How growth, inflation and monetary policy affect global markets.
The Federal Reserve is shifting to a more gradual pace of rate hikes, while New Zealand unexpectedly holds steady; meanwhile, the link between AI stock volatility and the US dollar and some emerging-market currencies is strengthening.
The US will release manufacturing and services ISM data, job openings and nonfarm payrolls during the week, and hold midterm elections; the earnings and overseas economic calendars are also busy.
JPMorgan expects the Federal Reserve to raise rates in December and maintains its view that the 10-year and 30-year US Treasury yield curve will steepen. Treasury bill supply will increase next year, while credit remains exposed to concentrated issuance and the elections in the near term.
The Goldman Sachs Analyst Index fell to 49.1, with its new orders component dropping to its lowest since May 2020; however, both manufacturing and services survey trackers edged up, and surveyed companies remained relatively optimistic about capital spending next year.
The ISM manufacturing index rose to 55.5 in October, but the final S&P Global manufacturing PMI was revised lower; construction spending fell 1.9% month over month in September, and Goldman Sachs maintained its fourth-quarter GDP growth tracking estimate.
Goldman Sachs’ fourth-quarter survey shows respondents generally expect China’s growth momentum to remain broadly unchanged over the next six months, although more anticipate a slowdown than an acceleration. Most expect modest fiscal easing and remain cautious about a rebound in consumption and inflation.
The RatingDog China Manufacturing PMI fell to 52.0 in October from 52.1 in the previous month, above Goldman Sachs’ forecast. The output index rose slightly, but the new export orders index retreated, and the gap between the input and output price indices continued to point to margin pressure.
Long-term US forward rates recently retreated after reaching 5.2%, close to the peak policy rate of the previous tightening cycle. Goldman Sachs says when markets confirm that the current cycle of rate hikes is over will affect whether forward rates can fall further.
The central bank has launched a third round of the Securities, Funds and Insurance Companies Swap Facility and cut the interest rate on relending for share repurchases and stake increases. Nomura believes the policies show concern about sustained stock-market declines and leverage risks, but says their impact should not be overstated because both tools have been in place for two years.
AI investment is driving South Korean exports and economic growth in Taiwan, while Citi also sees mounting financing pressures in non-AI emerging markets. China’s PMIs broadly weakened in October, while the Bank of Japan held interest rates steady.
Wells Fargo sees opportunities in hyperscalers and infrastructure software following a reset in market sentiment, but sentiment toward healthcare has become overheated; the US midterm elections and corporate financing needs will influence the market’s next moves.
Nomura estimates that, with the countercyclical factor included, the forecast USD/CNY central parity rate is 6.6819, 327 points below the previous fixing; the two model results differ by 317 points.
Goldman Sachs expects the UK, Australia, Sweden and the Czech Republic each to raise rates by 25 basis points, while five other central banks hold rates steady; US nonfarm payrolls are expected to increase by 75 thousand in October, above the market consensus.
Prediction markets put the probability of a Democratic House victory above 90%, but the Senate race is less certain. Goldman Sachs expects no major shift in fiscal policy over the next two years, with spending potentially rising slightly while the effective US tariff rate may still increase.
From 2 November, the overnight reverse repo rate replaces the 7-day rate as the policy benchmark. Goldman Sachs believes the adjustment will allow more flexible liquidity provision and reflects policymakers’ focus on credit risk.
The manufacturing PMI fell to 49.3 and the non-manufacturing PMI to 49.7, both below Goldman Sachs forecasts and the Bloomberg survey consensus. Goldman Sachs said seasonal factors explained part of the decline, but activity slowed across manufacturing, services and construction.
The overnight reverse repo rate has been set at 1.25%, replacing the 7-day operation rate as what Nomura considers the main policy anchor. The operating corridor has moved down by 15 basis points, signaling greater tolerance for ample liquidity, but the change in tenor itself will not automatically lead to a reduction in the LPR.
US growth was strong in the third quarter, but Citi expects a slowdown in the fourth. Its baseline forecast calls for another 25-basis-point Fed rate hike in December; if stocks continue to fall or the economy weakens, the next move could instead be a rate cut.
After the Federal Reserve’s October meeting, short-term yields fell and long-term yields rose. BofA expects further US rate hikes and compares interest-rate opportunities in Europe, the UK and Canada.
Taiwan’s third-quarter economic growth and South Korea’s industrial production in September both exceeded expectations. JPMorgan believes technology exports, non-technology exports and domestic investment are jointly supporting growth, but inflation and policy pressures differ across economies.
