This week’s focus: Domestically, newly released third-quarter economic data showed that internal demand recovered somewhat in September, while consumption and external demand continued to improve modestly this week.
On the production side, the black metal upstream remained weak while finished steel products rebounded, and auto tire operating rates clearly bounced back.
On the policy front, fiscal revenue and expenditure data for the first three quarters released on Friday showed that broad fiscal revenue growth edged down, while expenditure growth stayed steady.
Given that only above 4.3% growth is needed in the fourth quarter to meet the full-year target of above 4.5%, this means fiscal policy has ample room for maneuver in Q4.
Overseas, the AI narrative faced tests again this week. Although key technology companies such as Meta and Tesla posted acceptable results, concerns about AI debt sustainability, further rising oil prices, and the risk of a US-Iran conflict all drove markets toward safe havens.
The 10-year US Treasury yield has already fallen below 5%.
We believe that long-end US Treasuries currently have more allocation value than trading value, and because short-term rate hike expectations are unlikely to ease due to high oil prices, the 10-year yield faces greater resistance to falling further below 5%.
Domestic Macro – Demand Side
(1) Consumption: Travel picked up slightly, while autos and box office remained weak year on year.
As of October 22, the October average subway passenger volume in 12 cities was 65.604 million trips, up 1.2% from the full month of October last year.
As of October 23, the October averages for domestic and international flights were 13,300 and 1,938.8 flights, respectively, down 1.0% and up 2.2% from the full month of October last year; the latest 7-day average for domestic flights rebounded 5.8% from a week earlier.
From October 1–23, average daily box office was 78.202 million yuan, down 24.1% year on year.
Data from the China Passenger Car Association showed that from October 1–18, passenger vehicle retail sales were 789,000 units, down 26% year on year but up 2% from the same period last month.
(2) External demand: Port freight recovered slightly after the holiday.
From October 12–18, monitored port cargo and container throughput were 262.35 million tons and 6.96 million TEUs, up 0.5% and 1.1% week on week, respectively.
Shipping prices diverged: as of October 22, the October average Baltic Dry Index (BDI) was 2,820.8, down 17.2% from the full month of September, up 41.3% from the full month of October last year, and the latest reading rebounded 7.2% from last Friday.
As of October 23, the October average China Containerized Freight Index (CCFI) was 1,903.8, up 0.9% from the full month of September and up 90.3% from the full month of October last year, but it fell 2.4% this week.
Domestic Macro – Production Side
The black metal upstream was weak while finished steel products rebounded, auto tire operating rates clearly bounced back, and the chemical and petroleum chains came under overall pressure.
As of October 23, black metal production continued to diverge: blast furnace and coke oven operating rates and hot metal output all declined in tandem, while rebar and hot-rolled coil output rose somewhat.
The blast furnace operating rate fell 0.09 pct week on week to 80.40%, and the coke oven productivity rate fell 0.43 pct to 70.58%; this week’s average daily hot metal output fell 0.57% week on week to 2.3225 million tons, rebar output rose 0.5% week on week to 1.7478 million tons, and hot-rolled coil output rose 1% week on week to 2.8623 million tons.
Auto manufacturing clearly recovered, with both semi-steel and all-steel tire operating rates rebounding sharply.
As of October 22, the semi-steel tire operating rate rose 4.35 pct to 64.78%, and the all-steel tire operating rate rose 5.48 pct to 57.7%.
The chemical chain was overall weak, with only soda ash operating rates rising slightly; coking enterprise operating rates fell 0.9 pct to 76.24%, soda ash operating rates rebounded 0.09 pct week on week to 64.68%, and styrene operating rates fell 0.7 pct to 62.8%.
The petroleum chain continued to weaken, with refinery and asphalt plant operating rates falling together; refinery operating rates fell 0.33 pct to 50.71%, and petroleum asphalt plant operating rates fell 0.5 pct to 22.6%.
Price Performance
(1) CPI: Vegetable and hog prices both weakened.
As of October 23, the Ministry of Agriculture and Rural Affairs’ average wholesale vegetable price fell 3.11% week on week, continuing a downward trend since mid-September.
The decline in vegetable prices was mainly due to concentrated autumn vegetable listings, and continued autumn vegetable supply will also limit upside room, so vegetable prices are expected to remain range-bound and weak.
On hog prices, spot hogs continued to weaken.
As of October 23, the national average wholesale pork price was 15.78 yuan/kg, down 0.55% from the previous week; the futures side was also weak, with hog futures settlement price closing at 9,125 yuan/ton, and the weekly average down 6.12% from the end of last week.
