US housing sector data reinforces Fed rate cuts in November
On Friday, data on the US housing sector sent gloomy signals. Building permits fell sharply in September, while the number of homes also fell, indicating weaker demand. Weaker demand could impact home prices, consumer confidence and the broader U.S. economy. Declining consumer confidence could negatively impact private consumption, which accounts for more than 60% of US GDP.
Weaker housing data supported investor expectations of a 25 basis point Fed rate cut in November, boosting demand for riskier assets. According to the CME FedWatch Tool, the probability of a Fed rate cut in November increased by 25 basis points from 90.4% to 92.6% on October 18.
The People’s Bank of China cuts interest rates on loans
On Monday, October 21, the People’s Bank of China (PBoC) cut both the 1-year and 5-year prime rates (LPR) by 25 basis points to 3.10% and 3.60% respectively. Economists expected the PBoC to cut LPRs by 20 basis points.
The interest rate cuts could reduce borrowing costs for consumers, including interest rates on consumer loans, mortgages and credit cards, potentially increasing disposable income. Lower borrowing costs and higher disposable income could boost consumer lending and spending.
The PBoC cut Loan Prime Rates for the third time this year.