The three major "accidents" during overseas holidays

Key Points

During the National Day holiday, the "three major surprises" overseas may cause some disturbance to global and domestic asset prices after the holiday. Firstly, the US economy once again significantly exceeded expectations, dampening expectations for interest rate cuts. In addition to the impressive September employment report, attention should also be paid to the first "bad data" that reignited the Fed's interest rate cut expectations in Q3, which was the US June ISM non-manufacturing PMI released on July 3. After three months, this indicator unexpectedly improved significantly. If the relatively strong data performance continues in October, it will be difficult for the Fed to cut interest rates by 50 basis points in November. Secondly, with Yoshihide Suga taking over as Japan's Prime Minister, the Bank of Japan indicated that it is not in a hurry to raise interest rates, potentially putting a halt to the yen's appreciation trend. Coupled with the first surprise, the US dollar index may be relatively strong in the short term. Thirdly, the sudden downturn in the situation in the Middle East has boosted oil prices.

In general, 1) maintaining the view that the RMB exchange rate will remain stable in the 7-7.3 range; 2) the US election remains a key variable overseas. Due to the uncertainty of the victory between the two party candidates, global parties will not overly bet, and therefore the election results will also have a huge impact on the global capital markets in November-December and the international situation in the next 4 years.

Important economic data: 1) Overseas PMI in September: Differentiation in developed countries' economic conditions. The US September ISM non-manufacturing PMI was 54.9, the highest since February 2023, far exceeding market expectations of 51.7 and the previous value of 51.5. The US September ISM manufacturing PMI fell to 47.2, shrinking for six consecutive months, with market expectations at 47.5 and the previous value at 47.2. Eurozone and Japan's service PMIs are relatively strong, while most emerging markets maintain a positive economic range. 2) Resilience in the US labor market. The US job vacancies in August exceeded expectations, and non-farm employment data improved across the board. 3) Noticeable slowdown in Eurozone inflation. The Eurozone's harmonized CPI in September dropped to 1.8% year-on-year, with Eurozone officials generally optimistic about inflation.

Overseas central bank dynamics: 1) Federal Reserve: Improvement in employment data dampens expectations for interest rate cuts. The overall improvement in non-farm data has rapidly reduced market expectations for a significant rate cut in November. A 25 basis point rate cut in November, December this year, and January and March next year is the most probable baseline scenario. As of October 5th, data from the CME FedWatch tool shows a 93.43% probability of a 25 basis point rate cut in November. Looking ahead, the cooling of expectations for a significant rate cut may keep the US dollar relatively strong in the short term, but its impact on US stocks is two-sided. If there are no bright spots in subsequent economic data and the rate cut expectations weaken, US stocks will also come under pressure; of course, if US economic data continues to improve, US stocks may experience a suction effect again. 2) European Central Bank: Officials have turned dovish, and a rate cut in October is possible. Economists who previously unanimously predicted that the ECB would only take action in December have now widely changed their views, with the possibility of a rate cut in October as high as 90%. Recent statements from ECB officials have also confirmed a significant downward trend in inflation and an increased focus on employment risks in decision-making. 3) Bank of Japan: Not in a hurry to raise interest rates, will decide based on economic conditions. On October 2nd, the new Japanese Prime Minister Yoshihide Suga met with Bank of Japan Governor Haruhiko Kuroda, and both sides reached a consensus on the key point that there is no rush to raise interest rates at the moment Top Political News:

