tech manufacturing remained the key driver of industrial profits, with cumulative growth of 6.3%, contributing 1.1 percentage points to overall growth. However, this was a decline from the 10.6% cumulative growth reported for January to August.

Yu Weining, a statistician from the National Bureau of Statistics, attributed the decline to weak domestic demand and falling industrial product prices. Recent figures show that China’s core CPI rose by just 0.1% year-on-year in September, down 0.2 percentage points from the previous month, while the PPI fell by 2.8%, marking 24 consecutive months of decline, reflecting persistent weakness in domestic demand.

With trade barriers expected to increase in the future, China’s manufacturing sector may struggle to absorb its excess capacity through exports and domestic demand, further compressing corporate profits and intensifying deflationary pressures. This could make it even more difficult for China to achieve its 5% annual economic growth target.

From November 4 to November 8, the Chinese government will convene the Standing Committee of the National People’s Congress in Beijing, where the market will be watching for any new stimulus measures.

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Under the pressure to speed up AI development, the White House, on October 24^th, announced the nation’s first-ever strategy for leveraging the power of AI while managing its risks to enhance national security, according to a report by the Washington Post, citing the remarks by national security adviser Jake Sullivan.

The memorandum, in which the roles of China and Taiwan have been highlighted, is instructing the Pentagon and intelligence agencies to boost their use of artificial intelligence, while prohibiting agencies from utilizing the technology in ways that “do not align with democratic values, the report noted.

Sullivan also emphasized that the country needs to accelerate the deployment of AI within the national security framework faster than its rivals, according to another report by Reuters. He stated that if the U.S. fails to implement AI more swiftly and thoroughly to enhance its national security, the nation risks wasting the advantage it has worked so hard to achieve.

It is worth noting that in the memo, the government is instructed to assist U.S. companies in safeguarding their AI technologies from foreign espionage and to continue efforts to diversify the supply chain for high-end computer chips essential for advanced AI initiatives, the majority of which are manufactured in Taiwan, the report suggests.

To hinder advancements in supercomputing and AI that could support the Chinese military, the U.S. implemented export controls on advanced chips and chip making equipment for China in 2022 and 2023, limiting shipments from companies such as AI accelerator giant NVIDIA.

The latest announcement, according to the Washington Post, following an executive order on AI signed by President Joe Biden in October 2023, reinforces the administration’s initiatives to counter technological competition from China and other adversaries.

In addition, this memo reportedly reflects the administration’s ongoing efforts to address concerns regarding the potential risks of AI while simultaneously promoting its use within the government and fostering continued innovation among Big Techs in the U.S.

According to the report, the military has historically been an early adopter of various AI applications, such as image-recognition algorithms that analyze satellite images to identify potential targets and autonomous cruise missiles that navigate complex terrains.

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• [News] Xiaomi Rumored to Have Taped out its First 3nm Chipset, Which Might be Launched Next Year
• [News] U.S. Set to Ban AI Investments in China, with Rules Expected Soon

Netherlands-based chip equipment maker ASML recently announced a reduction in orders for its 2025 forecast, leading to a sharp decline in its shares. The industry is concerned about ASML’s revenue from China.

According to Wccftech, ASML’s CEO Christophe Fouquet mentioned that China’s typical demand accounts for about 20% of ASML’s sales, and he expects that demand will eventually return to those levels in 2025.

He further stated that demand from China is primarily focused on legacy chips based on older-generation technology.

Notably,  Fouquet claims that China may be able to produce some chips at 5nm and 3nm nodes, albeit in limited capacity and using older DUV lithography technology, according to the report from Wccftech.

Whether China has the capability to produce chips at advanced nodes has recently come under scrutiny. Fouquet’s assertion follows reports that Xiaomi has purportedly completed the tape-out of its first 3nm SoC, which might be launched next year, according to the report from Wccftech. This reported innovation in China could assist Huawei’s HiSilicon and other sanctioned Chinese firms in improving their chip design

On the other hand, according to the report from Reuters, Fouquet believes that the U.S. export restrictions will persist regardless of who wins the presidential election.

According to the report from Reuters, Fouquet mentioned that the Netherlands and Europe are debating whether further export restrictions are for national security concerns or trade policy, and whether they would even be effective. He mentioned that even American companies are also thinking about whether these regulatory measures bring benefits or harm.

ASML’s revenue decline is not entirely influenced by China, as the downturn is also attributed to the underwhelming performance of ASML’s major clients, including tech giants Intel and Samsung, according to the report from Wccftech.

According to its press release, ASML revised its total net sales forecast for 2025 to a range of €30 billion to €35 billion, down from its previous estimate of up to €40 billion. Additionally, it reported third-quarter bookings of €2.6 billion, which fell short of the average analyst estimate.

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• [News] ASML Reports Disappointing Q3 Bookings while Lowering 2025 Forecast, Raising Concerns in Chip Sector

(Photo credit: ASML)