20260930 2

U.S. GDP grew at a 2.2% annualized quarterly rate in the second quarter, revised higher from 1.5%, driven by stronger gains in investment, consumption and government spending. Private domestic demand rose 4.6%, confirming its strength. Meanwhile, ADP reported the creation of 90,000 private-sector jobs in September, the largest increase in three months and above the 75,000 expected, with education and healthcare accounting for more than half of the hiring.

Our View

Both reports point to a more resilient economy than expected, with firm domestic demand and a recovery in hiring. This gives the Fed more room to focus on bringing inflation under control and keeps the possibility of additional rate hikes on the table. For markets, the combination could keep bond yields and the dollar supported, although Friday’s official payrolls report will be important to confirm the improvement in the labor market.

20260930 3

China’s official manufacturing PMI rose to 50.1 in September from 49.8 in August, returning to expansion territory after two months of contraction. The production index increased to 51.7, although new orders edged down to 50.5. RatingDog’s private-sector survey confirmed the improvement, with its index rising from 51.5 to 52.1, the highest level in five months.

Our View

The results suggest China’s industrial sector ended the third quarter with greater momentum, providing some support for global growth and commodity demand. However, the official gauge barely moved above the expansion threshold, while orders failed to accelerate. We see signs of stabilization, but they remain insufficient to point to a sustained recovery that would reduce the need for additional stimulus.

Japanese industrial production fell 1.7% month over month in August, versus expectations for a 1.7% increase and a revised 0.2% decline in July. It marked the second consecutive contraction, with declines in vehicles, machinery and petroleum products. On a year-over-year basis, output remained up 3.4%, below the previous 3.9% gain. Manufacturers expect a 3.2% rebound in September and a further 3.1% increase in October.

Our View

The decline introduces downside risk to third-quarter growth and reinforces the case for the Bank of Japan to move cautiously with future rate adjustments. Positive annual growth and expectations for a rebound suggest some of the weakness could prove temporary. For markets, confirming that recovery will be key, as another disappointment would weaken expectations for further rate hikes and could reduce support for the yen.

German inflation rose to 3.3% year over year in September from 2.9% in August, above the 3.2% expected and reaching its highest level since December 2023. The increase was driven by energy, with prices rising 14.9% year over year. By contrast, services inflation eased from 2.8% to 2.7%, while core inflation remained at 2.4%, according to preliminary figures.

Our View

Higher energy costs are once again putting pressure on purchasing power and business costs, complicating Germany’s recovery. For the European Central Bank, the data reinforce the case for caution and could support further rate increases if these pressures persist. However, stable core inflation and softer services inflation suggest the increase has not yet become broad-based.

Corporate News

Micron reports quarterly earnings Wednesday after the Wall Street close, facing the challenge of meeting elevated market expectations. As has been the case with other memory-chip makers, strong results may not be enough, as investors will be looking for guidance that confirms the strength of demand.

President Donald Trump reached an agreement with OpenAI, Anthropic, Google, Meta, Nvidia and xAI on a self-regulatory framework featuring internal controls, external audits and oversight committees. The companies will establish safety standards that could eventually be written into law. Trump defended the approach as a way to maintain the pace of development relative to China and ordered federal communications to replace “artificial intelligence” with “superintelligence” (SI).

Boeing won a contract worth more than $20 billion to develop the F/A-XX, the U.S. Navy’s next fighter aircraft, beating Northrop Grumman. The award strengthens its defense business and provides greater visibility into long-term revenue. Shares were up around 3% before the open.

OpenAI is looking to raise at least $30 billion in a new funding round. The initiative coincides with the launch of new products, including its personal artificial intelligence agent Dots, and reflects the sector’s growing capital requirements. The challenge will be turning that investment into revenue and cash flow that justify current expectations.

The To-Do List

  • Review Micron’s earnings after the close as a read-through for technology and AI, and follow Sam Altman’s remarks.

  • Analyze the Finance Ministry’s August public-finance report, focusing on revenue, spending and the fiscal balance, and how they relate to the Economic Package.

  • Complete 3 rounds of 15 squats, 10 wall push-ups and 20 calf raises. Finish each round with a 30-second plank and rest for 30 seconds before repeating. Approximate duration: 8 minutes.

  • José María Morelos y Pavón, one of the leading figures of Mexico’s Independence movement, was born 261 years ago in Valladolid, now Morelia, Michoacán.

Quote of the Day…

“Never bet against America”...Warren Buffett