1. Middle East tensions boost oil prices. From September 27th to October 4th, the escalating conflict between Lebanon and Israel, driven by geopolitical factors, led to a sharp rebound in oil prices.
2. Yoshihide Suga becomes Japan's new Prime Minister. On September 27th, Yoshihide Suga decisively defeated Seiko Noda in the Liberal Democratic Party presidential election and was elected as the 102nd Prime Minister of Japan on October 1st. After taking office, he showed that he would not interfere with the central bank's policies and emphasized that the primary economic task is to overcome deflation and put the country on a stable growth trajectory.
3. US election update: Kamala Harris slightly ahead of Trump in support, but Pence performed better in the vice presidential debate. Following the September 10th presidential debate, Harris's lead expanded. The October 1st vice presidential debate focused mainly on abortion, immigration, and Middle East affairs, while the intense Russia-Ukraine issue was not included in this debate. Overall, the vice presidential debate had limited impact on the prospects of the presidential candidates, but Pence performed better.
4. Dock workers on the US East Coast and Gulf Coast strike, reaching a temporary agreement to raise wages by 62%. On October 1st, dock workers on the US East Coast and Gulf Coast went on their first large-scale strike in nearly 50 years. On October 3rd, dock workers and port operators announced a temporary agreement.
5. EU approves proposal to impose tariffs on electric cars imported from China. On October 4th, the European Commission's proposal to impose final anti-subsidy duties on imported pure electric vehicles from China was approved. Germany, Hungary, and 5 other countries voted against it.

Performance of Overseas Assets: From September 30th to October 4th, 2024, overseas stock markets generally declined: the S&P 500 fell by 0.20%, the Nasdaq Composite fell by 0.28%, the Dow Jones Industrial Average rose by 0.05%, the German DAX fell by 1.06%, the Nikkei 225 rose by 1.89%, and the Hang Seng Index rose by 7.59%. In terms of bonds, the 10-year US Treasury yield rose by 17.0 basis points to 3.98%. The 10-year German and Japanese bond yields rose by 1.0 basis points and fell by 2.7 basis points respectively. In the foreign exchange market, the US Dollar Index rose by 1.72%; the Hong Kong Dollar rose, while the Euro, Pound Sterling, Japanese Yen, and Chinese Yuan all fell. The offshore Chinese Yuan depreciated from 7.0042 to 7.0514. In the commodity market, WTI crude oil prices surged by 8.13%, NYMEX natural gas rose by 1.61%, ICE Rotterdam coal fell by 1.68%. COMEX gold and silver rose by 0.80% and 3.29% respectively, while NYMEX platinum rose by 1.45% and palladium fell by 0.16%. LME copper, aluminum, zinc, and nickel rose by 0.17%, 1.65%, 2.23%, and 3.50% respectively. In terms of agricultural prices, except for CBOT soybeans and NYBOT cotton prices which fell, CBOT wheat, corn, NYBOT sugar, and CME pork prices all rose

1. Important Overseas Economic Data

(1) September Overseas PMI: Differentiation in Economic Conditions in Developed Countries

United States: Differentiation in economic conditions between manufacturing and non-manufacturing sectors.

In September, the ISM Non-Manufacturing PMI in the United States reached 54.9, a new high since February 2023 (expected value 51.7, previous value 51.5); the ISM Manufacturing PMI in the United States recorded 47.2, remaining below the expansion-contraction line for 6 consecutive months (expected value 47.5, previous value 47.2). The final values for the Markit Manufacturing PMI in the United States in September were 47.3 (initial value 47.0, previous value 47.9); and for the services sector, it was 55.2 (initial value 55.4, previous value 55.7).

Europe: Manufacturing PMI in Europe remained subdued due to drag from Germany, while the services PMI slightly exceeded the expansion-contraction line.

In September, the final values for the Manufacturing PMI in the Eurozone were 45.0 (initial value 44.8, previous value 44.8); and for the services sector, it was 51.4 (initial value 50.5, previous value 50.5).

In Germany, the final values for the Manufacturing PMI in September were 40.6 (initial value 40.3, previous value 40.3); and for the services sector, it was 50.6 (initial value 50.6, previous value 50.6).

Japan and South Korea: Slight rebound in manufacturing and services PMI in Japan, while manufacturing PMI in South Korea fell below the expansion-contraction line.

In Japan, the final value for the Manufacturing PMI in September was 49.7, showing a slight improvement from August but still in the contraction zone; the services PMI in September dropped to 53.1 from the previous value of 53.7. South Korea's Manufacturing PMI decreased from 51.9 in August to 48.3 in September.

Emerging Markets: Most countries maintained high economic conditions in manufacturing.

In India, the Manufacturing PMI in September was 56.5, remaining above 55 for 9 consecutive months. The Manufacturing PMI in the Philippines, Brazil, and Thailand in September were all above 50; while Indonesia, Vietnam, and Mexico recorded PMI values of 49.2, 47.3, and 47.3 respectively.

