How growth, inflation and monetary policy affect global markets.
Goldman Sachs’ investment tracker shows China’s real investment grew 1.9% year on year in the third quarter, its slowest pace since the fourth quarter of 2021. The bank cut its full-year augmented fiscal deficit forecast and raised its estimate of the property sector’s drag on growth.
The MSCI China Index’s forward price-to-earnings ratio has fallen to 9.3 times, and central government-backed funds resumed buying in the second half. JPMorgan favors A-shares and large caps, but earnings estimate cuts, weak domestic demand and external trade restrictions remain constraints.
Since the Iran conflict began, the hit to emerging-market growth and inflation has been smaller than Goldman Sachs initially expected, but further oil price increases could still have a significant impact. The bank estimates that supply-driven price increases do more damage to growth in oil-importing economies.
Citi expects the Fed to hold rates steady in October, but Chair Warsh may continue to signal that the hiking cycle is not over; the bank’s forecast for a December hike differs from the market pricing shown in the report.
The Federal Reserve held rates steady, while the Bank of Canada has already raised them; Goldman Sachs expects further rate increases of varying degrees from central banks in the US, Europe, Japan and Canada. Meanwhile, US earnings have exceeded expectations, but returns on AI investment and the impact on employment remain market concerns.
The UK autumn budget introduces modest measures, but rising debt interest costs and recent downgrades to growth forecasts have pushed up the deficit. Goldman Sachs believes tight departmental spending plans will put pressure on next year's spending review.
The Federal Reserve held interest rates unchanged in October after its previous hike. Goldman Sachs believes the meeting language and the chair’s remarks support a pace of hikes at every other meeting, but another hike next March remains possible if inflation exceeds the bank’s expectations.
Emerging-market growth remains above trend, and inflation has risen less than expected. Goldman Sachs believes policy interventions and other growth drivers have cushioned the oil price shock, but net-importing economies still face pressure on growth and external balances if oil prices rise further.
Goldman Sachs expects one more rate hike in this cycle, fewer than the roughly three priced in by markets. Historically, stocks have often stumbled briefly after the first hike, but improving inflation, growth concerns and prolonged tightening produce different asset performances.
Goldman Sachs' China Current Activity Indicator rose to a month-on-month annualized 5.4% in September, with manufacturing the main driver. Meanwhile, import-implied domestic demand growth slowed, investment and inventory indicators weakened in the third quarter, and fiscal and financial conditions tightened somewhat.
Industrial enterprise profits rose 14.4% year on year in September, up from 4.2% in August. JPMorgan believes AI demand and upstream prices supported profits, but continued weakness in automotive and consumption-related manufacturing prolonged the divergence.
JPMorgan believes that continually upward revisions to weather intensity forecasts, lower agricultural output, energy prices and narrowing policy space could together amplify risks in emerging markets; the impact on equities varies by sector and company.
Morgan Stanley expects China’s export share to keep rising and Industry 5.0 to create long-term investment opportunities. But weaker employment transmission, household deleveraging and excess capacity make it difficult for strong exports to translate quickly into broad-based reflation.
Asia’s investment cycle does not rely solely on AI, and exports and balance sheets also provide a buffer against high interest rates. But if oil prices remain above 120 dollars per barrel, central banks raise rates more than expected and AI investment declines, pressure on growth will increase markedly.
Nomura’s model forecast for the central parity rate on 28 October was 6.6711, 460 points below the previous fixing; with the counter-cyclical factor included, the forecast rises to 6.6923.
The Federal Reserve held rates steady while the Bank of Canada raised them. Goldman Sachs expects the next rate hikes in both the US and Europe in December, while also monitoring the US midterm elections and returns on AI investment.
A title insurance waiver could save eligible refinancing borrowers 500 to 1500 dollars, but its coverage may be limited; other measures also largely involve existing arrangements or constraints on implementation timing.
The October consumer confidence index rose to 91.7, far exceeding forecasts; new-home sales edged down in September but beat Goldman Sachs and market expectations.
Goldman Sachs believes the rise in year-on-year industrial profit growth to 14.1% in September was mainly due to base effects. On a seasonally adjusted basis, profits were flat month on month and revenue fell 0.1%. The bank expects both the manufacturing and non-manufacturing PMIs to decline in October.
Goldman Sachs expects high-tech industries to contribute about 2 percentage points a year to China's real GDP growth in 2026–2030, but the same amount of spending generates less employment and labor income than in real estate and services.
