This Week's Macroeconomic Highlights: Fed's October Rate Hike Pause Expectations Rise, AI Sector Faces Divergence and Credit Risk Challenges

On October 17, global markets this week engaged in a tug-of-war over inflation, Federal Reserve policy, and the sustainability of AI investments. The U.S. September CPI and PPI data exceeded expectations, briefly raising rate hike expectations. However, after cautious remarks from Federal Reserve officials, the prospect of a rate hike pause in October has re-emerged as the market's baseline scenario, although the possibility of another rate hike within the year has not been eliminated.

In the AI sector, the market has begun shifting from merely chasing computing power demand to scrutinizing financing costs and investment returns. High-leverage AI infrastructure companies have faced sell-offs, with their debt risks and financing models coming under scrutiny. Meanwhile, a 69% year-on-year increase in net profit for the third quarter indicates that demand for AI chips remains resilient. The market is accelerating the differentiation between leading companies with stable cash flows and infrastructure firms reliant on debt expansion.

Geopolitical risks continue to disrupt the energy market. The ceasefire in the Russia-Ukraine energy conflict has not been maintained, with both sides resuming strikes on energy facilities. In the Middle East, military intervention in Yemen has increased, raising shipping security risks in the Strait of Hormuz, and the risk premium for crude oil supply continues to be supported.

In other markets, the South Korean stock market rebounded on Friday after seven consecutive days of decline, but the weekly drop marked the largest in 18 years. The Indonesian stock market faced a sharp decline due to considerations of being downgraded from emerging market status to an independent market, exacerbating capital outflow pressures. In terms of gold, plans to reduce the gold reserve ratio from approximately 78% to 75% reflect that the high-interest-rate environment is prompting some central banks to rebalance their reserve assets.

Additionally, the third-quarter financial reports of six major banks showed divergence, with stock trading businesses generally growing while fixed income trading faced pressure. The disclosed third-quarter revenue reached $16.8 billion, a 45% quarter-on-quarter increase, and preparations for IPOs are underway. Overall, the market focus is shifting from AI growth narratives to financing risks, inflation trajectories, and global geopolitical shocks.

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