China Merchants Securities released a research note stating that the U.S. Bureau of Labor Statistics reported September 2026 nonfarm payrolls rose by 29,000, versus an expected gain of 90,000 and a prior gain of 133,000; the unemployment rate came in at 4.2%, against an expected 4.1% and a prior 4.1%.

The September nonfarm payroll gain was significantly below expectations, with the pullback in local government hiring from a high base being the core factor, while leisure and hospitality hiring fell notably again from the previous month, and information, professional and business services, and financial activities continued to act as absolute drags.

After the earlier below-expectations August PCE data had already significantly reduced market inflation concerns, the release of the nonfarm data prompted markets to further lower rate hike expectations for the October FOMC. Following the data release, CME data showed the market's expectation for the October FOMC to keep the policy rate unchanged rose to 80%, though a 25bp hike in December remained the highest-probability scenario.

Key Overseas Economic Data

1. U.S. August PCE Price Index Year-on-Year Growth Well Below Expectations

On September 30, 2026, the U.S. Bureau of Economic Analysis released the August personal consumption expenditures price index. August headline PCE rose 3.4% year-on-year, and core PCE rose 3.0% year-on-year, below market expectations of 3.7% and 3.3% respectively; month-on-month, they rose 0.3% and 0.2% respectively. Meanwhile, the BEA extended annual revisions back to 2021, but a comparison before and after the revisions showed the largest changes were in readings since 2026, with revised headline and core PCE year-on-year growth rates both markedly lower than before revision.

An important reason for the below-expectations result was the BEA's annual revision of PCE data, mainly reflected in three components: financial services, legal services, and computer software and accessories. 1) In financial services, for portfolio management and investment advisory services, the old method inferred current-price estimates from revenue data and deflated them using the producer price index, but the two did not consistently reflect changes in asset values and fee rates, causing unverifiable fluctuations in service volume estimates. The new method directly extrapolates service volumes using employment and hours data, with the price index derived implicitly to reduce abnormal fluctuations. 2) In legal services, the legal services CPI used under the old method had mostly not been publicly released since 2023, and the unpublished values subsequently used did not meet BLS publication quality standards and were abnormally volatile. The BEA therefore replaced the original CPI with a composite price index based on multiple producer price indices. 3) In computer software and accessories, the composition of the old CPI was misaligned with the actual scope of this consumption category in the national accounts: the CPI included flash drives, blank media and other accessories that belong to hardware and are not part of the NIPA software and accessories consumption category; meanwhile, items in the NIPA category such as game software publishing and application service provision were not covered by the CPI. The BEA therefore switched to a composite price index, combining the computer software and accessories CPI with producer price indices for game software publishing, hosting and IT infrastructure services by weight to better reflect the composition of the category.

This data revision led to a cooling of market rate hike expectations. For the Fed's subsequent decisions, the revision should have a marginal impact; core PCE is an indicator the Fed and Warsh pay relatively close attention to, and the easing of data pressure can provide additional grounds for pausing rate hikes, but it is unlikely to become a decisive factor in the subsequent rate hike path.

2. U.S. Second-Quarter GDP Growth Sharply Revised Up

On September 30, 2026, the BEA released the third estimate of U.S. second-quarter 2026 real GDP. The data showed real GDP grew at a 2.2% annualized rate in the second quarter, revised up 0.7 percentage points from the second estimate (both the initial and second estimates were 1.5%). According to BEA technical notes, the upward revision mainly came from consumer spending, private investment and government spending. 1) Within consumer spending, services and goods were revised up simultaneously. On the services side, the upward revision was driven by recreational services and other services, partly offset by downward revisions to transportation services, especially air transportation. On the goods side, the upward revision was driven by recreational goods and vehicles, especially information processing equipment. 2) The upward revision to private investment mainly reflected upward revisions to private inventory investment and private fixed investment. In inventory investment, nonfarm inventory investment and farm inventory investment were revised up. In fixed investment, nonresidential structures and residential investment were revised up, especially the revision related to nonresidential investment in commercial and medical data centers. 3) The upward revision to government spending mainly concerned federal defense spending, reducing the negative drag of government spending on GDP.

