Last week, U.S. stock market sectors experienced volatility, resulting in a slight 0.03% decline in the S&P 500 Index, ending its six-week winning streak. In the bond market, better-than-expected U.S. economic data led to increases in the yields of 2-year and 10-year U.S. Treasury bonds by 15.7 basis points to 4.107% and 4.276%, respectively, with the yield spread remaining at around 14 basis points. The U.S. Dollar Index also rose to around 104 due to market expectations that the Federal Reserve will slow down its rate-cut pace.

Key Economic Data Review for Last Week

China LPR: The People’s Bank of China announced cuts of 25 basis points to both the 1-year and 5-year Loan Prime Rates (LPR), bringing them to 3.1% and 3.6%, respectively. At the Financial Street Forum on October 18, PBOC Governor Pan Gongsheng stated that the central bank is likely to lower the 7-day reverse repo rate by 0.2% before the end of the year, depending on market liquidity. There is also room for further LPR reductions in the future.

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Canada Monetary Policy: The Bank of Canada announced a 50 basis point rate cut, bringing its benchmark rate to 3.75%. Governor Tiff Macklem said that inflationary pressures in Canada have broadly dissipated and that the central bank hopes to see stronger economic growth moving forward. He also indicated that further rate cuts could be on the horizon if the economy develops as expected, to maintain inflation targets and economic growth.

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Key Economic Data Review for This Week

U.S. Q3 GDP (10/30): U.S. retail sales over the past three months have consistently outperformed market expectations, indicating resilient consumer spending. In its October report, the IMF also raised its forecast for U.S. 2024 GDP growth to 2.8% (previously 2.6%) due to strong consumer and investment spending. According to estimates from the Atlanta Federal Reserve, Q3 U.S. GDP is expected to grow at an annualized rate of 3.31%.

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Japan Monetary Policy (10/31): In early October, newly appointed Prime Minister Shigeru Ishiba stated that Japan’s current economic environment is not suitable for a rate hike. Bank of Japan Governor Kazuo Ueda echoed this sentiment, citing market instability and concerns over a potential U.S. recession as key reasons for the Bank of Japan’s cautious approach to rate hikes. As a result, the market widely expects the Bank of Japan to keep its policy rate unchanged at 0.25%.

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U.S. October Employment Data (11/1): The U.S. services sector has continued to support domestic consumption and employment, pushing the unemployment rate down to 4.1% and nonfarm payrolls to a stronger-than-expected increase of 254,000. However, recent hurricanes and the Boeing strike may put downward pressure on the October jobs data. The market currently expects the unemployment rate to remain at 4.1%, with nonfarm payrolls likely to fall to 111,000 due to these short-term factors.

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The People’s Bank of China (PBoC) announced on October 21 a reduction of both the 1-year and 5-year Loan Prime Rates (LPR) by 25 basis points each, bringing them to 3.1% and 3.6%, respectively.

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In mid-September, the PBoC launched a series of large-scale monetary easing measures, including interest rate cuts, reserve requirement ratio reductions, and mortgage rate cuts to support economic growth. Additionally, the 7-day reverse repo rate was lowered by 20 basis points at the end of September, providing guidance for the latest LPR adjustments.

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The September monthly economic data did showed some initial signs of improvement, with retail sales rising by 3.2% year-over-year (previous: 2.1%), exceeding market expectations of 2.5%, and industrial output increasing by 5.4% year-over-year (previous: 4.1%), also above market expectations of 4.6%. Neverthess, the current stimulus plans seem unable to boost the economy.

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China’s third-quarter GDP growth came in at 4.6% year-over-year (previous: 4.7%), with cumulative GDP growth for the first three quarters at 4.8%, still below the annual target of 5.0%, highlighting the increasing urgency for the Chinese government to strengthen policy stimulus.

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China’s monthly economic data in September showed signs of improvement, according to China’s National Bureau of Statistics on October 18.

In terms of consumption, retail sales grew by 3.2% year-over-year in September, up by 1.1 percentage points from the previous month and exceeding market expectations of 2.5%. This growth was mainly driven by household electronics, which surged by 20.5% year-over-year, up 17.1 percentage points from the previous month, reflecting the continued impact of China’s “trade-in” policy. Auto sales in September rose by 0.4% year-over-year, an increase of 7.7 percentage points from the previous month, reflecting the industry’s entry into the peak sales season of “golden September, silver October.”

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In the industrial sector, industrial output increased by 5.4% year-over-year in September, an improvement of 1.3 percentage points from the previous month, and surpassing market expectations of 4.6%. High-tech manufacturing continued to drive overall industrial growth, with a year-over-year increase of 10.1%, up 1.5 percentage points from the previous month, reflecting China’s focus on high-quality development and new productivity policies.

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In terms of investment, cumulative fixed-asset investment grew by 3.4% year-over-year in September, on par with the previous month, and slightly above market expectations of 3.3%. Industrial investment increased by 12.3%, up 0.1 percentage points from the previous period, while infrastructure investment grew by 4.1%, down 0.3 percentage points from the previous period. Additionally, both private and foreign investment continued to decline, signaling weaker business confidence in future prospects.

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Overall, the September data suggests early signs of improvement in China’s domestic economy. However, the latest GDP data reveals that real GDP grew by 4.6% year-over-year in the third quarter, down by 0.1 percentage points from the previous quarter. Cumulative GDP growth for the first three quarters stood at 4.8%, still below the annual target of 5%.

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Despite the Chinese government’s announcement of a series of monetary easing measures in late September, the ongoing slowdown in economic growth indicates that the recovery is still in its early stages. The government will need to expedite the implementation of large-scale fiscal policies to further stimulate economic growth.

Japan’s industrial production declined in August, according to data released by Japan’s Ministry of Economy, Trade and Industry (METI) on October 15. Industrial production in August fell by 4.9% year-over-year, a 6% drop compared to the previous month.

On a month-over-month basis, industrial production decreased by 3.3% in August, down 6.4% from the prior month, and below the market expectation of -0.5%.

By sector, approximately 80% of industries saw a decline in output. The automotive industry, in particular, saw a monthly drop of 10.7% (previously 1.9%) and an annual decrease of 15.4% (previously 2.0%), reflecting the impact of halted production due to data falsification by automakers and weak overseas car sales.

Meanwhile, machinery production fell by 7.8% month-over-month (previously -4.6%) and by 7.8% year-over-year (previously 0.9%), driven by weakening overseas demand.

METI forecasts industrial production to increase by 2.0% in September and by 6.1% in October. However, even if production rises as expected in September, third-quarter output may still be lower than in the second quarter.

Industrial production accounts for approximately 40% of Japan’s GDP. With uncertainty in domestic demand from both the U.S. and China, coupled with the potential end of the global manufacturing growth cycle, Japan’s export and production outlook remains uncertain, adding further pressure on its economic growth.

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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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