(2) Resilience in the U.S. Labor Market

Resilience in U.S. Employment:

ADP employment data in the United States exceeded expectations. On October 2nd, ADP data showed that employment in the United States increased by 143,000 in September, higher than the expected 125,000, with the August figure revised up from 99,000 to 103,000.

Marginal Increase in Job Vacancies:

On October 1st, the U.S. Bureau of Labor Statistics released data showing that there were 8.04 million job vacancies in August, higher than the expected 7.673 million, and the previous value was revised up from 7.673 million to 7.71 million. The job vacancy rate in August was recorded at 4.8%, with 1.1 job vacancies for every unemployed person. The quit rate in August dropped to 1.9%, the lowest level since 2015 excluding the pandemic.

Non-Farm Employment Data:

The non-farm employment data in September eased expectations of a recession and interest rate cuts. On October 4th, the U.S. Bureau of Labor Statistics released data showing that non-farm employment increased by 254,000 in September, higher than the expected 150,000, with the previous value revised up from 142,000 to 159,000 The unemployment rate in September fell to 4.1% (expected 4.2%, previous value 4.2%), while the labor participation rate remained at 62.7%. The hourly wage growth rate remained flat at 0.4% on a month-on-month basis, and rose to 4.0% year-on-year (previous value 3.8%). Following the release of the data, CME indicated that market expectations for a significant rate cut quickly dissipated, with the yield on the 10-year U.S. Treasury rising to 3.94% and the yield on the 2-year U.S. Treasury rising to 3.87%. According to CME data, it is highly probable that the Federal Reserve will cut rates by 25 basis points in November and December this year, as well as in January and March next year as the baseline scenario.

(III) Eurozone Inflation Slows Significantly

In September, the Eurozone's CPI fell compared to the previous month, with core CPI declining year-on-year. On October 1st, Eurostat released preliminary statistics, showing that the Eurozone's harmonized CPI in September was 1.8% year-on-year (expected 1.8%, previous value 2.2%), with a month-on-month change of -0.1% (expected 0%, previous value 0.1%); the core harmonized CPI in September was 2.7% year-on-year (expected 2.7%, previous value 2.8%). Looking at the components, food and alcohol prices rose by 2.4% year-on-year (previous value 2.4%), energy prices fell by -6.0% year-on-year (previous value -3.0%), non-energy industrial goods rose by 0.4% year-on-year (previous value 0.4%), and service prices cooled to 4.0% year-on-year (previous value 4.2%). By country, Germany, Spain, Italy, and France all saw a slowdown in CPI growth in September.

(IV) Summary of Other Economic Data

1. South Korea's trade surplus in September was $6.66 billion (expected value $5.79 billion, previous value $3.829 billion); imports in September rose by 2.2% year-on-year (expected value 3%, previous value 6.0%); exports rose by 7.5% year-on-year (expected value 6.5%, previous value 11.4%).

2. Japan's unemployment rate in August was recorded at 2.5% (expected value 2.6%, previous value 2.7%).

3. Data from the South Korean Statistics Office shows that in August, semiconductor inventory decreased by -42.6% year-on-year, the fastest destocking since 2009; chip production increased by 10.3%, and shipments increased by 16.1%.

4. The South Korean Statistics Office released data showing that the proportion of individual business owners in the total employment has dropped to below 20%, the first time since 1963.

5. The final GDP growth rate for the UK in the second quarter was 0.5% quarter-on-quarter (expected value 0.6%, previous value 0.7%), with future growth expected to slow to 0.3% per quarter

