【True Zoom Finance】US budget deficit hits third highest in history; China's 1-year and 5-year LPR expected to be cut by 20 basis points

Data released by the U.S. Treasury Department on Friday showed that the fiscal year deficit as of September 30 was $1.83 trillion, higher than the $1.7 trillion in the previous fiscal year, and the highest on record except for fiscal years 2020 and 2021. This was driven by increased debt interest costs and growth in social security and defense spending, far offsetting the growth in tax revenue.

Overnight Highlights

· The Dow Jones and S&P 500 indices hit new closing highs on Friday, and the Nasdaq also closed higher, as Netflix's stock surged on earnings and tech stocks generally rose. The dollar fell, taking a breather after five consecutive days of gains, as a new round of stimulus measures in China boosted risk appetite and lifted global stocks. U.S. Treasury yields fell as the market consolidated after a sharp rise in yields over the past month, with investors expecting the Fed to be less dovish as the U.S. economy remains stronger than previously expected. Oil futures fell, with weekly losses exceeding 7%, after data showed a slowdown in China's economic growth and investors digested mixed prospects for the Middle East. Gold prices broke through the $2,700 per ounce mark for the first time in history, supported by escalating tensions in the Middle East, uncertainty around the U.S. election, and expectations of loose monetary policy.

International News

· Atlanta Fed President Raphael Bostic emphasized policymakers' commitment to achieving the 2% inflation target, saying he is in no rush to cut rates to the so-called neutral level. See: [Market Review] U.S. September Inflation Data Further Increases the Likelihood of a Fed Rate Cut

· Bank of America strategist Hartnett said that given the rising likelihood of Trump winning the election and Republicans controlling Congress, investors are buying banks, small-cap stocks, and the dollar ahead of time, mirroring the 2016 election trading strategy. See: [Market Review] Trump Reiterates Trade Protectionism, Trump Trade Heats Up

· Prominent economist Nouriel Roubini warned that Trump's policy plans, including raising tariffs, pushing for a weaker dollar, and taking a hardline stance on illegal immigration, could drag down economic growth while stimulating higher inflation.

· Data released by the U.S. Treasury Department on Friday showed that the fiscal year deficit as of September 30 was $1.83 trillion, higher than the $1.7 trillion in the previous fiscal year, and the highest on record except for fiscal years 2020 and 2021. This was driven by increased debt interest costs and growth in social security and defense spending, far offsetting the growth in tax revenue.

· ECB Governing Council member Villeroy argued for flexibility in the pace and magnitude of rate cuts. An ECB survey showed that eurozone inflation is expected to fall slightly below 2% next year.

· Boeing (BA.US) reached a tentative agreement with its union on a new contract, including a 35% pay raise over four years. Union members will vote on the new contract on October 23, and if passed, the strike lasting more than a month could end.

· Streaming company Netflix (NFLX.US) added more than 5 million subscribers in the third quarter, with all key financial metrics exceeding Wall Street expectations, sending its stock price to a record high.

Greater China News

· China will usher in a loan prime rate (LPR) adjustment window on Monday, with the 1-year LPR expected to be cut by 20 basis points to 3.15% and the 5-year LPR expected to be cut by 20 basis points to 3.65%.

· The China Securities Regulatory Commission (CSRC) said it will require approved institutions conducting securities, fund, and insurance company swap operations to strengthen compliance and risk management to maintain stable market operations.

· The Securities Times reported on Sunday that 23 Shanghai and Shenzhen-listed companies disclosed announcements stating that the companies or their controlling shareholders have signed loan agreements or obtained loan commitment letters from banks, with the funds to be used for repurchases or share buybacks, involving a total of more than 11 billion yuan.

· The U.S. election has caused a sharp rise in RMB volatility, with the difference between the one-month implied volatility of onshore and offshore RMB against the dollar across the election day being the largest in nearly two years.

· The central government released regulations on the export control of dual-use items on its website on Saturday, applicable to goods, technologies, and services that can be used for both civilian and military purposes or enhance military potential.

· According to a joint statement from the Hong Kong Exchange and the Hong Kong Securities and Futures Commission, IPO approval times will be compressed to around 100 days, aiming to provide IPO applicants with a more certain timeline.

Commodities and Forex Markets

· The Bloomberg Dollar Index fell for the first time in five trading days as traders consolidated gains from the week and U.S. Treasury yields declined. The yen rebounded after falling below the 150 mark.

· Oil fell on Friday, posting its biggest weekly loss in over a year, as the U.S. resumed efforts to end the Middle East conflict and China's crude demand declined.

· Gold continued to rise against the backdrop of geopolitical tensions and U.S. election uncertainty, hitting another record high. The Chinese central bank's move to support the capital market strengthened investor optimism, lifting base metals.

Earnings and Economic Data Focus

· China's one-year loan prime rate (LPR) as of October 21 (expected: 3.15%, previous: 3.35%)

Source: Goldhorse Capital Extramile

Author: Terry Chow