The market is currently focused on several core contradictions: high oil prices continue to push up global imported inflation, eroding corporate profits while hindering the pace of interest rate cuts by central banks worldwide; the Middle East situation, the US-Iran and Russia-Ukraine conflicts remain unresolved, and energy premiums are prone to fluctuations. The internal structure of US stocks has weakened significantly, with slowing capital expenditure in the AI sector and marginal contraction in the free cash flow of leading technology companies. Pressure on heavyweight stocks has led to a shift in safe-haven funds, a key driver of the recent decline in US Treasury yields and a weakening dollar; gold is facing liquidity squeeze pressure, following the yield correction. Furthermore, global central banks are at a crossroads, with increasing divergence: some are prioritizing combating inflation, while others are beginning to worry about the risks of employment and economic slowdown. These policy differences continue to reshape cross-asset yield spreads. Currently, the market is oscillating around three main themes: central bank policy turning points, energy inflation, and technology profit expectations. Next week's concentrated release of central bank decisions, inflation data, earnings reports, and political events will verify previous pricing and profoundly impact the short-term direction of the dollar, non-US currencies, US Treasury bonds, US stocks, and precious metals.

Asset Status and Key Verification Events

Global asset classes maintained a volatile, oscillating pattern. The US dollar index began to weaken, and long-term US Treasury yields saw a rapid short-term correction. The core driver was the continued suppression of corporate profits by imported inflation from oil prices, coupled with weakening profit expectations for leading technology companies, triggering a safe-haven inflow into US Treasuries. Market questions will be answered by the following events: On October 29th, the Federal Reserve will announce its interest rate decision and September PCE price data. The PCE is the Fed's core inflation indicator, used to assess inflation stickiness and determine the pace of subsequent interest rate hikes. On the same day, the European Central Bank will also announce its interest rate decision, clarifying the end point of the Eurozone's tightening policy. On October 30th, the Bank of Japan will announce its interest rate decision and October CPI data, verifying the persistence of Japanese inflation and constraining the pace of yen monetary policy tightening. The Reserve Banks of New Zealand and Canada will announce their interest rate decisions on October 28th, directly impacting commodity currencies such as the Australian dollar, New Zealand dollar, and Canadian dollar. Currently, major central banks worldwide are in a wait-and-see period, with policy priorities diverging as they weigh the stickiness of inflation against the downside risks to the economy and employment. Multiple risks remain: rising oil prices are pushing up global imported inflation; central banks are diverging in policy priorities; and the stock and currency markets continue to engage in a tug-of-war. The market is repricing expectations of a delayed interest rate cut, leading to wide fluctuations in the US dollar and US Treasury yields.

US Stocks: Concerns Emerge Regarding the AI Theme, Earnings Season Faces a Major Test

Stock market sectors saw increased divergence this month. While heavyweight tech stocks supported the index, concerns about slowing AI capital expenditure and declining free cash flow for leading tech companies continued to escalate, with weakness in small and mid-cap stocks triggering market anxiety. The S&P 500 rose slightly this month, driven by leading AI stocks, maintaining its high year-to-date gains; half of the 11 major sectors declined, with energy and utilities leading the losses. The S&P 500 equal-weighted index also declined slightly this month. The technology sector remains the market's main driver, but the market has begun trading in the pressure of AI profit realization, testing the sustainability of the leading positions in AI hardware and cloud computing sub-sectors. Microsoft, Amazon, Alphabet, and Visa will release their Q3 earnings reports this week; their earnings and capital expenditure guidance will directly determine the short-term valuation of tech stocks. Leading stocks have extremely high weighting within the index and will significantly influence the market's direction. Inflation expectations and the Federal Reserve's policy path will also play a role.

Core inflation data is about to be released, and research institutions unanimously expect:

US September PCE rose slightly year-on-year, while core PCE remained relatively stable, serving as a key indicator of whether the Federal Reserve will continue raising interest rates. Last month's inflation data reinforced market expectations that the Fed would maintain high interest rates. The Fed is currently maintaining a wait-and-see stance, anchoring its policy to both inflation and employment data. The market expects the FOMC to keep current interest rates unchanged, with funds focused on pricing in a December rate hike. The divergence between interest rates and the economy continues to put pressure on stocks and currencies: interest rate differentials across countries are undergoing a new round of repricing, US Treasury yields remain high, and non-US currencies are generally under pressure; high financing costs are suppressing global economic recovery, further intensifying the stock-bond game. The Eurozone and Germany will release their preliminary Q3 GDP figures on October 30th to assess the risk of a European recession. Previously, Eurozone economic indicators continued to weaken, and the ECB needs to balance its efforts to combat inflation and mitigate economic downturn. Analysts: "In the baseline scenario, the Fed maintains its interest rates and releases a hawkish statement, keeping the dollar strong. Meanwhile, if PCE inflation falls sharply, the market will pre-emptively price in rate cuts, and risk assets are expected to see a phased rebound."

A summary of key global data and events for next week

China: September industrial enterprise profits released on October 27; the Fifth Plenary Session of the 19th CPC Central Committee held from October 26-29; October official PMI released on Saturday. US: Conference Board Consumer Confidence Index on October 27; FOMC interest rate decision and Fed Chair press conference on Thursday morning, October 29, September PCE price index released on the same day; API and EIA crude oil inventory data this week; Alphabet, Microsoft, Amazon, and Visa release Q3 earnings reports. Eurozone & Germany: ECB interest rate decision on October 29, market expects rates to remain unchanged; Eurozone and German Q3 GDP preliminary figures, German Ifo business climate and inflation data released on October 30. UK: Government budget released on October 28, verifying UK fiscal discipline; no major economic data this week. Japan: Bank of Japan interest rate decision and October CPI on October 30, unemployment rate, industrial production, and retail sales data released simultaneously; observing the sustainability of inflation and the pace of tightening. Other economies: The Reserve Bank of New Zealand and the Bank of Canada will announce their interest rate decisions on October 28, with the market expecting both to raise rates by 25 basis points; Australia's Q3 CPI will be released, providing a basis for the Reserve Bank of Australia's policy; New Zealand markets will be closed on Monday.

Geopolitical risk warning

Israel will hold its general election on October 27, the results of which will influence the direction of Middle East policy and affect oil prices and expectations for US-Iran negotiations. With the US midterm elections approaching and oil prices high, news of White House intervention in oil prices, Iran talks, and Russia-Ukraine negotiations could all potentially disrupt the market.