II. Overseas Central Banks Dynamics

(1) Federal Reserve: Strong Employment Data Dampens Rate Cut Expectations

The US non-farm payroll data significantly exceeded expectations, dampening rate cut expectations. As mentioned earlier, non-farm employment in September increased by 254,000 more than expected, with the previous value revised upwards, while the unemployment rate dropped to 4.1%. Chicago Fed President Austan Goolsbee later described this report as "fantastic" in the media, stating that continued strong labor market data will enhance confidence that the US is moving towards full employment rather than recession [2]. Following the release of the report, the US dollar index quickly rose above 102, while the two-year US Treasury yield surged by 20 basis points. Market expectations for a significant rate cut in November rapidly diminished, with rate cuts of 25 basis points in November and December of this year, and January and March of next year successively becoming the most probable baseline scenario. As of October 5th, data from the CME FedWatch Tool showed a 93.43% probability of a 25 basis point rate cut in November. Looking ahead, the cooling of expectations for a significant rate cut may keep the US dollar relatively strong in the short term, but its impact on US stocks is two-sided. If subsequent economic data does not show any bright spots and rate cut expectations weaken, US stocks will also come under pressure; of course, if US economic data continues to improve, US stocks may experience a resurgence due to the "suction effect".

(2) European Central Bank: Officials Adopt Dovish Stance, Possibility of Rate Cut in October

As mentioned earlier, the year-on-year CPI in the Eurozone decreased from 2.2% to 1.8% in September. According to Bloomberg, economists who previously unanimously predicted that the ECB would only take action in December have now widely changed their views, with the possibility of a rate cut in October as high as 90% [3]. Recent statements from ECB officials have also confirmed a significant downward trend in inflation and an increased weighting of employment risks in decision-making. On September 30th, ECB President Christine Lagarde explicitly stated that the ECB is increasingly confident that the inflation rate will fall to the 2% target, which will be reflected in the next policy measures [4]. In addition, several officials mentioned the downside risks facing the labor market and the soft outlook for economic growth in their statements, making the reasons for a rate cut more "compelling" despite the ongoing struggle against inflation.

(3) Bank of Japan: Not in a Hurry to Raise Rates, Will Decide Based on Economic Conditions

On October 2nd, the newly appointed Japanese Prime Minister, Shizo Abe, met with Bank of Japan Governor Haruhiko Kuroda. In contrast to market expectations that he might support the BOJ in achieving "monetary policy normalization", the two sides reached a consensus that there is no rush to raise rates at the moment However, according to a survey conducted by Reuters, most economists predict that the Bank of Japan will implement another rate hike by the end of the year [5]. Bank of Japan officials have expressed dovish views. On October 2, Bank of Japan Governor Kuroda Haruhiko expressed high concern about the current situation, stating, "Starting from the U.S. economy, the global economic outlook is uncertain and financial markets remain unstable," and therefore will carefully assess the outlook before making a decision. On October 3, Bank of Japan Policy Board member Nakagawa Asahi stated that the Bank of Japan must patiently maintain its loose monetary policy because it takes time to dispel the public's belief that future prices will not rise significantly.

III. International Political News

(A) International News

1. Middle East Situation Boosts Oil Prices

On September 27, Netanyahu delivered a fiery speech at the United Nations General Assembly in New York, claiming that Israel has "won" in many aspects and will attack Iran and its proxies in the Middle East. Shortly after Netanyahu's speech, Israeli airstrikes hit southern Beirut. On September 28, Hezbollah confirmed the death of its long-time leader Hassan Nasrallah. On September 30, Hezbollah's deputy leader Naim Qasim stated in his first public speech after Nasrallah's death that "the resistance forces are prepared for ground combat." On October 1, Israeli ground forces entered southern Lebanon, with the Israeli military stating that they had begun "limited, localized, and targeted ground attacks" on Hezbollah targets in southern Lebanon. On the same day, Iran launched at least 180 missiles at Israel, claiming that the missile strike was retaliation for Israel's recent series of devastating strikes against Iran-backed Hezbollah armed groups in Lebanon. On October 4, Israel overnight attacked Hezbollah's intelligence headquarters in Lebanon. Subsequently, Iranian leader Khamenei stated that Iran and its regional allies will not retreat and "will not delay or rush to fulfill their obligation to confront Israel." Due to the escalation of tensions in the Middle East, oil prices quickly rebounded. On October 1, WTI crude oil rose by 2.44% to close at $69.83 per barrel. On October 3, Biden stated that the country is discussing the possibility of Israel attacking Iran's oil infrastructure, and WTI crude oil rose by 5.15%.

