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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Last week, the People’s Bank of China introduced significant easing measures targeting interest rates, the real estate market, and the stock market, leading to a nearly 16% rebound in the CSI 300 Index from its low. Meanwhile, although the S&P 500 had already priced in the Federal Reserve’s 50 basis point rate cut, it continued to hit record highs, buoyed by ongoing gains in tech stocks. In the bond market, the yield spread between the U.S. 10-year and 2-year Treasuries remained steady at around 20 basis points. The U.S. Dollar Index continued its downward trend, consolidating around 100.

Key Economic Data Review for Last Week:

U.S. PCE: The Personal Consumption Expenditures (PCE) index for August increased by 2.2% year-over-year (previously 2.5%) and 0.1% month-over-month (previously 0.2%). The decline in PCE growth was mainly due to falling goods prices, which saw a year-over-year decrease of -0.9% (previously -0.2%), while services prices remained steady with a year-over-year increase of 3.7%. Excluding food and energy, core PCE rose by 2.7% year-over-year, a slight increase from the previous month’s 2.6%.

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China Industrial Enterprises Total Profits: China Industrial Enterprises Total Profits fell by 17.8% year-over-year in August, a sharper decline from July’s 4.1% drop, marking the largest decrease this year. High-tech manufacturing profits, the largest contributor, declined in August, with cumulative year-over-year growth for January to August standing at 10.9% (previously 12.8%). Additionally, profits in mining and consumer goods manufacturing continued to fall due to weak demand, further exacerbating the downward pressure on overall industrial profits.

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Australia Monetary Policy: The Reserve Bank of Australia (RBA) kept interest rates unchanged in its September meeting. The meeting statement indicated that restrictive financial conditions are slowing the economy. While household consumption is expected to rebound in the second half, if the recovery pace falls short of expectations, economic output may remain weak, leading to further slack in the labor market. The RBA also noted that recent data has heightened inflationary risks, and inflation is now expected to return to the target range by the end of 2025 (previously mid-2025).

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Key Data to Watch This Week:

China PMI (September 30): China’s August Manufacturing PMI was 49.1 (previously 49.5), marking the fourth consecutive month of contraction. Nearly all sub-indices declined in August, remaining in contraction territory. Given the still-weak domestic demand and the incomplete impact of monetary policies, the market expects the September PMI to hold steady around 49.5.

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U.S. ISM PMI (October 1): The U.S. Manufacturing PMI for August was 47.2 (previously 47.4). New orders and production indices fell to 44.6 (previously 47.4) and 44.8 (previously 45.9), continuing to reflect the restrictive financial conditions and uncertainties surrounding the presidential election, which have dampened corporate investment. The market expects manufacturing to exhibit uneven recovery, with the September PMI to remain around 47.6.

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U.S. ISM NMI (October 3): The Non-Manufacturing PMI (NMI) for August was 51.5 (previously 51.4). Despite declines in business activity and employment indices, all indices remained in expansionary territory, indicating overall healthy growth in the services sector. With the U.S. holiday season approaching, the market expects the September NMI to hold steady around 51.5, continuing a trend of moderate growth.

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U.S. Employment Situation (October 4): The U.S. unemployment rate for August was 4.2% (previously 4.3%), remaining near historic lows, with nonfarm payrolls increasing by 142,000, within the safe range of 100,000 to 200,000. Additionally, recent initial jobless claims have stopped rising, indicating a slowdown in labor market weakening. Moving forward, it will be important to monitor whether the job market can maintain its current state without deteriorating following the Fed’s rate cuts. The market currently expects the September unemployment rate to stay at 4.2%, with nonfarm payrolls increasing by around 140,000.

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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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