The spot hog price decline mainly reflected still-loose supply, with farms more willing to sell and previously held-back and second-round fattened hogs gradually entering the market.
Hog futures continued to fall, indicating the market remains cautious about the sustainability of later demand improvement.
(2) PPI: Crude oil continued to surge, black metals adjusted divergently, and nonferrous metals fluctuated at high levels.
On Saturday evening local time, according to claims by Yemen’s Houthi armed group, it launched a large-scale attack inside Saudi Arabia; in addition, Trump said Iran was doing everything possible to push oil prices higher before the midterm elections, the US side hinted at the possibility of strikes on Iran, and said it was prepared for a long-term standoff with Iran.
As of October 23, Brent crude futures closed at $116.7/barrel, up 4.28% for the week; WTI crude futures closed at $103.3/barrel, up 3.94% for the week.
In black metals, coking coal fell while rebar rose.
On October 23, the coking coal main contract fell 7.50% from last week, coke and iron ore fell 3.78% and 0.83% week on week respectively, and rebar rose 2.36%.
The rebar rebound showed that peak-season demand expectations and some restocking demand still provided support, but weak real estate-related demand continued to constrain a sustained rise in construction steel prices.
In nonferrous metals, copper and aluminum overall remained in high-level fluctuations, with price trends somewhat divergent.
This week, the average copper price fell 1.44% week on week, and the average aluminum price fell 0.39% week on week.
In the short term, nonferrous metal prices may continue to fluctuate at high levels.
Domestic Macro – Fiscal Policy
This week, net financing of general government bonds accelerated noticeably, and the Ministry of Finance press conference pointed to promptly completing the work of pre-issuing part of the new local government debt quota for 2027.
This week, net financing of general government bonds was 296.21 billion yuan, with progress at 77.3% (up 5.8 pct week on week, previous value -1.8 pct); 1.36 billion yuan of new local government general bonds were issued, with progress at 84.7% (up 0.2 pct week on week); 46.71 billion yuan of new local government special bonds were issued, with progress at 83.2% (up 1.1 pct week on week); 727 million yuan of special new special bonds were issued (cumulative issuance for the year 1,117.98 billion yuan), with progress at 139.7% of the initial budget (up 0.1 pct week on week, previous value 4.0 pct).
On October 23, the Ministry of Finance released the fiscal revenue and expenditure situation for the first three quarters: national general public budget revenue rose 5.1% year on year, general public budget expenditure rose 1.0% year on year, and state-owned land use right transfer revenue fell 27.9% year on year.
On the same day, the Ministry of Finance said that next it will promptly pre-issue part of the new local government debt quota for 2027, guide localities to plan and prepare early, and promptly carry out budget compilation and other related procedures to ensure bond issuance starts as early as possible in January next year.
Localities were asked to better connect project reserves with bond issuance, accelerate issuance pace, smooth the allocation chain, and fully issue and use carryover quotas for project construction before the end of this year, so as to form physical工作量 as soon as possible and promote early policy implementation and early results.
Money and Liquidity
Money market rates fluctuated slightly, and the government bond yield curve showed no significant change.
This week, the October LPR quote remained unchanged for the 17th consecutive month, with the 1-year at 3.0% and the 5-year and above at 3.5%.
This week, the central bank announced this month’s MLF operation arrangement, planning to conduct 700 billion yuan of 1-year MLF operations, with 900 billion yuan maturing this month, a net withdrawal of 200 billion yuan; combined with 400 billion yuan of net injection from two tenors of outright reverse repos in October, medium- and long-term liquidity tools injected a total of 200 billion yuan net this month, as the central bank maintained ample liquidity.
This week, open market reverse repo operations injected a total of 62 billion yuan net.
Major money market rates fluctuated slightly, with SHIBOR007 at 1.3260% (-1BP), DR007 at 1.3214% (-0BP), and DR001 at 1.2737% (+1BP).
The daily average volume of interbank pledged repo transactions was 8.15 trillion yuan (previous value 7.84 trillion yuan), up noticeably from last week.
The government bond yield curve showed no significant change, with the 30-year yield at 2.0675% (+1BP), the 10-year at 1.6400% (-1BP), and the 1-year at 1.1797% (+1BP).
The 1-year state-owned bank negotiable certificate of deposit issuance rate closed at 1.41%, down from last week.
