[True Zoom Finance] Pre-market Briefing: ECB cuts interest rates by 25 basis points; China's Q3 GDP expected to slow down

The European Central Bank cut interest rates by 25 basis points for the third time this year, with President Christine Lagarde reiterating that risks to economic growth remain tilted to the downside. According to sources, several central bank officials believe that with inflation likely to reach the 2% target faster than expected, another rate cut in December is highly probable.

Overnight Highlights

The Dow Jones Industrial Average rose on Thursday, marking its fourth record closing high in the past five trading sessions, as stronger-than-expected monthly retail sales data indicated robust U.S. consumer spending. The yield on the 10-year U.S. Treasury note climbed after economic data suggested a solid foundation for the U.S. economy, leading markets to expect less aggressive rate cuts from the Federal Reserve. The U.S. dollar hit an 11-week high after data showed an increase in September retail sales, underscoring the resilience of the world's largest economy. Oil prices rebounded from a two-week low as data indicated a decline in U.S. crude and fuel inventories. Gold prices reached another record high as uncertainty surrounding the U.S. presidential election and the Middle East conflict drove investors toward safe-haven assets, while loose monetary policy conditions kept gold prices elevated.

International News

The European Central Bank cut interest rates by 25 basis points for the third time this year, with President Christine Lagarde reiterating that risks to economic growth remain tilted to the downside. According to sources, several central bank officials believe that with inflation likely to reach the 2% target faster than expected, another rate cut in December is highly probable. Traders have increased bets on year-end rate cuts by the ECB, with some even pricing in a 50-basis-point reduction and nearly fully expecting 25-basis-point cuts at every meeting through April. Prominent economist El-Erian predicts the ECB will cut rates more aggressively than the Fed.

U.S. September retail sales exceeded expectations, and initial jobless claims unexpectedly declined last week, with strong data dampening expectations for Fed rate cuts. Overnight, Treasury yields and the dollar rose in response. See: [Market Review] U.S. September Inflation Data Further Increases Likelihood of Fed's Moderate Rate Cuts

The New York Fed's first reserve demand elasticity indicator showed that bank reserves remained ample as of October 11, suggesting the Fed can continue its quantitative tightening.

Bassman, creator of the U.S. Treasury Volatility Index, stated that investors are preparing for historic yield volatility in the days following the November 5 U.S. presidential election. U.S. Treasury data revealed that foreign holdings of U.S. Treasuries saw their largest increase this year in August, while China bucked the trend by reducing its holdings.

U.S. Treasury Secretary Janet Yellen warned that indiscriminate, broad-based tariffs would harm American consumers and businesses.

McKinsey cautioned that the banking sector's good times may be ending, with falling interest rates and weak loan demand expected to pose challenges.

Bloomberg: The EU is reportedly considering fines for Elon Musk's social media platform X and may factor in revenue from other members of Musk's business empire.

Greater China News

China is set to release key economic data on Friday, with Q3 GDP growth expected to rise 4.5% year-on-year, marking the slowest pace in six quarters and increasing pressure on the final three months of the year. President Xi Jinping has repeatedly urged officials to strive for this year's growth target.

Bank of America strategists, who accurately predicted the recent rally in Chinese stocks, believe there is further upside. Prominent macro hedge fund Banxia Investment advised retail investors to buy stocks now, citing relatively low valuations and supportive government policies.

Securities Times: Several major Chinese state-owned banks will lower deposit rates starting Friday.

China's Ministry of Commerce: Significant differences remain in China-EU electric vehicle tariff negotiations, with China inviting the EU for further face-to-face discussions.

Germany urges scrutiny of Chinese manufacturers involved in European wind power projects, citing security and competition concerns.

TSMC (TSMC.US) reported better-than-expected Q3 net profit growth of 54% and raised its full-year revenue growth target, with 2025 capital expenditures likely to exceed this year's. TSMC ADRs hit a record high overnight.

China's Sino-Ocean Group (3377.HK) and its creditors will face off in a London court on Friday, where a judge will determine whether the defaulted developer can seek restructuring under U.K. law.

Chinese autonomous driving startup Pony.ai filed an IPO registration statement with the U.S. SEC. China's securities regulator issued a filing notice for WeRide's Nasdaq listing.

Commodities & Forex

The Bloomberg Dollar Index rose on Thursday as economic data boosted the greenback. ECB decisions and rhetoric weighed on the euro. The yen weakened past 150 per dollar, with markets watching for potential Japanese intervention.

Crude oil edged higher after four days of declines, as traders weighed falling U.S. inventories, potential risks to Middle Eastern production, and China's disappointing stimulus measures.

Gold hit another record high on Thursday, as investors bet on further Fed rate cuts despite strong U.S. economic data.

Industrial metals from copper to iron ore broadly declined, with skepticism that China's latest property market support measures may not sufficiently stimulate construction activity.

Earnings & Data Watch

China Q3 GDP YoY (Prev: 4.7%, Est: 4.5%)

China September Retail Sales YoY (Prev: 2.1%, Est: 2.5%)

Source: Terry Chow, Golden Horse Capital Management (Hong Kong) Limited