This revision, by incorporating more consumer, investment and government spending factors, more fully reflects the current resilience of the U.S. economy. Against a backdrop of high inflation but monetary policy not yet tightened, household consumer spending was still revised up, indicating that demand for services and goods consumption has not weakened significantly. The upward revision to nonresidential structures investment, especially data center-related investment, shows that AI capital expenditure is becoming an important support for private investment. Consumer resilience and AI capital expenditure together strengthened second-quarter growth momentum and also eased market concerns about the risk of a near-term U.S. recession.

3. September Nonfarm Payrolls Below Expectations

On October 2, 2026, the U.S. Bureau of Labor Statistics reported September 2026 nonfarm payrolls rose by 29,000, versus an expected gain of 90,000 and a prior gain of 133,000; the unemployment rate came in at 4.2%, against an expected 4.1% and a prior 4.1%. The September nonfarm payroll gain was significantly below expectations, with the pullback in local government hiring from a high base being the core factor, while leisure and hospitality hiring fell notably again from the previous month, and information, professional and business services, and financial activities continued to act as absolute drags.

The September nonfarm data can be seen as a phased correction to August's overly strong performance; the rebound in the labor force participation rate pushed the U3 unemployment rate slightly higher and wage growth weakened, but the decline in the U6 unemployment rate indicates the job market still has some resilience. The local government and leisure and hospitality components continued to cause substantial disturbances to the overall data, but aside from the interference from these two items, whether the continued upgrading of AI applications will lead to further weakening of service-sector employment is a question requiring close attention in the next stage.

After the earlier below-expectations August PCE data had already significantly reduced market inflation concerns, the release of the nonfarm data prompted markets to further lower rate hike expectations for the October FOMC. Following the data release, CME data showed the market's expectation for the October FOMC to keep the policy rate unchanged rose to 80%, though a 25bp hike in December remained the highest-probability scenario.

4. September U.S. Manufacturing and Services PMIs Both Clearly Above the Boom-Bust Line

In September 2026, U.S. manufacturing and services PMIs were both in expansion territory and continuously well above the boom-bust line. The September ISM manufacturing PMI came in at 54.5, down slightly by 0.1 percentage point from August but in expansion territory for a ninth consecutive month. The September ISM services PMI came in at 54.9, in expansion territory for a 27th consecutive month. Both PMIs were significantly above the boom-bust line, indicating the U.S. economy maintains expansion momentum on both the manufacturing and services fronts.

On the prices front, both manufacturing and services rebounded notably. The September ISM manufacturing prices index jumped to 77.9 from 71.1 in August, up 6.8 percentage points, the highest since June this year and a 24th consecutive month of raw material price increases. The September ISM services prices index rose to 74.0 from 72.6, a new high since July 2022. As a leading indicator of CPI, the prices index reflects changes in input costs on the corporate purchasing side, and its continued climb indicates inflationary pressure is re-accumulating and may further pass through to the consumer side in the future.

On the employment front, manufacturing rose further and services improved marginally. The September ISM manufacturing employment index rose to 52.7 from 51.2 in August, in expansion territory for a third consecutive month. The services employment index rose to 50.1 from 47.8 in August, returning to expansion territory for the first time since June. Combined with the September nonfarm data, manufacturing employment shows clear signs of recovery, benefiting from the expansion of data center construction driven by AI capital expenditure and a recovery in manufacturing production. But services employment is still clearly hit by AI, and the broad trend of shrinking employment in the technology and financial sectors has not yet reversed. Some companies in the ISM survey also reported adjusting staffing structures due to efficiency gains from AI tools.

Overseas Central Bank Developments

1. Federal Reserve: Cooling Data and Dovish Officials Temporarily Ease Rate Hike Expectations

The nonfarm data and comments from some officials cooled October rate hike expectations. September nonfarm payrolls were 29,000, versus an expected 90,000 and a prior 133,000, while July-August data were revised down by about 30,000 each; the unemployment rate came in at 4.2%, versus an expected 4.1% and a prior 4.1%. After the data release, combined with downward revisions to August PCE data, the market's expectation for the October FOMC to pause rate hikes rose to 80%. In addition, on September 29 New York Fed President Williams said that given the policy action taken at the September meeting, there is no need to rush and we have time to gather more information; on October 1 Fed Vice Chair Jefferson said the Fed may need more time to decide the next rate hike; the same day Bowman said there is no need for further rate adjustments this year, and other officials also hinted that continued rate hikes in October were unnecessary. Therefore, the dovish shift in official comments cooled market expectations for an October hike, though a December hike is still priced in.