Overseas Macro
Intensifying Middle East conflict drove oil prices higher, US AI narrative came under pressure as equity assets adjusted, US Treasuries continued to play a safe-haven role, and the French bond crisis continued.
Policy and Events
(1) Iran increased pressure, the US hinted at strikes, and oil prices continued to rise.
The Middle East situation worsened further this week, with Iran saying two oil tankers struck mines in the southern Strait of Hormuz; Trump said Iran was doing everything possible to push oil prices higher before the midterm elections, the US side hinted at the possibility of strikes on Iran, and said it was prepared for a long-term standoff with Iran.
Under various pressures, WTI crude rose 4.46% this week to $103.44/barrel, and Brent rose 6.85% to $117.38/barrel; worsening oil prices are still increasing short-term US inflation pressure.
(2) The US planned to evacuate some embassy personnel from the Gulf region, triggering fears of renewed war and hitting markets.
With AI-related tech stock sentiment still weak, the US move to consider evacuating diplomatic personnel was interpreted as a possible renewed war with Iran.
Alongside rising oil prices, US stocks fell broadly on Thursday: the Philadelphia Semiconductor Index dropped 6.7%, and funds flowed heavily into US Treasuries as a safe haven, with the 10-year yield falling 16.6bp to 4.953%.
(3) The US continued trying to impose trade restrictions in key technology areas.
Trump announced this week that imported wind turbines and their parts pose a threat to national security, and that talks with trading partners would begin first, though no tariffs have yet been directly imposed.
The US Federal Communications Commission (FCC) began banning sales of dashcams and wireless video transmitters containing Chinese-made chips.
In addition, the Department of Homeland Security issued a federal procurement exclusion and removal order targeting the Chinese AI model DeepSeek.
(4) French unrest continued, and French bond yields exceeded US yields.
Continued protests and unrest in France further weakened the credit of French government bonds; the 10-year French bond yield rose as high as 5.14% this week and exceeded the same-maturity US yield, the highest since July 2002.
With French fiscal stability difficult to restore in the short term and protests and unrest continuing, investors will find it hard to restore confidence in French bonds in the near term.
Overseas Data
The US labor market remained stable, PMI stayed relatively strong, and real estate remained weak.
(1) The US October S&P PMI was still generally strong.
The October S&P manufacturing PMI was 56%, better than the 55.5% expectation; the services PMI was 57.9%, slightly weaker than the 58% expectation.
The PMI showed that marginal expansion momentum in US manufacturing and services was maintained, though it should be noted that with AI investment heavily dependent on imports, a significant expansion in US manufacturing that drives a recovery in employment and wages remains difficult to achieve.
(2) US September real estate data remained constrained by high rates and elevated inventory.
September housing starts were only 1.221 million annualized, significantly below the 1.305 million expectation; total building permits were 1.40 million.
In addition, the September pending home sales index fell 5.2% month on month, also clearly below expectations.
With the 30-year fixed mortgage rate as high as 7.4%, real estate investment remains difficult to recover.
(3) US initial jobless claims for the week ended October 17 were 194,000, indicating a stable labor market.
Although job creation may be limited by relatively high rates and insufficient demand, with supply-side constraints, the US unemployment rate is unlikely to rise significantly, and there is no reason yet to prevent the Federal Reserve from continuing to raise rates amid high oil prices.
But we still believe the Fed will wait until December to hike again.
(4) US consumer confidence was weak, and inflation expectations did not continue to rise for now.
The final October University of Michigan consumer sentiment index was 48, still low; 1-year inflation expectations were 4.7%, and 5-year and above inflation expectations were 3.5%, basically unchanged from last month’s expectations.
(5) Euro area October PMI was slightly below expectations.
The October euro area manufacturing PMI was 52.4%, below the 52.7% expectation; services were 51.7%, below the 52.5% expectation.
Among them, Germany’s manufacturing PMI was 54.2% and better than expected, but France’s manufacturing PMI was 49.3%, below expectations and entering contraction territory.
The AI narrative still faced tests this week. Although key technology companies such as Meta and Tesla posted acceptable results, concerns about AI debt sustainability, further rising oil prices, and the risk of a US-Iran conflict all led markets to choose safe havens.
The 10-year US Treasury yield has already fallen below 5%.
We believe that long-end US Treasuries currently have more allocation value than trading value, and because short-term rate hike expectations are unlikely to ease due to high oil prices, the 10-year yield faces greater resistance to falling further below 5%.
Risk Warning
The risk that policy implementation falls short of expectations; the risk that consumer confidence recovery falls short of expectations.
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