Inflation Slowdown Stalls, Fed Divide Deepens on Rate Cuts

The process of reducing inflation in the United States has slowed down, and disagreements over the extent of interest rate cuts by the Federal Reserve have emerged! The US dollar index has strengthened overall, and gold has "recovered" after six consecutive declines, while oil prices have increased in fluctuation... Incremental policies are gradually being implemented, and A-shares have seen a huge volume of transactions! What exciting market movements have you missed this week?

Market Review:

The US dollar index continued to strengthen overall this week, reaching its highest level since mid-August at one point, and is expected to record a second consecutive week of gains, mainly driven by strong economic data that has cooled expectations for a significant interest rate cut by the Federal Reserve. Spot gold fell this week but then recovered somewhat, as bets on a substantial interest rate cut by the Federal Reserve faded and traders took profits, with gold prices recording six consecutive daily declines by Wednesday. Gold rebounded on Thursday and Friday, hovering around $2,645 per ounce as of the time of writing.

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In terms of non-US currencies, due to the strengthening of the US dollar, the US dollar against the Japanese yen rose to its highest level since August 2, approaching 149.6 during the week. The Indian rupee against the US dollar fell to a historical low this week. The Canadian dollar against the US dollar touched its lowest point since August 19 during the week, and the euro against the US dollar fell to its lowest level since August 8 at one point, and is expected to record a third consecutive week of losses.

International oil prices fluctuated significantly this week. At the beginning of the week, due to the increased risk of widespread war in the Middle East, investors unwound the record short positions accumulated last month, and Brent crude oil broke through $80 per barrel, setting a six-week high. However, news of a possible ceasefire between Hezbollah and Israel led to a significant drop in international crude oil prices. On Thursday and Friday, due to supply concerns caused by Hurricane Milton in the United States, and the expectation that terminal demand will support oil prices, international crude oil prices rose again.

In terms of the stock market, A-shares have generally回调ed compared to before the National Day holiday this week, with a significant fluctuation after opening high, and the Shanghai Composite Index once broke through 3,600 points, closing near 3,200 points on Friday. After breaking through the 3 trillion yuan mark on October 8, the transaction volume also gradually fell, with a total of over 10 trillion yuan in the four trading days of the week, once again setting a historical record. The three major Hong Kong stock indices also experienced significant shocks this week, with the technology index leading the decline.

Wall Street veteran Jeff deGraaf is firmly bullish on the Chinese stock market, expecting the CSI 300 Index to rise by 50% in the next year to reach 6,000 points. Bernstein is bearish on the Indian stock market and tactically increases holdings in the Chinese stock market. As of the week of October 9, the inflow of funds into Chinese stock funds reached a record level of $39.1 billion. Bank of America expects the allocation to Chinese assets to increase further.

Weekly Major Events:1. The process of reducing inflation in the United States is slowing down, and there is a divergence of opinions within the Federal Reserve on interest rate cuts!

The minutes of the Federal Reserve's September meeting released this week showed a deeper division on the magnitude of interest rate cuts. Although almost everyone voted in favor of a 50 basis point cut under Powell's leadership, not only Governor Bowman advocated for a 25 basis point cut, but more officials believed that policy normalization should be gradual.

Data released on Thursday showed that the U.S. CPI rose 2.4% year-on-year in September and 0.2% month-on-month; the core CPI rose 3.3% year-on-year and 0.3% month-on-month, both exceeding market expectations. Looking at the super core service inflation that Federal Reserve Chairman Powell is concerned about, the year-on-year and month-on-month growth rates in September were 0.02 percentage points lower and 0.06 percentage points higher than in August, respectively, with the month-on-month growth rate rising for three consecutive months.

The data indicates that the process of disinflation in the United States has begun to slow down, and the risk of a rebound in core inflation that was previously worried about has emerged, which may have a significant impact on the subsequent pace and magnitude of interest rate cuts. After the data was released, traders bet that the possibility of the Federal Reserve cutting interest rates by 25 basis points in November is higher than 80%.

New York Federal Reserve Chairman Williams and two other Federal Reserve officials downplayed the unexpectedly strong CPI in September, implying that interest rate cuts can continue, but several officials expressed their willingness to cut interest rates gradually this week. Atlanta Federal Reserve Chairman Bostic is even open to not cutting interest rates in November. He previously stated that he is still highly focused on the inflation target, but the mission on the employment side has become prominent. If the number of new jobs added each month falls below 100,000, he will doubt whether to consider cutting interest rates more quickly.

St. Louis Federal Reserve Chairman Musalem also said that the possibility of further interest rate cuts is relatively high, but his personal interest rate expectations are higher than the median shown in the dot plot. Boston Federal Reserve Chairman Collins emphasized that interest rate cuts should be cautious and data-based. Dallas Federal Reserve Chairman Logan said that after the substantial interest rate cut in September, he is inclined to return to a normal interest rate level through a "more gradual path". The Federal Reserve needs to slow down the pace of interest rate cuts to deal with economic uncertainty. Minneapolis Federal Reserve Chairman Kashkari believes that the neutral interest rate is close to 3%; San Francisco Federal Reserve Chairman Daly may cut interest rates once or twice more this year.

Bridgewater Fund founder Dalio expects that the Federal Reserve will not cut interest rates significantly again. He believes that the U.S. economy is currently in a relatively good balance. Renowned economist Roubini warned that if Trump is elected president, the United States will face a stagflation shock. The Chief Investment Officer of RBC BlueBay even believes that the policies of both presidential candidates could push up inflation, and the Federal Reserve may be forced to raise interest rates next year.

