The Federal Reserve's interest rate cut in November remains a highly probable event.The US CPI data for September did not significantly impact the expectations for a rate cut,and this week's unemployment benefit data,which was higher than market expectations (due to hurricanes),could be a contributing factor.Given that the Federal Reserve's current focus on employment far exceeds its concern for inflation,a 25BP rate cut in November is still the baseline assumption,but the possibility of rate cuts falling short of expectations next year (currently trading at over 100bp) should be monitored.

Events:

8.The US economic and CPI data for August and September have disproven the previous recession trades and excessive rate cut trades.Will there be a change in the pace of the Federal Reserve's rate cuts going forward?Two 25bp cuts within the year remain the baseline assumption,but the possibility of rate cuts falling short of expectations next year should be monitored.

The main viewpoints from Shenwan Hongyuan are as follows:

1.How significant was the US CPI inflation in September,which exceeded expectations?

The US CPI in September was stronger than market expectations,with core inflation showing an increase in various areas except for housing.The US CPI for September was 2.4% year-on-year and 0.2% month-on-month,with market expectations at 2.3% year-on-year.Looking at the core inflation structure,vehicle inflation mainly reflects the rise in used car prices in the previous few months,core non-durable goods inflation reflects the increase in import prices this year,and core non-housing service inflation corresponds to the recent fluctuating growth in residents' salaries.

Inflationary pressures in the US may rise again in the fourth quarter.The main factors could be housing inflation (housing prices) and core non-durable goods (import price transmission).If the strong US employment continues,core non-housing service inflation may also become a source of inflation resilience.Looking ahead to next year,inflation stickiness remains the main theme,and under the cumulative impact of rate cuts,there is a possibility of structural secondary inflationary pressures.

2.Where does the resilience of the US economy in the third quarter come from?

Various data points indicate strong resilience in the US economy during the third quarter.For example,the US employment data and September ISM services PMI announced during the National Day holiday.From more high-frequency data,the Citi US Economic Surprise Index has been rising continuously since July.According to the latest real-time forecast from the Atlanta Fed,the seasonally adjusted annualized growth rate of US GDP in the third quarter may reach 3.2%,higher than the second quarter's growth rate.

After the announcement of the US GDP for the second quarter,the market's forecast for the economic growth rate in the second half of the year was less than 2%.Why has the US economy shown stronger resilience step by step in the third quarter?There are two potential supporting factors: fiscal stimulus and financial conditions easing,and the relatively low leverage ratio of the US实体 also made the economic impact of the third quarter hurricanes relatively small.III.Outlook: The Federal Reserve's November Interest Rate Cut Remains the Base Case Assumption

The Federal Reserve's interest rate cut in November is still a highly probable event.The U.S.September CPI data did not significantly impact the expectation for a rate cut,and this week's unemployment benefit data being higher than market expectations (due to hurricanes) may be a contributing factor.Given the Federal Reserve's current focus on employment far exceeds its concern for inflation,a 25 basis point (BP) rate cut in November remains the base case assumption.However,it is necessary to monitor the possibility of rate cuts not meeting expectations next year (currently trading at over 100BP).

There are two factors that could become "headwinds" for the economy in the fourth quarter.On one hand,the recent rise in U.S.Treasury rates may constrain the easing of financial conditions.On the other hand,under the influence of the new fiscal year,the election season,and the approaching debt ceiling on January 1st next year,it remains to be seen whether the U.S.fiscal policy can continue to exert force in the fourth quarter.The future trajectory of U.S.Treasury rates will need to be observed in relation to the economy and the election results,while the U.S.dollar index will require attention to the Bank of Japan's interest rate hike process and the European Central Bank's interest rate cut process (the European Central Bank holds its monetary policy meeting next week).