The short-term liquidity reflow scenario we have mentioned many times is gradually materializing and has temporarily boosted risk appetite. But looking ahead, the September rate hike landing is not the exhaustion of negative factors, but the beginning of the Fed's rate hike cycle. Due to factors including the difficulty of fundamentally easing U.S.-Iran tensions, potential spillover risks of conflict, and continued declines in global crude oil reserves, we maintain our judgment that liquidity will remain in an ebbing trend after the brief reflow.

2. ECB: Rate Hike Expectations Have Cooled Somewhat

Recent ECB official comments have been generally hawkish, emphasizing that upside inflation risks remain high, but some officials also pointed to the drag on the economy from rising interest rates and weakening fiscal support, so October rate hike expectations have also cooled somewhat. Eurozone August CPI rose 3.3% year-on-year, above July's 2.9% and the highest since September 2023, and has been above the ECB's 2% target for many consecutive months. Core inflation excluding food and energy edged down to 2.4%, indicating that current inflationary pressure is still mainly concentrated in the energy supply shock rather than broad-based demand overheating. The ECB already raised rates by 25bp in September, and considering weak economic recovery momentum, it may raise rates by another 25bp before January next year.

3. Bank of Japan: Still in a Rate Hike Channel

The Japanese economy remains resilient. Although Middle East tensions and high oil prices have created some drag on the economy, exports, industrial production and corporate investment remain supportive, private consumption remains resilient, and real wage growth has turned positive. Japan's output gap in the first quarter of this year was 0.5%, a clear improvement from 0.1% in the first quarter of 2024, and has been stable above 0.5% for four consecutive quarters, with the economy currently in a moderate recovery channel.

Ueda made clear a signal of continued rate hikes. On October 6, Ueda said we will continue to gradually raise the policy rate and adjust the degree of monetary accommodation in line with developments in economic activity, prices and financial conditions. Currently the Bank of Japan's model estimates the natural rate range at -0.9% to 0.5%; if estimated with a 2% inflation target, the nominal rate would be in the 1.1% to 2.5% range, corresponding to a median expectation of about 1.8%. Ueda also said 2.5% may be the upper limit of the current estimated neutral range, and we expect the Bank of Japan may have at least two more rate hikes.

Key Overseas Political and Economic News

1. Middle East Conflict Escalates, While Oil Prices Cool Somewhat

The Middle East situation has escalated again, with the conflict further spilling over into the Red Sea and Saudi energy facilities. Disagreements between the U.S. and Iran over navigation through the Strait of Hormuz and Iranian crude oil exports remain unresolved, and military conflict in the Red Sea direction has further intensified. On October 5, Yemeni government forces backed by Saudi Arabia, supported by large-scale Saudi airstrikes, launched a new offensive against Houthi forces, retaking some coastal areas near the Bab el-Mandeb Strait and advancing toward the strategic port of Mokha. In response, the Houthis claimed to have attacked key facilities including Riyadh's King Khalid International Airport, the Rabigh Saudi Aramco refinery and Abha Airport, with related attack and damage details still pending verification. Previously, Saudi Arabia's east-west oil pipeline had already been affected by attacks, and Red Sea shipping disruptions had also constrained crude oil exports from Yanbu port. Overall, the Middle East conflict is spreading from crude oil transportation constraints at the Strait of Hormuz further toward Red Sea shipping and Saudi energy infrastructure, and risks to the regional energy supply chain remain high.

However, during the National Day holiday period oil prices did not continue to surge one-sidedly and instead cooled somewhat, with the core reason likely being that the market began trading the expectation that "supply repairs will outpace conflict escalation." The U.S. Department of Energy announced on September 29 that it would again launch an exchange of up to 40 million barrels of SPR crude, continuing the previously announced 172 million barrel release arrangement; on October 2, the G7 further agreed to release, through IEA coordination, 100 million barrels of crude oil and diesel and other strategic reserves not yet delivered under previous commitments over the next four months, prioritizing diesel, while pledging to avoid energy export restrictions. Meanwhile, on October 5 Trump signed an executive order temporarily allowing tax-exempt dyed diesel originally used for agriculture, construction and other off-road purposes to be used for highway transportation, deferring the related federal diesel tax obligation until the end of the year to lower trucking and agricultural production costs. In price terms, as of October 5, weekly average Brent and WTI prices had fallen to $100.32 per barrel and $89.43 per barrel from $103.53 per barrel and $90.42 per barrel on September 30.