In addition, employment data shows that the number of initial jobless claims last week rose to the highest level in more than a year, affected by hurricanes and layoffs at automobile companies. On the economic front, the Atlanta Federal Reserve's GDPNow model estimates that U.S. Q3 GDP growth will be 3.2%, previously expected to be 2.5%.

2. Several banks will unify the existing mortgage loans outside Beijing, Shanghai, and Shenzhen to LPR-30BP.This week, the five major state-owned banks including ICBC, ABC, BOC, CCB, and BOCOM, as well as multiple banks such as China Merchants Bank, Shanghai Pudong Development Bank, Zhejiang Commercial Bank, and Industrial Bank, have released frequently asked questions about the adjustment of existing mortgage loan interest rates. It has been clarified that except for second-home mortgages in Beijing, Shanghai, and Shenzhen, current mortgage interest rates higher than LPR-30BP will be uniformly adjusted to LPR-30BP. Among them, ICBC has determined to make the adjustment uniformly on October 25th, while other banks will complete the adjustment before October 31st.

3. The joint working group of the People's Bank of China and the Ministry of Finance holds its first official meeting

On October 9th, the People's Bank of China and the Ministry of Finance established a joint working group and recently held the first official meeting of the group. The meeting fully affirmed the close cooperation between the two parties in the central bank's government bond trading in the early stage, established the operation mechanism of the working group, and exchanged views on topics such as the operation of the bond market. Both parties unanimously believe that the central bank's government bond trading is an important means to enrich the monetary policy toolkit and strengthen liquidity management. Next, it is necessary to coordinate development and security, continue to strengthen policy synergy, continuously optimize relevant institutional arrangements, maintain the stable development of the bond market in a standardized manner, and provide a suitable market environment for the central bank's government bond trading operations.

4. The futures market welcomes a significant comprehensive document

The General Office of the State Council forwarded the "Opinions on Strengthening Supervision, Guarding Against Risks, and Promoting High-Quality Development of the Futures Market" by the China Securities Regulatory Commission and other departments, deploying 17 key measures in 8 aspects. These include strictly regulating futures trading behavior, severely cracking down on illegal and irregular activities in the futures market, strengthening the whole-process supervision of futures companies, enhancing the risk prevention of the futures market, improving the quality and efficiency of the commodity futures market in serving the real economy, prudently developing the financial futures and derivatives market, steadily advancing the opening up of the futures market, and deepening regulatory collaboration in the futures market.

The document mentions studying the inclusion of stock index futures and government bond futures in the opening up of specific varieties, allowing foreign futures exchanges to launch more financial products linked to domestic futures prices, strengthening regulatory capacity construction under an open environment; strictly preventing enterprises from using credit funds for speculative trading in bulk commodity futures; strengthening the whole-process supervision of high-frequency trading, canceling the reduction of transaction fees for high-frequency trading; enriching trading varieties, expanding market coverage, improving transaction convenience, strengthening the collaborative linkage between futures and spot markets, and helping to enhance the inherent stability of the stock market, etc.

5. Tesla "We, Robot" press conference: Cybercab debuts, Robovan is releasedTesla held a press conference where Musk unveiled the autonomous driving Cybercab, Robovan, and an upgraded Optimus robot. Here are the key highlights:

1. Robotaxi: Tesla announced the autonomous driving taxi Cybercab, a two-door, two-seater car without a steering wheel and pedals, using inductive charging without a charging port. The autonomous driving bus Robovan was also released, which can accommodate 20 people and can also be used for cargo transportation.

2. Production time: The Cybercab is expected to start production in 2026 and will be produced in very high quantities before 2027. Users can experience autonomous driving taxis in advance on other Tesla models.

3. Cost: Over time, it is expected that the operating cost of the Cybercab will be about $0.2 per mile, including tax, the price may be $0.3 or $0.4 per mile. It is expected that the cost of the Cybercab will be less than $30,000. The travel cost of Robovan is 5 to 10 cents per mile.

4. Autonomous driving: Tesla is expected to launch the fully autonomous driving (FSD) function of the Model 3 and Model Y without supervision in Texas and California next year.

5. Optimus robot: Great progress has been made in the Optimus project, and the cost will be between $20,000 and $30,000 in mass production. The Optimus robot performed a group dance at the press conference to show flexibility and provided drinks to visitors during the visit after the press conference.

6. ECB meeting minutes: Retain "two-way option"

The ECB's September meeting minutes released on Thursday show that inflation in the euro area will rise again in the second half of this year and gradually fall back to the target in the second half of next year. In addition, the economic outlook for the euro area is more worrying, but officials generally believe that the possibility of a recession is still small.

The minutes show that policymakers are indeed worried about lowering interest rates too quickly, and point out that "the risk of delaying the ECB's target is seen as needing to act cautiously to avoid withdrawing policy restrictions too early," and "a gradual and cautious approach" currently seems appropriate because it is not yet fully certain that the inflation issue has been resolved.However, they also expressed increasing confidence in the European Central Bank's forecast that inflation will return to target by 2025 and supported the idea of "maintaining ample discretion for some time in the future to respond freely to all the latest data."

7. OpenAI Anticipates a Loss of $14 Billion by 2026

According to reports, OpenAI burned through $340 million in the first half of 2024 and may not achieve profitability until 2029, by which time its revenue is expected to reach $100 billion. Analysis of financial documents included in OpenAI's financial files indicates that losses could reach as high as $14 billion by 2026, with an estimated total loss of $44 billion from 2023 to 2028. This estimate does not include stock-based compensation, which is one of OpenAI's largest expenses, although it is not paid in cash.

Additionally, according to the Financial Times, OpenAI is pursuing a largely untested corporate structure to protect itself from hostile takeovers and to shield Chief Executive Officer Sam Altman from external interference.