With the end of the U.S. presidential election last week, diminishing uncertainty boosted equity markets, leading to a strong 4.66% rally in the S&P 500 Index, reaching 5,995.5 points.

In the bond market, the victory of Donald Trump and robust economic data drove the 10-year U.S. Treasury yield to approximately 4.5%, before retreating to around 4.3% following a shift in the Federal Reserve’s stance. Meanwhile, the U.S. dollar index edged closer to the 105 threshold.

Key Economic Data Review for Last Week:

U.S. Presidential Election: Presidential candidate Donald Trump secured seven pivotal swing states, claiming victory with 312 electoral votes over Harris and becoming the 47th President of the United States. The Senate has been confirmed as controlled by the Republican Party, and the House currently shows a Republican lead of 213 seats versus the Democrats’ 203 seats. Should the Republicans maintain their lead, the U.S. will enter a period of unified Republican governance under Trump’s administration.

China’s National People’s Congress Standing Committee: The committee announced an increase in local government special bond issuance limits by RMB 6 trillion (approximately USD 837 billion) to restructure hidden local debts. Additionally, over the next five years, beginning in 2024, RMB 800 billion per year from new local special bond allocations will be earmarked for debt reduction, with an anticipated total restructuring of RMB 4 trillion in hidden debt.

U.S. Monetary Policy Decision: The Fed cut rates by 25 basis points at its November meeting, shifting its policy stance from the markedly dovish position of September to a more neutral outlook. This change reflects stronger-than-expected resilience in recent U.S. economic data. Following the meeting, market expectations for rate cuts next year were adjusted, with the Fed now anticipated to cut rates 25 basis points in December 2024, and 75 basis points in the first half of 2025, before pausing further reductions (previously expected to cut four times in 2025).

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Key Economic Data for This Week:

U.S. CPI (11/13): The impact of October’s hurricanes may have pushed many to seek temporary accommodation, driving up service prices. Additionally, hurricane damage to automobiles may lead to further increases in auto parts prices. According to forecasts from the Cleveland Fed, October’s CPI annual growth rate is expected to rise to 2.56% (from 2.41% in September), with core CPI projected to inch up to 3.34% (from 3.26%).

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U.S. Retail Sales (11/15): Entering the traditional holiday shopping season, the National Retail Federation anticipates that strong household financial health will continue to support consumer spending. Market expectations for retail sales growth remain robust, with a monthly increase projected at 0.3% (previously 0.4%) and an annual growth rate of 2.2% (previously 1.74%).

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China’s Monthly Economic Data (11/15): Against the backdrop of government initiatives such as old-for-new consumer goods campaigns and Singles’ Day promotions, the market anticipates that October’s retail sales growth will increase to 3.8% year-on-year (from 3.2%). With Trump’s election as President and the possibility of significant tariffs on Chinese imports, Chinese firms may accelerate production and exports, with industrial output growth expected to rise to 5.5% (from 5.4%). Meanwhile, fixed asset investment remains constrained by weaknesses in the real estate sector and local government finances, with projected cumulative annual growth holding steady at 3.5% (from 3.4%).

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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.

According to data released by the U.S. Census Bureau on October 17, U.S. retail sales remained strong in September. Retail sales increased by 0.4% month-over-month, exceeding both the previous month’s 0.1% growth and the market expectation of 0.3%.

Breaking down the details, 10 out of 13 major retail categories showed growth. The largest contributor was grocery store sales, which saw a 4.0% month-over-month increase, up 3.7 percentage points from the previous period. The next largest growth was seen in clothing sales, which rose by 1.5%, an increase of 2.7 percentage points from the prior month. On the downside, sales declined in categories such as furniture stores, electronics and appliance stores, and gas stations.

Core retail sales, excluding autos and gas stations, increased by 0.7% month-over-month, higher than the previous month’s 0.3%. The control group for core retail sales also posted a 0.7% increase, up from 0.3% in the previous period.

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Overall, consumer spending in the U.S. remains robust. According to a Federal Reserve research, this strength is likely being driven by higher spending among middle- and upper-income groups.

The report noted that during the pandemic, loose monetary policy and subsequent government subsidies boosted the spending power of all income groups, especially lower-income households. However, since mid-2021, spending patterns have diverged. Middle- and upper-income groups have been able to maintain or even increase their average real spending, while lower-income groups have seen a decline. As of August 2024, average spending by higher-income groups had grown by 16.7%, while lower-income groups saw only a 7.9% increase.

(Source: Federal Reserve, TrendForce) 

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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