The divergence of U.S. PMI data makes it more difficult for the Federal Reserve to make decisions!

Asian Market Trends

On Monday, as the market had doubts about the prospect of another interest rate cut by the Federal Reserve this year, the U.S. dollar index continued its rise and once approached the 100 mark during the session. As of now, the U.S. dollar is quoted at 99.91.

Affected by declining output and weak demand, U.S. manufacturing activity shrank for the eighth consecutive month in October, and the Institute for Supply Management (ISM) manufacturing index fell 0.4 to 48.7.

The U.S. Treasury Department estimates borrowing $569 billion in the fourth quarter, down $21 billion from its July estimate.

Federal Reserve Governor Millan said the Fed may reach a neutral interest rate through a series of 50 basis point interest rate cuts, but a 75 basis point interest rate cut is not required; Chicago Fed President Goolsby believes that inflation data is still worrying and the threshold for interest rate cuts has been raised; Governor Cook pointed out that an interest rate cut is possible in December, but it will depend on subsequent new vifu.netrmation. San Francisco Fed President Daly remains open to a December interest rate decision.

Summary of institutional views

Goldman Sachs in-depth analysis of the U.S. government shutdown: If it lasts for six weeks, it will make...

The partial shutdown of the federal government looks likely to last longer than any previous shutdown.If only for lack of political pressure to end it. A larger share of the public holds Republicans and President Trump responsible for the shutdown, leaving little pressure on Senate Democrats to support a "clean" continuing resolution to end the shutdown that they have so far opposed. The Trump administration has also taken steps beyond typical shutdown procedures to avoid some disruptions that could force an early agreement, such as the suspension of military pay.

However, there are signs that the shutdown may be vifu.neting to an end. Air traffic controllers and airport security staff were not paid on October 28, raising the possibility of air travel delays, especially ahead of the second payday on November 10. Failure to pay out food stamp benefits on time starting Nov. 1 could put pressure on lawmakers to find a solution, although a recent court ruling appears likely to lead to a partial resumption of payments. Getting past some political nodes, such as the Nov. 1 start of enrollment for 2026 Affordable Care Act plans and the Nov. 4 elections in several states, could also open windows for political vifu.netpromises that don't yet exist. A congressional recess that begins after Nov. 7 could also provide impetus for lawmakers to reach a deal.

While difficult to predict, our current expectation is that the shutdown will most likely end around the second week of November. Assuming the shutdown ends in mid-November, we don't expect the November jobs report to be released until early December. The CPI release in November may also face delays, possibly from the currently planned December 10 to the next week. In both cases, it's unclear what the BLS will do with the missing October data, but if the agency decides to release October data, we would expect the data to be released in December along with the November data.

The current federal government shutdown looks likely to be the most severe economic fallout on record. Not only may it last longer than the 35-day partial shutdown in 2018-2019, but its scope will also be far wider than previous long-term shutdowns that only affected a few institutions. If the shutdown is short (for example, lasting 2-3 weeks), the economic impact will be mainly limited to the losses caused by the furloughed federal employees; but if it lasts longer, it may have a greater impact on federal procurement and investment, and may spill over to private sector activities.

Assuming this shutdown lasts about six weeks, we expect this to reduce the annualized sequential growth rate in the fourth quarter of 2025 by 1.15%. As some federal procurement and investment are postponed from the fourth quarter to the first quarter of 2026, the growth rate in the first quarter of next year will receive a slight boost of 1.3%. Our latest forecast is for annualized real GDP growth to be +1.0% in the fourth quarter of 2025 and +3.1% in the first quarter of 2026.

Bank of America: Volatility has not increased significantly. USD/day may first test 158 ​​and then rise to 160

Bank of America analyst Yamada wrote in a report on Monday that when speculative positions or volatility do not increase significantly,In this case, USD/JPY "may test the 158 level before triggering substantial policy response." He kept his year-end forecast of 155 unchanged, but added that "the risk of a surge to 160 in the fourth quarter of 2025 has increased."