Looking ahead, as the U.S. midterm elections approach, the Trump administration has a strong policy desire to stabilize energy prices and ease household cost-of-living pressures, and is expected to continue actively taking measures in the short term to curb excessive oil price increases. But strategic reserves mainly ease phased supply pressure; if the policy inventory buffer weakens after the midterms, combined with continued Middle East conflict and renewed disruptions to key shipping lanes, oil prices still face the risk of renewed upward movement.

2. Europe's Political Landscape Is Accelerating Its Reshaping

Britain is re-discussing its long-term relationship with the EU, and UK-EU relations are expected to improve further. On September 30, British Prime Minister Burnham said Britain should reassess its post-Brexit relationship with Europe, including maintaining the status quo, joining a customs union, returning to the European single market, and even rejoining the EU in long-term policy discussions. He believes Brexit's negative impact on the UK economy outweighs its benefits, and existing cooperation arrangements need further adjustment. Compared with previous cooperation focused mainly on specific trade and regulatory rules, this is the first time the UK government has explicitly included rejoining the EU as a policy option, meaning the improvement in UK-EU relations is beginning to extend from technical cooperation to deeper discussion of institutional relations. French President Macron welcomed the possibility of Britain rejoining the EU but stressed that Britain cannot selectively enjoy EU membership rights. Recently the two sides have advanced cooperation in areas such as agricultural trade rules, carbon emissions trading system alignment and youth exchanges, and plan to hold a UK-EU summit in November. Looking ahead, UK-EU economic and institutional ties are expected to strengthen further, but rejoining the single market or the EU still involves multiple constraints such as regulatory autonomy and free movement of people, and short-term practical progress will still mainly focus on cooperation in specific areas.

At the same time, political and fiscal risks within the EU are rising, with France's fiscal predicament and Spain's early election intensifying market concerns. On October 1, the French government published its draft 2027 budget, planning to achieve about 54 billion euros in fiscal savings by freezing some public sector wages and pensions and compressing local government and healthcare spending, reducing the fiscal deficit ratio from 5.4% in 2026 to 5.0% in 2027. But France's public debt has already approached 119% of GDP, and with the 2027 presidential election approaching and significant parliamentary political divisions, the budget still faces strong resistance to implementation. Market concerns about France's fiscal sustainability have further intensified, with the 10-year French-German government bond spread once widening to about 150bp, a new high since the 2011 European debt crisis. On October 5, Spanish Prime Minister Sanchez announced that the election originally scheduled for 2027 would be moved forward to November 29 this year, mainly due to blocked housing reforms, insufficient parliamentary support for the ruling coalition and continued domestic housing protests. Amid multiple overlapping political risks, the euro fell to a low of 1.12 against the dollar on October 5. Looking ahead, France's fiscal consolidation and Spain's election results still face uncertainty, which may continue to push up European sovereign risk premiums and increase volatility in the euro and European bond markets.

3. The Takaichi Government Faces Dual Constraints of Fiscal and Monetary Policy

The contradiction between the Takaichi government's active fiscal policy and the Bank of Japan's monetary tightening has further emerged, putting pressure on the Japanese bond market. The summary of opinions from the Bank of Japan's September policy meeting released on October 1 showed that some members believe underlying inflation has approached or exceeded the 2% target and that further rate hikes are necessary, but government representatives stressed that the cumulative impact of previous rate hikes on the economy should be carefully assessed. On October 5, Takaichi Sanae reiterated in her parliamentary policy speech a "responsible proactive fiscal policy," planning measures such as food consumption tax cuts and strategic investment to support economic growth, while promising to control government bond issuance and maintain fiscal sustainability. But market concerns about fiscal expansion and the debt burden remain strong, with the 30-year Japanese government bond yield rising to a record high of 4.166%. On October 6, Bank of Japan Governor Ueda further emphasized the importance of anchoring underlying inflation stably around 2%, and the Bank of Japan's attention to inflation risks continued to rise. On the same day, reports said the Bank of Japan may confirm in its subsequent economic outlook that underlying inflation has reached the 2% target, further strengthening market expectations of continued rate hikes within the year. Looking ahead, coordination between the Takaichi government's fiscal expansion and the Bank of Japan's monetary policy normalization has become more difficult, and combined with high energy prices and a weak yen, Japanese long-term government bond yields still face some upward pressure, and volatility in the yen and Japanese risk assets may increase.

