Moderate Inflation Paves Way for Fed Cut

For the week ending 24 October 2025

As of midday Friday, global equities were trading near record levels amid moderate US inflation data, solid earnings reports, and hopes for a continued trade détente between China and the US, as their leaders prepare to meet in South Korea next week. The yield on the US 10-year Treasury note edged 2 basis points lower to 3.99%, while the price of a barrel of West Texas Intermediate crude oil rose $4.50 from a week ago to $62.00 after the US imposed sanctions on Russian oil exporters. Volatility, as measured by futures contracts on the Cboe Volatility Index (VIX), fell to 18.5 from 22 last Friday.

MACRO NEWS

US CPI rose less than expected in September

Consumer prices rose 3% year-over-year in September, up from 2.9% in August but below the expected 3.1%. Core inflation held steady at 3% from the month before. Th data should pave the way for the Fed to ease rates again next Wednesday as they focus more closely on softer labor market conditions than on tariff-affected inflation data. Markets are almost fully pricing in two quarter-point rate cuts before the end of the year. Workers from the Bureau of Labor Statistics, furloughed due to the government shutdown, were recalled to compile the CPI report for September;  this data is necessary to calculate the annual cost of living adjustment for millions of Social Security recipients. After the data was released, the US Social Security Administration announced that 2026 benefits will rise by 2.8%.

US sanctions Russian oil

On Wednesday evening, the US imposed sanctions against Russian oil giants Lukoil and Rosneft due to waning hopes for a diplomatic end to Russia’s war with Ukraine. These new sanctions bring Washington and Europe into alignment on pressuring Moscow for the first time since the start of the current Trump administration. The US sanctions came after the Kremlin rejected Washington's push for  peace talks. Large Indian and Chinese refiners are expected to dramatically curb their Russian imports as a result of the sanctions, increasing pressure on the Russian economy. Earlier in the week, President Trump canceled the meeting with Russian President Vladimir Putin that was to take place in Budapest in the coming weeks. As a result, oil prices jumped, with West Texas Intermediate crude rising more than 5% on Thursday, back above the $60 level.

Trump, Xi to meet as both sides tussle for leverage

Chinese officials in Washington for the IMF meetings last week were telling their global counterparts that tightened export controls will not harm normal trade flows, but US officials are reportedly considering implementing curbs on an array of exports that are reliant on US software, ranging from laptops to jet engines. Access to rare earths remains a top priority for western nations, with the European Union calling on China to resolve the access issue promptly or risk harming bilateral relations. On Thursday, the US announced it will probe China’s compliance with the 2020 Phase One trade agreement. Earlier in the week, President Trump and Australian Prime Minister Anthony Albanese signed a pact intended to boost the supply of rare earths and other critical minerals; the hope is that this will reduce the two countries’ reliance on China. On Thursday afternoon, after a week of “will they or won’t they,” the White House announced that President Trump and Chinese President Xi Jinping will meet on the sidelines of the APEC summit in South Korea next Thursday, raising hopes that US-China tensions will subside. Trump also said that he will travel to China in early 2026.

Japan’s Takaichi takes office

Sanae Takaichi was elected prime minister of Japan this week after her Liberal Democratic Party formed a coalition with the Japan Innovation Party. Upon taking office, the country’s first female prime minister ordered a fresh package of economic measures to ease the burden of inflation on households and companies. The initiative is expected to include subsidies for electricity and gas bills during the winter, and it will encourage small and medium-sized businesses to raise wages and increase capital investment. Takaichi is expected to meet with President Trump in South Korea and offer him a purchase package including US pickup trucks, soybeans and liquified natural gas.

QUICK HITS

Preliminary purchasing managers’ indices showed solid upticks in activity in October in the US, Europe and the UK. 

After a nearly uninterrupted two-month rise, gold prices pulled back this week amid the sharpest one-day decline in 12 years. Early in the week, bullion fell nearly 8.5% before stabilizing. For the year, gold remains up around 57%.

China’s economy grew 4.8% year-over-year in the third quarter, slower than its 5.2% pace in Q2. Retail sales grew 3%, while industrial production rose a stronger-than-expected 6.5%. New home prices fell at the fastest pace in 11 months, signaling continued property market woes.

Consumer prices in Canada accelerated 2.4% year-over-year in September, up from August’s 2.2% pace. Despite this uptick, markets have priced in almost 82% odds of a rate cut next Wednesday.

The New York Times reported Thursday afternoon that the US will probe China’s compliance with the trade deal made with the Trump administration in 2020.  

With prices trading below $60, the Trump administration announced that it will buy one million barrels of crude to begin refilling the US Strategic Petroleum Reserve.

Inflation in the UK rose a smaller-than-expected 3.8% year-over-year in September, unchanged from the month before. All measures came in below expectations, helping increase the odds of a further Bank of England rate cut before the end of the year.

With the US government shutdown in its fourth week, Chairman of the US House Ways and Means Committee Jason Smith said this week that he favors passing a long-term stopgap funding measure through the end of 2026.

US existing home sales rose 1.5% in September to the fastest pace in seven months amid lower mortgage rates. The median sales price rose to $415,200.

Late on Thursday, President Trump announced that he was terminating trade talks with Canada after the government of Ontario ran a television ad in Washington using snippets of a 1987 address by President Ronald Reagan to argue in favor of free trade. Trump said the ad was an effort to influence the US Supreme Court ahead of a hearing on the matter on November 5.  

US Treasury Secretary Scott Bessent announced that the US has signed an economic stabilization agreement with the Central Bank of Argentina.

Federal Reserve Governor Christopher Waller, the chairman of the Fed’s payments committee, said this week that he thinks the central bank is entering a new phase where it will not shun the decentralized finance industry but rather embrace digital disruption.

Secretary Bessent said the US budget deficit began to shrink dramatically beginning in the second quarter of this year when there was no overlap with the Biden administration. From April to September, the cumulative deficit totaled $468 billion, the lowest reading since 2019.

The US said it will allow Ukraine to use some western long-range missiles against Russia but is still withholding Tomahawk cruise missiles.

China will aim to “greatly increase” its capacity for self-reliance and strength in science and technology, according to a communique released Thursday after a four-day meeting of the Communist Party’s Central Committee to set the country’s next five year plan.

EARNINGS NEWS

With about 29% of the constituents of the S&P 500 Index having reported for Q3 2025, blended earnings per share (which combines reported data with estimates for those that have yet to report) show that earnings rose around 9% compared with the same quarter last year, according to data from FactSet. Blended sales rose 6.9% year-over-year.

THE WEEK AHEAD

Monday: ECB inflation expectations survey

Tuesday: US Case Shiller home price index, Conference Board consumer confidence

Wednesday: Bank of Canada rate decision, US pending home sales, FOMC meeting

Thursday: Eurozone GDP, unemployment, ECB meeting; Trump-Xi meeting

Friday: China PMIs; Japan retail sales, industrial production, BOJ meeting; eurozone CPI

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Sources: MFS research, Wall Street Journal, Financial Times, Reuters, Bloomberg News, FactSet Research.