Weekly Market Snapshot:Market sentiment to remain positive during CPC National Congress;policy-drive

FOMC minutes indicate a slower pace of rate hikes next year The Fed released itslatest FOMC minutes last week, which showed that officials have not yet reached aconsensus on a Dec hike. The minutes showed that officials could be divided into threegroups. 1) “Many” members thought that another rate hike later this year would beappropriate. 2) “Several” emphasized the uncertainties surrounding the outlook forinflation, meaning for them a rate hike would depend on upcoming inflation data. 3) “Afew” suggested that the Fed should defer its rate hike decision until inflation was clearlyon a path towards the 2% target. Although the report did not mention the exact numbersfor the “many”, “several” and “a few”, we believe more than half of its members expecteda hike in Dec during the Sept FOMC meeting; this was also our base case. Inflation willundoubtedly be key to the pace of rate hikes in the future. We believe that at least part ofthe softening in inflation this year was temporary, including sharp declines in prices ofwireless telephone services and prescription drugs. However, some factors may not fadein the medium term, such as the influence of technological innovations on business pricingand common global factors. If these factors prove to be permanent features, inflationwould be unlikely to rise to the 2% target next year. If upcoming data are as expected, wesee a strong likelihood of a rate hike at the Dec FOMC meeting. However, we expect theFed to only hike twice next year, less than expected by Fed officials.

    Strong earnings in the US to boost global stock market sentiment US companiesstarted to announce their 3Q17 earnings last week. According to Factset research,analysts expect 2.5% earnings growth for S&P 500 companies. Given that nearly half ofS&P 500 companies have claimed a negative impact from Hurricanes Harvey and Irma,2.5% earnings growth would be a nice result. The insurance industry is expected to reportthe biggest earnings decline. If the financial sector were excluded, estimated earningsgrowth for the remaining sectors would rise to 5.0%. Moreover, we believe the finalearnings number will beat market expectations, and reach high single-digit growth. Astrong earnings result is likely to spur US stocks to continue to see record highs in Oct,and would provide positive sentiment to the global stock market.

    19th CPC National Congress the market focus For the China and Hong Kong markets,investors will focus on the one week 19th CPC National Congress this week, which willstart on Oct 18 in Beijing. In addition to political appointments, economic policy will be thefocus in the meeting. In the past few years, we have seen good progress in inventorydestocking, cutting excessive industrial capacity and financial deleveraging, and thisshould continue for the next few years. We therefore believe policy priority will continueto be on structural reform. Investors will focus on several topics, including supply-sidereform, company deleveraging and SOE reform. We expect market sentiment to remainpositive during the meeting. Specifically, sectors that benefit from policy changes such asthe mixed ownership reform sector may outperform in the short-term. China NationalPetroleum Corp (CNPC) says it will complete mandatory mixed-ownership reforms beforethe end of Nov. We believe PetroChina (857 HK, NR), Sinopec (386 HK, NR) and CNOOC(883 HK, NR) may receive particular attention from investors in the next two weeks.