4. Summary of Other Overseas Information

1) On September 30, Russia launched a new large-scale airstrike on Ukraine's energy infrastructure. Russian forces used missiles and drones to attack energy facilities in Kyiv and other regions of Ukraine, affecting power supply in some areas. As winter approaches, the offensive and defensive struggle between Russia and Ukraine over energy infrastructure continues to escalate, and Ukraine's power supply and energy security face further pressure.

2) On October 1, Trump stepped up midterm campaign efforts, stumping for Republican candidates. Trump traveled to Texas and Oklahoma that day to participate in campaign activities, officially launching an intensive roughly one-month campaign schedule before the midterms, and planned to subsequently visit key states such as Ohio and Nebraska. Cost of living, energy prices and immigration remain key voter concerns, and the midterm election results will determine control of Congress for the next two years and affect the room for advancing the Trump administration's energy, tariff and other policies.

3) On October 2, Russia further eased war spending pressure through unconventional fiscal means. According to Reuters, since 2026 wealthy Russian individuals have contributed about 471 billion rubles (about $5.6 billion) to the government through so-called "voluntary donations," equivalent to more than 1% of full-year federal fiscal expenditure; meanwhile, the Russian government also plans to raise fiscal funds by selling confiscated assets, raising taxes and increasing government borrowing. As the Russia-Ukraine conflict enters its fifth year, military and security-related spending still accounts for a high share of Russia's fiscal expenditure, and fiscal financing pressure continues to rise.

4) On October 3, Ukraine announced it would step up strikes on Russian refining facilities. Ukrainian President Zelensky said that in response to Russia's recent new round of airstrikes on Ukrainian cities and key infrastructure, Ukraine will further strike Russian oil refineries and other energy facilities. The U.S. had previously asked Ukraine to be cautious in striking Russian oil facilities to avoid further pushing up global energy prices. As mutual attacks on energy infrastructure between the two sides intensify, the spillover impact of the Russia-Ukraine conflict on Russia's refined product supply and the global energy market deserves continued attention.

5) On October 4, Brazil held the first round of its presidential election, with Flavio Bolsonaro leading incumbent President Lula in votes. According to first-round counting results, former President Bolsonaro's son, right-wing Senator Flavio Bolsonaro, won about 47% of valid votes, while Lula won about 45%; neither reached the majority needed for direct election, and a second round will be held on October 25. Flavio's first-round performance exceeded most previous polls, and his Liberal Party also expanded its seats in congressional elections.

6) On October 5, the EU accused Russia of conducting hybrid attacks against European countries. EU High Representative for Foreign Affairs and Security Policy Kallas said Russia has recently threatened European security through drone border incursions, sabotage and other hybrid attack methods. Previously, on September 30, Moldova reported that three drones had entered its airspace. The EU believes related incidents have heightened security risks in Europe, and concerns about the Russia-Ukraine conflict spilling over to neighboring countries have further increased.

Overseas Asset Price Trends

The performance of overseas assets from September 30 to October 6, 2026 is shown in the table below: Overseas stock markets generally rose: U.S. stocks rose overall, with the S&P 500 up 1.60%, the Nasdaq Composite up 2.29%, and the Dow up 0.71%; Germany's DAX rose 0.22%, France's CAC fell 1.64%, the UK's FTSE 100 fell 1.02%, and Japan's Nikkei 225 rose 5.89%. International bonds: the 10-year U.S. Treasury yield rose 2.1bp to 5.31%, while 10-year German and Japanese government bond yields changed by -12.0bp and 2.8bp respectively. Foreign exchange market: the dollar index rose 0.67%, the euro, pound and renminbi depreciated, and the yen appreciated. Commodity markets generally fell: most metal prices declined, with COMEX gold, silver, platinum and palladium changing by -0.65%, 1.28%, 0.27% and -2.85% respectively. LME copper, aluminum, zinc and nickel fell 0.39%, 3.03%, 4.55% and 2.46% respectively. In industrial products, WTI crude oil fell 1.09%, and NYMEX natural gas rose 1.32%. In agricultural products, corn and wheat rose 2.66% and 0.94% respectively, while pork fell 0.99%.