Record highs for ASX 200 as trade wars and rate cuts shape markets

US markets stall despite earnings boost; ASX 200 hits record high 

United States (US) equity markets are set to finish flat this week as a re-escalation of the US-China trade war and significant falls in regional banks – sparked by concerns of a repeat of the 2023 regional banking crisis – offset a positive start to the third-quarter (Q3) US earnings season.

Locally, the Australia 200 (ASX 200) surged to a fresh record high of 9109.7 this week after a soft September labour force report reignited expectations of a Reserve Bank of Australia (RBA) rate cut at next month’s Board meeting.

While interest-rate-sensitive real estate and financials benefited from hopes of looser monetary policy, the materials sector was the standout, rising 3.56% for the week on gains for the big iron ore miners.

The week that was: highlights

• In the European Union (EU), the euro area (EA) inflation rate rose to 2.2% year-on-year (YoY) from 2% as expected. The core reading held stable at 2.3% YoY, its lowest level since January 2022
• In the United Kingdom (UK), the unemployment rate rose to 4.8% in August from 4.7% prior
• In the UK, gross domestic product (GDP) data showed the economy grew by 0.1% in August, rebounding from a 0.1% fall in July
• In China, the consumer price index (CPI) dropped 0.3% YoY in September, steeper than market expectations of 0.1% but less than the 0.4% fall in August. The core inflation rate rose 1.0% YoY, the highest in 19 months
• China's trade surplus came in at US$90.45 billion in September, below expectations of US$81.69 billion. Exports rose 8.3% YoY, accelerating from 4.4% in August, as Chinese exporters diversified into new markets beyond the US
• In Australia, the unemployment rate surged to 4.5% in September from a revised higher 4.3%
• Crude oil dropped 3.26% this week to $56.98
• Gold gained 8.55% this week to $4,360
• Bitcoin fell 5.95% this week to $108,236
• Wall Street's gauge of fear, the volatility index (VIX), increased to 25.30 from 21.65 the previous week.

Key dates for the week ahead

Australia & New Zealand

• New Zealand (NZ) – Q3 inflation: Monday 20 October at 6.45am SGT
• Australia (AU) – RBA Jones speech: Tuesday 21 October at 8.45am SGT

China & Japan

• China (CN) – GDP Q3, industrial production (IP) and retail sales: Monday 20 October at 11am SGT
• CN – Balance of trade: Wednesday 22 October at 8.50am SGT
• Japan (JP) – Inflation: Friday 24 October at 8.30am SGT

United States

• US – CPI: Friday 24 October at 8.30pm SGT
• US – Standard & Poor's (S&P) Global purchasing managers' indices (PMIs): Saturday 24 October at 10.45am SGT

Europe & United Kingdom

• UK – Inflation: Wednesday 22 October at 3.00pm SGT
• UK – Retail sales: Friday 24 October at 3.00pm SGT
• EU – Hamburg Commercial Bank (HCOB) Global PMIs: Friday 24 October at 5.00pm SGT
• UK – S&P Global PMIs: Friday 24 October at 5.30pm SGT

Key events for the week ahead

CN Q3 GDP

Date: Monday 20 October at 11.00am SGT

In the second quarter (Q2), China's economy expanded 5.2% YoY, beating consensus expectations of 5.1%. The stronger-than-expected number was a result of the trade truce with the US and Beijing’s targeted stimulus measures, which proved effective.

The expectation for Q3 is for GDP to fall to 4.7% YoY – the weakest pace of growth since Q3 2024. The downturn will strengthen the case for further stimulus measures as the US-China trade war intensifies into the year-end.

China annual growth rate chart

UK: inflation

Date: Wednesday 22 October at 3.00pm SGT

For August, the annual rate of headline inflation in the UK held steady at 3.8%, remaining at its highest level since early 2024. The core inflation rate eased to 3.6% YoY in August from 3.8% prior, in line with expectations.

The preliminary expectation for this month is for headline CPI to rise to 4% and for core inflation to rise to 3.7% YoY.

The UK rates market is pricing in just 4 basis points (bp) or a 15% chance of a rate cut in November; however, 12 bp or a 50% chance of a rate cut is priced in for the Bank of England’s (BoE) December meeting.

UK Core inflation rate chart

US: CPI

Date: Friday 24 October at 8.30pm SGT

For August, headline inflation in the US increased by 0.4%, in line with expectations. This saw the annual rate of headline inflation rise to 2.9%, below the forecast of 3%.

The annual core CPI, which excludes volatile items like food and energy, rose by 0.3% month-on-month (MoM), which kept the annual core inflation rate steady at 3.1%, unchanged from July, and in line with market expectations.

For September the expectation is for the annual headline inflation rate to rise to 3.1% YoY, which would be its highest reading since May 2024, and for the core measure to remain at 3.1% YoY.

Ahead of this, the US interest rate market is fully priced for a 25 bp Federal Reserve (Fed) cut in October and fully priced for another 25 bp cut in December, as the Fed prioritises supporting a cooling labour market amid persistent inflation concerns.

US Core inflation ratechart

US: Q3 earnings season  

US Q3 2025 earnings season continues next week, with reports set to drop from companies including Coca-Cola, Lockheed Martin, General Motors, General Electric, 3M, Tesla, International Business Machines, Intel and Ford.