Caitong: US, European, and Japanese central banks all paused rate hikes in October, but fighting inflation remains the main policy focus.

Caitong: US, European, and Japanese central banks all paused rate hikes in October, but stabilizing inflation remains the main policy focus; this hold should not be extrapolated as a weakening of policy constraints. Caitong released a research report stating that in October 2026, the Federal Reserve kept the target range for the federal funds rate unchanged at 3.75%-4.00% as expected. The decision's assessment of the economy and employment remained positive, and stabilizing inflation remained the policy priority. In addition, the ECB kept rates unchanged as expected, and while its statement continued the balance sheet reduction policy, it placed greater emphasis on the dual impact of energy shocks and tightening financing conditions; the BOJ kept its policy rate at around 1.25% as expected, but moved forward its baseline inflation positioning and significantly accelerated the pace of ETF sales, releasing a clear hawkish normalization signal. Caitong's main views are as follows: The US, European, and Japanese central banks all paused rate hikes in October, but stabilizing inflation remains the main policy line, and this standstill should not be extrapolated as a weakening of policy constraints. The Federal Reserve kept rates unchanged at 3.75%-4.00%. The resilience of the economy and employment determines that fighting inflation remains the priority, and the tightening of financial and credit conditions after the September rate hike provides a window to observe policy transmission. Two hawkish dissents indicate that there is still support internally for further tightening; at the same time, starting in 2027, the FOMC will add special sessions on broad monetary policy strategy within the framework of its eight regular meetings, further dividing short-term policy decisions from long-term framework discussions. The ECB and BOJ also released clear hawkish signals. The ECB kept its three key rates and the pace of balance sheet reduction unchanged. Rising energy prices pushed up headline inflation, but moderate core inflation and wage growth, as well as a significant rise in long-end financing costs, provided grounds for postponing action; the Governing Council discussed an immediate rate hike at this meeting, and the new round of projections and wage data in December will become key decision points, while Lagarde's early departure scheduled for February 2027 adds a medium- to long-term variable to watch. The BOJ kept its policy rate at around 1.25% (with one dissent in favor of a rate hike), moved its baseline inflation positioning forward to "broadly consistent with the 2% target" and revised up its core inflation forecast for fiscal 2027, while unexpectedly announcing that from January 2027 it will sharply raise the annual book-value sales of ETFs from JPY330 billion to JPY860 billion (shortening the static liquidation period from 112 years to 43 years), continuing the normalization direction of assessing rate hikes at each meeting. In financial markets, crude oil continued to rise, while gold, silver, and copper fell and aluminum prices rose; US stocks extended their adjustment, European stocks generally rebounded, Japanese, South Korean, and Hang Seng indices rose while A-share and Hong Kong tech sectors adjusted; US, German, Japanese, and UK government bond yields generally declined, the US Treasury yield curve turned steeper, and Chinese bond yields edged up; the US dollar index rose slightly, the euro and yen weakened against the dollar, and the pound and renminbi appreciated against the dollar; US credit spreads widened slightly, the Italy-Germany spread and the US-Germany and US-Japan spreads narrowed, the China-US negative spread narrowed, and both the VIX and MOVE indices fell. On the macro data front, US headline and core PCE in September rose to 3.6% and 3.1% year on year, respectively, and core services inflation remains sticky; however, real PCE was nearly flat month on month, real disposable income fell and the savings rate dropped to 3.8%, highlighting the squeeze on purchasing power from inflation and increasing the growth cost of further rate hikes. On high-frequency indicators, the US economic surprise index rebounded while GDPNow was revised down, and the euro area surprise index fell significantly; initial jobless claims were flat at a low level and continuing claims fell; Redbook retail sales rose year on year, gasoline retail prices edged down, and lower mortgage rates drove a rebound in mortgage applications. Financial conditions in the US and Europe continued to tighten in tandem. Risk warning: Data statistics may contain omissions; economic performance may exceed expectations; market trends are subject to uncertainty.