1. Fumio Kishida Becomes Japan's Prime Minister

On September 27, Fumio Kishida decisively defeated Sanae Takaichi in the Liberal Democratic Party presidential election and was elected as the 102nd Prime Minister of Japan on October 1. Kishida's competitor, Sanae Takaichi, is an advocate for low interest rates and explicitly stated that she does not support the Bank of Japan's policy of stimulating economic growth through rate hikes. Therefore, Kishida's victory means that "further rate hikes may no longer face any political obstacles." Affected by this expectation, the Nikkei Index plummeted sharply shortly after its victory on September 27.

On September 30, Shigeru Ishiba stated that he would dissolve the House of Representatives on October 9 and hold the next House of Representatives election on October 27, emphasizing the importance of the new government quickly accepting the judgment of the people.

On October 1, during his first press conference as Prime Minister, Shigeru Ishiba promised to help those who are struggling due to rising prices, including potential subsidies, raising the minimum wage, and regional revitalization. In addition, Ishiba appointed Katsunobu Kato, a supporter of "Abenomics," as the Minister of Finance, seen as a "balancing move" to alleviate concerns in the market about the economic strategy of the next cabinet.

On October 3, Hiroshi Uewaki, a professor at Kobe Gakuin University in Japan, submitted a report to the Tokyo District Public Prosecutors Office, alleging that Shigeru Ishiba's political group, the "Suigetsukai," which he once represented, had underreported income in its political funding reports, potentially violating the Political Funds Control Law.

On the evening of October 3, Shigeru Ishiba, in an interview with reporters, stated that "Japan currently does not have an environment for further interest rate hikes," agreeing with the view of Bank of Japan Governor Haruhiko Kuroda that there is still time to assess market and economic conditions before adjusting interest rates, in order to dispel the impression that he is trying to interfere with the central bank. On October 4, in his inaugural speech in the House of Representatives of the Japanese Diet after becoming Prime Minister, Ishiba responded to allegations related to political donations, expressing deep regret over the secret funds scandal that troubled his predecessor, while emphasizing that the primary economic task is to overcome deflation and put the country on a stable growth path.

1. Tracking the U.S. election: Harris' support rate slightly higher than Trump's, but Pence performed better in the vice presidential debate

From July to August this year, Trump's support rate relative to Harris gradually narrowed and even reversed. After the presidential debate on September 10, Harris' lead expanded. According to Real Clear Politics polls, as of October 3, the average support rates for Trump and Harris were 46.9% and 49.1% respectively, with Harris leading by 2.2 percentage points. Polls in 7 swing states also favor Harris. As of October 4, FiveThirtyEight and 270 to Win both show that Harris has a lead over Trump in swing states. In terms of Congress, the Republican Party still holds a significant advantage. According to the latest forecast by 270 To Win, the Republicans are expected to hold 207 seats in the House of Representatives, while the Democrats are expected to hold 206 seats; in the Senate, the Republicans are expected to hold 51 seats, while the Democrats are expected to hold 48 seats.

On October 1, Tim Walz and JD Vance participated in the vice presidential debate. During the debate, the China issue was rarely mentioned, with discussions focusing mainly on abortion, immigration, the Middle East, and other affairs. The intense Russia-Ukraine issue from the presidential debate was not included in this debate.

Compared to Walz, Vance's style is more steady. Vance strongly defended Trump's positions, especially on healthcare, childcare, and the January 6th incident. Given the Republican Party's electoral advantage on cost of living issues, Vance strongly questioned why Kamala Harris did not lower prices during her tenure and why she did not fulfill her campaign promises Waltz appeared somewhat nervous, encountering questions on foreign policy at the beginning, an area where he is not proficient. He made a slip of the tongue (such as mistakenly referring to himself as "a friend of the school shooter," actually meaning the victim's family).

According to a public opinion poll released by the organizer CBS, 42% of debate viewers judged Vance as the winner, while 41% of respondents leaned towards Waltz winning. Additionally, both candidates saw an increase in popularity to some extent after the debate. [20]

1. Dock workers on the U.S. East Coast and Gulf Coast went on strike, reaching a temporary agreement to raise hourly wages by 62%.

