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China’s CPI inflation edged up in September, but the economy remained in deflation. The main reason is a continued slide in food prices down to -4.4% YoY, a 20-month low. This is, in part, base effect-driven, as MoM prices actually picked up 0.7%. The primary culprit has been pork (-17%), which is currently in a downward trend and likely to continue dragging food inflation for several more months. On a YoY basis, we continued to see notable drags from vegetable (-13.7%), egg (-11.9%), and fruit (-4.2%) prices despite MoM gains for each of these categories. The drag from these categories may persist in October, but should ease from November onward, helping to support a turnaround of food inflation.

The silver lining in the data was that non-food inflation picked up to 0.7% YoY, up for a fourth consecutive month despite a -0.1% MoM dip. Household goods and services rose 2.2% YoY, driven by a 5.5% YoY uptick in household appliance prices. Sports & recreation (0.8%) and healthcare (1.1%) also contributed positively to non-food inflation. However, rent prices remained flat in YoY terms in September amid the property market slump. Transportation (-2.0%) continued to experience deflation due to falling auto and fuel prices.

If the recovery of non-food prices is sustained, it would go a long way toward pushing China out of deflationary territory. But the MoM decline suggests that, at this stage, this is still questionable. As food prices are often cyclical, this drag will fade. We should see China’s CPI inflation data edge back into positive territory, potentially before year-end but more likely next year.

PPI inflation unsurprisingly remained in deflationary territory for the 36th consecutive month, at -2.3% YoY. However, this represented a second straight month of higher PPI inflation, as input prices edged up a little higher from -4.0% YoY to -3.1% YoY. Most industries continued to face falling ex-factory prices. Exceptions are non-ferrous metals mining (13.9%), non-ferrous metal smelting and processing (6.5%), as well as water production and supply (2.3%).

Lower-than-expected third-quarter inflation may translate to a more supportive GDP deflator in next week’s GDP read, adding upside risk to our current 4.5% YoY forecast.

Considering the slowing momentum in 3Q, another month of deflation suggests that monetary policy easing remains on the table. The recent escalation of tensions between China and the US ahead of potential talks between Presidents Xi and Trump at the end of the month could keep the PBOC on hold for the rest of October. That would leave ammunition to support markets if talks do not go well. November, consequently, remains an interesting window to watch for potential easing.

(Bloomberg) — Asian stocks advanced after three days of losses, as optimism over a potential Federal Reserve interest-rate cut lifted sentiment and outweighed renewed US-China trade tensions.

MSCI’s regional stock gauge gained 1.3% after Fed Chair Jerome Powell’s concerns about a weakening labor market reinforced expectations for an October rate cut. Futures on the S&P 500 and Nasdaq 100 rose 0.1% as investors shrugged off trade-war concerns after President Donald Trump said he might stop trade in cooking oil with China.

The offshore yuan extended its gains after China boosted its currency defense on Wednesday amid a trade spat. A gauge of the dollar weakened and gold set a new peak. Treasury two-year yields hovered near their lowest levels since 2022 while crude oil was near a five-month low.

Since the tariff-fueled selloff in April, global stocks have rebounded sharply, buoyed by optimism over artificial intelligence and expectations of further monetary easing following the Fed’s September rate cut. That rally, however, faces headwinds as trade tensions between the US and China resurface, with both sides stepping up rhetoric and signaling possible new restrictions on key technology.

“Macro uncertainty remains the key overhang for risk assets,” said Dilin Wu, a strategist at Pepperstone Group, in a note. “With rate-cut bets and solid earnings underpinning sentiment, I believe the downside for US stocks remains limited.”

In China, the currency gained after the central bank set the so-called yuan fixing at 7.0995 per dollar, stronger than the closely watched 7.1 per dollar level amid mounting trade tensions with the US. It’s the first time since November that the central bank has set the yuan fixing stronger than 7.1 per dollar, after holding that line since late August.

“A fix below 7.10 sends a strong message of strength,” said Fiona Lim, a senior foreign-exchange analyst at Malayan Banking Bhd. in Singapore. “A strong yuan is symbolic of how China is in a position of strength for any negotiations or tit-for-tat escalations.”

