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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Weekly Market Review:

Last week, a rebound in technology stocks propelled the S&P 500 to a 4% gain, positioning it to once again challenge historical highs. U.S. 2-year and 10-year Treasury yields continued to decline, reflecting expectations of Federal Reserve rate cuts, and the spread between the 10-year and 2-year Treasury yields widened to approximately 10 basis points. Meanwhile, the U.S. Dollar Index fluctuated around the 101 level.

Key Economic Data Review:

China CPI: China’s Consumer Price Index (CPI) increased by 0.6% year-over-year in July (previous: 0.5%). The rise in August was similarly influenced by extreme weather conditions, which drove food prices higher. Excluding food and energy, the core CPI stood at 0.3% (previous: 0.4%). Regarding the Producer Price Index (PPI), August’s PPI decreased by 1.8% year-over-year (previous: -0.8%), marking the 23rd consecutive month of decline. This indicates that deflationary pressures in China are persisting and showing signs of intensification.

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United States CPI: U.S. CPI increased by 2.5% year-over-year in August (previous 2.9%), with a monthly rise of 0.2% (same as the previous 0.2%). Breaking down the components, the year-over-year growth rate of housing services prices rebounded to 5.2% in August (previous: 5.1%). However, due to energy prices declining by 4% year-over-year (previous: +1.1%) pulled the overall CPI lower. Core CPI remained steady at 3.2% year-over-year (same as the previous 3.2%), with a monthly increase of 0.3% (previous 0.2%). Both CPI and core CPI annual growth rates were the lowest since February 2021.

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Eurozone Monetary Policy: In its September policy meeting, the European Central Bank (ECB) decided to cut the deposit facility rate by 25 basis points to 3.5% and announced the narrowing of the interest rate corridor, effective from September 18. The main refinancing rate and marginal lending rate were lowered by 60 basis points, reducing their respective spreads to 15 and 25 basis points relative to the deposit facility rate. On the economic outlook, the ECB raised its core inflation forecast for 2024 to 2026 to 2.9%, 2.3%, and 2.0% (June forecasts: 2.5%, 2.2%, and 1.9%), citing stronger-than-expected service sector inflation. However, due to restrictive financial conditions dampening private consumption and investment, the ECB lowered its economic growth projections for 2024 to 2026 to 0.8%, 1.3%, and 1.5% (June forecasts: 0.9%, 1.4%, and 1.6%).

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Key Data to Watch This Week:

U.S. Retail Sales (9/17): U.S. retail sales grew by 2.7% year-over-year in July (previous 2.0%), with a monthly increase of 1% (previous -0.2%). The July rise was largely driven by a 4% rebound in auto sales, reflecting recovery from the June slowdown caused by a cyberattack. The market expects August retail sales to normalize, with year-over-year growth slowing to 2.2% and a monthly increase of 0.2%.

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U.S. Monetary Policy (9/19): During the Jackson Hole symposium, Federal Reserve Chair Jerome Powell signaled that the time for policy adjustments had arrived, raising market expectations for a rate cut at the upcoming meeting. However, recent mixed U.S. economic data have created uncertainty regarding the size of the rate cut. According to Fed Watch data, the probabilities of a 25-basis-point and 50-basis-point cut are both at 50%.

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Japan Monetary Policy (9/20): After the Bank of Japan raised rates in July and indicated that it would refrain from further hikes in times of market instability, the market expects the BOJ to hold rates steady at this meeting, with the possibility of another rate hike in October or December.

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(Photo Crited: Pixabay )

Last week, a series of U.S. employment data fueled concerns about a potential economic recession, causing the S&P 500 to drop 4.2%, marking its worst weekly performance since January 2022. U.S. 2-year and 10-year Treasury yields fell, reflecting market expectations of a more aggressive rate cut path for the rest of the year, with the 10-year/2-year Treasury yield spread turning positive. The U.S. dollar index also declined as expectations for more significant Federal Reserve rate cuts rose. Below is a recap of key economic data from last week:

• United States ISM PMI: The U.S. Manufacturing PMI for August came in at 47.2 (previous 46.8), remaining in contraction territory for the fifth consecutive month. This continued to reflect the restrictive monetary policy and uncertainties around the U.S. election, dampening corporate investment sentiment. Meanwhile, the U.S. Services PMI for August was 51.5 (previous 51.4), marking two consecutive months of expansion, with all sub-indices in expansionary territory.

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• United States Employment Report: The U.S. unemployment rate for August was 4.2% (previous 4.3%), in line with market expectations. Nonfarm payrolls increased by 142,000 (previous 89,000), falling short of market expectations of 164,000. Additionally, nonfarm payrolls for June and July were revised downward, signaling further cooling in the U.S. labor market.

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• Canada Monetary Policy: On September 4, the Bank of Canada (BoC) announced a 25 basis point rate cut, marking the third consecutive rate cut since June. Although inflation has returned to the target range, the BoC has begun to express concerns about the risk of deflation due to economic weakness. As a result, markets now expect that if the Canadian economy continues to deteriorate, the BoC may adopt a more aggressive rate-cutting approach.

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Key Data to Watch This Week

• China CPI (September 9): China’s July CPI rose 0.5% year-on-year (previous 0.2%), driven primarily by food prices due to extreme weather. Excluding food and energy, core CPI was 0.4% (previous 0.6%). The market expects August CPI to rise to 0.7%, supported by seasonal demand during the summer and government policies promoting service consumption.

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• United States CPI (September 11): U.S. CPI for July increased 2.9% year-on-year (previous 3.0%), while core CPI, excluding food and energy, rose 3.2% (previous 3.3%), both in line with market expectations and marking the lowest growth since April 2021. According to the Cleveland Fed’s CPI forecast, August CPI is expected to fall to 2.56%, with core CPI projected to ease to 3.21%.

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• Eurozone Monetary Policy (September 12): The ECB left rates unchanged during its July meeting, mainly due to rising wages, which kept services inflation elevated. However, recent data now supports a rate cut, with August’s harmonised index of consumer prices (HICP) falling to 2.2% year-on-year (previous 2.6%). Additionally, adjusted wage growth, which has been a key driver of inflation, dropped to 3.5% in the second quarter (previous 4.7%). As a result, markets widely expect the ECB to cut rates again in September.

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