On October 1st, due to wage issues leading to the breakdown of negotiations for a new labor contract, dock workers on the U.S. East Coast and Gulf Coast went on their first large-scale strike in nearly 50 years, causing about half of the U.S. deep-sea shipping to come to a standstill. This strike event resulted in severe disruptions in the transportation of various goods from food to automobiles, covering numerous ports from Maine to Texas, potentially causing daily economic losses of up to billions of dollars and being unfavorable for employment and inflation. [21] The Biden administration reiterated multiple times that it would not resort to federal intervention to end the strike but instead pressured the employers of dock workers to raise contract terms and offers to facilitate reaching an agreement. It also pointed out that the shipping industry has made substantial profits since the outbreak of the COVID-19 pandemic. In contrast, Trump attributed the strike to inflation and criticized the Biden-Harris administration for it. On October 3rd, U.S. dock workers reached a temporary agreement with port operators to raise hourly wages by 62%. According to Reuters, the agreement stipulates that wages will increase by about 62% over the six-year contract period, meaning the average hourly wage will rise from $39 to about $63. Additionally, the main contract period has been extended to January 15, 2025, so that both parties can return to the negotiating table to further discuss unresolved issues. The International Longshoremen's Association (ILA) union had originally hoped for a 77% wage increase, while the employer organization United States Maritime Alliance (USMX) had previously raised its proposed pay raise to nearly 50%. However, the employers have not yet compromised on the potential job-threatening port automation projects. [22]

1. The EU passes a proposal to impose tariffs on electric vehicles imported from China.

On October 4th, the EU stated in a declaration: "The European Commission's proposal to impose definitive anti-subsidy duties on imported battery electric vehicles (BEVs) from China has received the necessary support from EU member states for the tariffs [23]," but will continue negotiations to "seek alternative solutions." This measure will come into effect next month and will last for five years Including France and Italy, 10 countries support imposing a maximum tariff of 35.3% on top of the existing 10% tariff. Five countries, including Germany and Hungary, voted against it, while another 12 countries abstained. [24]

IV. Overseas Asset Price Trends

From September 30th to October 4th, 2024, the performance of overseas assets is as shown in the table below.

Overseas stock markets generally fell, with Hong Kong stocks performing well: the US stock market remained stable, with the S&P 500 falling by 0.20%, the Nasdaq Composite falling by 0.28%, the Dow rising by 0.05%, the German DAX falling by 1.06%, the French CAC falling by 1.24%, the UK FTSE 100 rising by 0.53%, the Nikkei 225 rising by 1.89%, and the Hang Seng Index rising by 7.59%.

International bonds: Long-term bond yields rose overall, with the 10-year US Treasury yield rising by 17.0 basis points to 3.98%. The 10-year German and Japanese bond yields rose by 1.0 basis points and fell by 2.7 basis points, respectively.

Foreign exchange: The US Dollar Index rose by 1.72%; the Hong Kong Dollar rose, while the Euro, British Pound, Japanese Yen, and Chinese Yuan all fell. The offshore Chinese Yuan depreciated from 7.0042 to 7.0514.

Commodities rose across the board: WTI crude oil prices surged by 8.13%, NYMEX natural gas rose by 1.61%, ICE Rotterdam coal fell by 1.68%. COMEX gold and silver rose by 0.80% and 3.29% respectively, NYMEX platinum and palladium rose by 1.45% and fell by 0.16% respectively; LME copper, aluminum, zinc, and nickel rose by 0.17%, 1.65%, 2.23%, and 3.50% respectively. In terms of agricultural prices, except for CBOT soybeans and NYBOT cotton prices falling, CBOT wheat, corn, NYBOT sugar, and CME pork prices all rose.

Risk Warning: Global economic and monetary policy surprises.

Authors: Zhang Jingjing, Wang Hebin from CMB International, Source: Jingguan Finance (ID:gh_22157128b33e), Original Title: "Three Major 'Accidents' Overseas During the Holidays" The article has been edited

Zhang Jingjing S1090522050003 Chief

Wang Lebin S1090523070007 Team Leader