What Bloomberg strategists say…

Fed dovishness is driving a fresh bout of dollar weakness, which also clears the path for hedging strategies centered on gold. The theme of buying stocks despite AI bubble fears — and adding to bullion holdings in case those fears become reality — looks to be getting a fresh run.

— Garfield Reynolds, MLIV Team Leader. For full analysis, click here.

Also, China’s deflation eased in September, leaving the country on track for the longest streak of economy-wide price declines since market reforms in the late 1970s.

Earlier, Powell signaled the US central bank is on track to deliver another quarter-point interest-rate cut later this month, even as a government shutdown significantly reduces its read on the economy.

Swap contracts are pricing in roughly 1.25 percentage points of rate cuts by the end of next year, from the current range of 4%-4.25%.

Powell said the economic outlook appeared unchanged since policymakers met in September, when they lowered rates and projected two more cuts this year. Boston Fed President Susan Collins also said the US central bank should continue lowering rates this year to support the labor market.

“Markets viewed Fed Chair Powell’s speech as consistent with continued rate cuts over the coming FOMC meetings this year,” ANZ Group Holdings Ltd. analysts Brian Martin and Daniel Hynes said in a note.

While Powell’s remarks set the tone for trading, investors were also monitoring a series of trade-related developments.

US Trade Representative Jamieson Greer predicted that heightened tensions with China over export controls would ease, following talks between representatives of the two countries. Trump, too, sounded cautiously optimistic that a positive outcome could be reached.

“We have a fair relationship with China, and I think it’ll be fine. And if it’s not, that’s OK too,” Trump told reporters Tuesday at the White House. “We have a lot of punches being thrown, and we’ve been very successful.”

Elsewhere, the European Union is considering forcing Chinese firms to hand over technology to European companies if they want to operate locally, in an aggressive new push to make the bloc’s industry more competitive.

Attention in Asia is also on Japan. Investors are cautious going into the country’s 20-year government bond auction on Wednesday as the shock collapse of the ruling coalition fuels fresh political uncertainty.

Longer-maturity bonds plunged after Sanae Takaichi’s surprise victory in the Liberal Democratic Party election earlier this month, while prospects for her becoming prime minister diminished after the rupture of the 26-year alliance last week.

Amid the political uncertainty, the heads of Japan’s main opposition parties are expected to discuss Wednesday whether they can close policy gaps and pick a candidate of their own for the nation’s premiership.

Corporate News:

Asian luxury-goods stocks rose after LVMH sales unexpectedly returned to growth in the third quarter as shoppers splurged on Moët & Chandon Champagne and Dior perfumes, suggesting a persistent slump in luxury demand is easing. Apple Inc. is preparing to expand its manufacturing operations in Vietnam as part of a push into the smart home market and an ongoing effort to lessen its dependence on China. Stellantis NV will invest $13 billion in the US over the next four years, as it seeks to reinvigorate business in the critical market and curb the impact of tariffs. Some of the main moves in markets:

Stocks

S&P 500 futures rose 0.2% as of 11:57 a.m. Tokyo time Japan’s Topix rose 1.3% Australia’s S&P/ASX 200 rose 0.9% Hong Kong’s Hang Seng rose 0.9% The Shanghai Composite was little changed Euro Stoxx 50 futures rose 0.9% Currencies

The Bloomberg Dollar Spot Index fell 0.2% The euro rose 0.2% to $1.1626 The Japanese yen rose 0.5% to 151.06 per dollar The offshore yuan rose 0.2% to 7.1277 per dollar Cryptocurrencies

Bitcoin fell 0.1% to $112,935.06 Ether was little changed at $4,120.94 Bonds

The yield on 10-year Treasuries declined two basis points to 4.01% Japan’s 10-year yield was little changed at 1.650% Australia’s 10-year yield declined two basis points to 4.21% Commodities

West Texas Intermediate crude fell 0.4% to $58.49 a barrel Spot gold rose 0.8% to $4,174.25 an ounce This story was produced with the assistance of Bloomberg Automation.

–With assistance from Ran Li and Iris Ouyang.

©2025 Bloomberg L.P.