Goldman Sachs: Prerequisites for yen intervention have not been met

Goldman Sachs strategists said that the conventional prerequisites for triggering yen intervention have not yet been met, including a rapid decline in the exchange rate to significantly weak levels, a disconnect from fundamentals and stronger verbal intervention. The yen "does not appear to be at particularly weak levels" and its movements "are closely related to the repricing of fiscal risk premiums and recent changes in market expectations for the Bank of Japan's short-term policy," strategist Karen Reichgott Fishman wrote in a note. Goldman Sachs believes that if the lack of U.S. economic data prevents the market from questioning the current positive growth expectations, and the market refocuses on the possibility of early elections in Japan, the yen will have room to weaken further. In the longer term, the bank still expects lower hedging costs and an overall weakening of the U.S. dollar to drive a gradual strengthening of the yen, while any signs of deterioration in the U.S. labor market could trigger a faster and more substantial appreciation of the yen.

Danske Bank: The Federal Reserve is unlikely to enter the "rolling and climbing" interest rate cutting mode

Currently, global economic growth continues to remain at around 3%, close to the long-term average. Although there is still a lot of geopolitical uncertainty and the U.S. tariff policy continues to cause market turmoil, the world has not been off the growth track. The U.S. economy has rebounded from the trade-related weakness earlier this year and is showing signs of recovery ahead of April's "Liberation Day." Following the annualized growth rate of 3.8% in the second quarter, the growth rate in the third quarter is expected to remain in the range of 2.5% to 3%. Although a large amount of economic data is unavailable due to the impact of the one-month government shutdown, the latest indicators show that the economy remains solid.

Current investment activity is largely driven by artificial intelligence-related fields, and concerns about bubbles are widespread. However, the investment plans of major technology vifu.netpanies do not indicate that investment in artificial intelligence will slow down in the near future. In terms of labor market data released in the early stage, market indicators have mixed performance and continue to be the core of economic outlook and Federal Reserve policy attention. Inflation in the dual mission has been moderate, but core CPI is still higher than the 2% target expected by the Federal Reserve.

Looking back last week, the Federal Reserve announced an interest rate cut of 25bp in the early morning interest rate resolution on October 30, lowering the policy interest rate to a range of 3.75%-4.0%. We believe that it is likely to suspend interest rate cuts at the December meeting, but will also cut interest rates three times in 2026, bringing the policy interest rate gradually closer to the neutral level of 3%. This expectation is basically consistent with market pricing and the Fed's own forecasts.

Fanon Credit: U.S. GDP growth may slow to 1.7% this year

The U.S. economy will remain resilient in 2024, with an annual average growth rate of 2.8% exceeding expectations, but it may slow down significantly this year. We expect growth to slow to 1.7% in 2025 before picking up to 2.0% in 2026. This trend largely reflects our view of the sequence of policy changes under the Trump administration. Overall, we expect the policy mix to be modestly positive for growth, with the boost from proactive fiscal policy (focused on tax cuts and deregulation) outweighing the drag from higher tariffs and stricter immigration policies. A more aggressive increase in tariffs would indeed pose a risk to this view. However, we believe that some policies that are not conducive to growth will be implemented more quickly, while policies that are pro-growth will take longer to emerge.

Therefore, our basic forecast is that the growth rate in 2025 will be lower than that in 2026. Negative growth has already occurred in the first quarter, and growth in the second half of the year may also be weak. Tariff increases are expected to be larger than we originally expected, leading us to slightly lower our 2025 growth forecast from 1.9% at the beginning of the year, but policy uncertainty remains high. Given that the economy has slowed significantly but has not yet entered recession, and that immigration restrictions may impose some constraints on labor supply, we believe that the overall labor market will remain healthy, even if there may be some signs of weakness this year. We expect the unemployment rate to peak at around 4.5% in the fourth quarter of 2025, before hovering around 4% by the end of 2026. Based on the likely policy mix, we expect inflation to remain relatively stable. In the short term, inflation may even pick up slightly due to the impact of tariff policy, but we expect this to be temporary. We predict that even by the end of 2026, both overall CPI and core CPI will be slightly higher than the target level and remain at a mid-to-high level in the 2% range. Given slightly higher inflation and slower but still good economic growth, we believe the Fed will ultimately prioritize inflation targets over the medium term and cut interest rates less than market expectations. After cutting interest rates by 25 basis points each in September and October, we expect the Fed to pause interest rate cuts for a longer period of time and maintain the federal funds rate target range at the current 3.75%-4.00%.

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