Market Report.
📊 The September consumer price index (CPI) report showed inflation rose less than expected, with a 0.3% increase on the month and an annual rate of 3%. This was lower than the 0.4% monthly and 3.1% annual increases that it was forecasted. The CPI report was the only official economic data allowed to be released during the current government shutdown.
📉 The path for future rate cuts remains unclear, as the Fed balances concerns over inflation and weakness in the labor market. We don’t have a whole picture of how the economy is doing because of the closure of the US government, which has prevented us from seeing the jobs report.
⚠️ Regarding the data for this week, please note the following Top 3 Risks: Fed & ECB rate decisions, US GDP & Core PCE, and China PMI data.
📉 Based on the softer-than-expected September inflation data, traders are betting that the Federal Reserve will likely deliver quarter-point interest rate cuts at each of its next three policy meetings. There is also a 95% chance of a further rate cut in December, and about a 55% chance of another cut in January, up from less than 50% previously.
😊 The estimations suggest the Fed will be “happy” with inflation staying around 3% for the next couple of months, as it allows the central bank to continue its policy easing to support the labor market.
🤝 Trump and Xi are expected to meet on Thursday at the APEC summit in South Korea.
🇺🇸🇨🇳 Top Chinese and U.S. economic officials have hashed out the framework of a trade deal for Presidents Trump and Xi to decide on later this week. The deal would pause steeper U.S. tariffs and Chinese rare earths export controls.
💬 U.S. Treasury Secretary Bessent said the talks have eliminated the threat of Trump’s 100% tariffs on Chinese imports starting November 1. He also expects China to delay its rare earth minerals and magnets licensing regime by a year. Chinese officials were more cautious, saying the two sides reached a “preliminary consensus” and will go through their respective internal approval processes.
🌱 The deal is expected to include increased U.S. soybean purchases from China, more U.S. access to rare earths, and a path to balance the trade deficit through U.S. exports. Other issues to be discussed include the TikTok deal, Taiwan, and the release of a jailed Hong Kong media tycoon.
📈 China’s industrial profits grew at their fastest pace in nearly two years in September, marking a second straight month of gains. This signals that measures designed to curb overcapacity and rebalance the economy may be gaining traction.
📊 Industrial profits rose 21.6% year-over-year in September, the fastest pace since November 2023, following a 20.4% jump in August. Profits grew 3.2% over the January-September period.
⚙️ The overall supply-demand picture has become more balanced, with industrial capacity utilization improving and profit margins increasing. The producer price index also rebounded slightly.
📉 GDP growth slowed to 4.8% in Q3, keeping pressure on policymakers to roll out more stimulus. The economy’s dependence on external demand and reliance on state-owned firms also raise questions about the sustainability of the growth pace.
🛠️ The government’s new five-year plan reaffirms efforts to rebalance the economy toward domestic demand, but it still views the manufacturing sector as central to sustaining growth.
🇮🇳 Optimism also in another of the world’s top economies. While a 50% tariff levied by the U.S. on Indian goods is still in place, recent comments from Washington and New Delhi have raised optimism that the tariff will be reduced. India’s GDP growth is now forecast to average 6.7% this fiscal year, a slight upgrade from the previous estimate of 6.6%.
📉 A majority of economists (68%) expect the Reserve Bank of India to cut interest rates by 25 basis points in December, after holding rates steady earlier this month. The monetary and fiscal policy support, as well as the performance of the rural economy, have led to the upward revision in GDP growth projections.
📊 The higher U.S. tariffs were seen as offsetting the benefits from India’s Goods and Services Tax (GST) reforms. If the tariff headwind eases, growth in the second half of the year could be stronger than currently expected.
⚖️ Frequent policy shifts from the Trump administration have added uncertainty, dampening investor confidence to commit fresh capital to the Indian economy.
🏭 Reuters on UK economy: British manufacturers are investing the least in new equipment relative to their sales since 2017, according to a report from trade body Make UK (main representative organization of the manufacturing and engineering sector in the UK). The group is urging the government to streamline tax incentives in next month’s annual budget.
📉 Manufacturers are investing the equivalent of 6.8% of their annual turnover in plant and machinery this year, down from 8.1% in 2024 and the lowest proportion in the past eight years. Investment in research and development also fell to 6.2% of turnover from 6.5%, while spending on staff costs and training is becoming a greater priority.
💰 A nearly 40% of surveyed firms said tax incentives heavily influence their investment choices. Make UK is calling on the finance minister to maintain existing investment incentives and make it easier for smaller firms to claim certain tax breaks, as “simplification is key” to boosting business investment.
🎉 Argentine President Javier Milei’s party secured victory in the midterm elections with 41% of the vote, despite the country’s struggling economy. The win follows a $20 billion U.S. bailout that Milei received shortly before the election.
Geopolitics.
🌍 According to Financial Times, U.S. intelligence agencies concluded that the United Arab Emirates transferred critical American defense technology to Huawei, which was then used by China to significantly enhance its extended-range air-to-air missile systems. The technology was allegedly passed via G42, Abu Dhabi’s flagship AI company, and involved advanced software that optimized missile flight paths, notably improving China’s PL-15 and PL-17 missile ranges.
Market View.
📈 We start the week with euphoria and new all-time highs in the US markets. Mini S&P 500 futures have reached a new record at 6,890 points. Nasdaq 100 futures have also hit a new high, surpassing 25,800 points.
💵 The DXY dollar index remains above 98.80, showing strength in the currency despite expectations of rate cuts. The EUR/USD pair, which attempted to break above 1.1650 on Friday, has retreated and is currently trading at 1.1618.
📉 US bond yields are rising again, with the 2-year bond yield returning to the 3.50% zone.
📈 European equities also show optimism, albeit more cautiously. DAX 40 futures are starting the week approaching 24,500 points, while EuroStoxx 50 futures remain in the zone of all-time highs, currently trading above 5,700 points.
🛢️ Crude oil is falling after Friday’s rally, during which Brent crude nearly reached $67 per barrel. It is now trading at $65.25.
🏅 Gold futures continue to cool, with prices settling into support around the $4,080 per ounce level.
₿ Bitcoin has surged strongly in recent hours, surpassing $116,000 before slightly retreating to its current level of $115,570
