Daily Briefing | 2026-10-03: Energy Shocks Reshape Global Policy Paths

Machine-translated with NiuTrans. Read the Chinese original.

Today's main theme

The common theme over the past 24 hours has been that energy supply shocks and cooling growth are simultaneously squeezing policy space. U.S. job creation plummeted to 29,000 in September, reducing the urgency for the Federal Reserve to raise interest rates again in October. However, Eurozone inflation jumped to 3.8% due to energy prices, and China suspended refined oil exports to regions outside Hong Kong and Macau in October, further intensifying the risk of global fuel shortages and secondary inflation. On the other hand, AI infrastructure investment is still attracting equity funds, but this is accompanied by net outflows from technology funds and high long-term bond yields, indicating that the market is shifting from "only looking at growth" to examining the return on capital expenditures. The Russian military's escalated attacks on Kyiv's transportation and energy-related facilities have continued to intertwine supply chains, security premiums, and fiscal pressures. The coexistence of growth, inflation, and geopolitical risks means that it is more difficult for central banks and investors to rely on a single data point for judgment.

Five key news items

1. US employment plummets, expectations of a Fed rate hike in October subside.

The U.S. Department of Labor announced on October 2 that non-farm payrolls increased by only 29,000 in September, significantly lower than the market expectation of 90,000. The unemployment rate rose from 4.1% to 4.2%, and the labor force participation rate fell to 61.8%. The total number of new jobs added in July and August was revised down by 60,000, with average hourly wages increasing by only 0.1% month-on-month and 3.0% year-on-year, indicating that companies' recruitment and wage pressures are cooling down in tandem. Meanwhile, layoffs remain low, and the labor market is closer to "low hiring, low layoffs" than a sudden recession.ReutersTraders are now further betting that the Federal Reserve will hold rates steady at its October 27-28 meeting. However, inflation remained at 3.4% in August, far above the 2% target, and whether to raise interest rates again in December still depends on the next CPI and wage data. For the market, the easing of short-term interest rate pressures is beneficial to growth stocks, but long-term government bonds are still constrained by inflation, fiscal supply and oil prices, and weakening employment cannot be simply equated with comprehensive easing.

2. Eurozone inflation rises to 3.8%, as energy shocks approach monetary policy.

EurostatPreliminary readings released on October 2 showed that the Eurozone's harmonized consumer price index rose 3.8% year-on-year in September, up from 3.2% in August and reaching a nearly three-year high, with a monthly rate of 0.6%. Energy prices surged 18.8% year-on-year, accelerating further from 14.3% in August; Services inflation rose from 3.0% to 3.2%, while food, alcohol and tobacco inflation rose from 1.1% to 1.4%, while core inflation excluding energy, food, alcohol and tobacco was 2.5%. This structure suggests that the main driver remains energy, but service prices have not cooled sufficiently, and the European Central Bank cannot simply view the shock as temporary noise. Full data will be released on October 16, and the next preliminary value will be released on November 4. If oil and gas prices persist and companies pass on transportation and raw material costs to consumers, European interest rate expectations, the euro, and financing costs for highly indebted member states may all rise further. Conversely, with core and wage data stable, the central bank may still wait until the end of the year to take action.

3. AI narratives continue to attract investment, but divergence is emerging within the technology sector.

The latest weekly data from LSEG Lipper shows that as of September 30, global equity funds saw net inflows of $34.76 billion for the second consecutive week, down from $44.31 billion the previous week, indicating that risk appetite has not been completely suppressed by high bond yields. U.S. funds absorbed $20.6 billion, while Europe and Asia saw inflows of $6.19 billion and $6.16 billion respectively. One of the supporting factors is the demand for AI infrastructure: Micron's revenue outlook is higher than expected, while Goldman Sachs estimates that major U.S. cloud service providers will spend about $800 billion on capital in 2026, with market consensus expecting it to rise to $1.1 trillion in 2027.ReutersIt was also pointed out that technology sector funds saw a net outflow of $2.63 billion that week, high-yield bonds saw an outflow of $2.29 billion, and money market funds redeemed $116.52 billion. In other words, funds are still willing to pay for AI growth, but are beginning to reprice chips, cloud services, cash flow, and valuation. The next step is to observe whether the backlog of orders can translate into bottlenecks in revenue, memory, and power supply, and whether the return on capital expenditures can catch up with financing costs.

4. China suspends refined oil exports in October, causing a sudden tightening of the Asian fuel market.

China suspended exports of refined oil products to markets outside Hong Kong and Macau in October, directly reducing the supply of gasoline, diesel and jet fuel in Asia.ReutersAccording to reports, Singapore's gasoline imports from China this year have decreased by 62% compared to 2025, and local fuel inventories have fallen to a record low. The spread between Asian gasoline cracking prices once exceeded $50 per barrel, and the near-monthly premiums for diesel and jet fuel markets have also widened significantly. Jet coal to Hong Kong is unrestricted, while traditional buyers such as Singapore, Australia, Malaysia, Vietnam, and Japan need to find alternative sources. This move comes against the backdrop of Russia restricting diesel exports and Europe discussing the use of reserves. Therefore, the impact is not only on China's export volume, but also on the rearrangement of global refining and chemical product flows. For China, prioritizing domestic supply helps stabilize inventories during holidays and winter; For regional markets, this means rising costs in transportation, aviation, and manufacturing. Next, we need to look at export quotas in November, domestic refinery operating rates, whether Europe will release diesel reserves, and whether the high cracking price differential will stimulate other Asian refineries to increase production.

5. Russian military's continuous strikes on Kyiv bridges have once again highlighted winter air defense gaps.

On October 2, Russia struck bridges across the Dnieper River, connecting the east and west banks of Kyiv, for the second consecutive day. The southern bridge remained closed after being attacked by drones, and the other two bridges were also fully or partially shut down. About one-third of Kyiv's population, or one million people, lives on the east bank, and about 500,000 people commute across the river every day. The attack on transportation nodes has rapidly amplified the pressure on the city's operation and supply security. On the same day, an attack on a residential building in Kyiv killed one person and injured two others, while a guided bomb attack in Kharkiv killed two people and injured 32. Russia stated that the targets involved military transport, power plants, ports, and ships.ReutersAccording to reports, the Ukrainian Foreign Minister stated that the minimum defense requirements for this winter include 300 Patriot interceptor missiles and is seeking millions of rounds of F-16 cannon ammunition. The escalation of the infrastructure war will increase European aid, energy security and reconstruction budgets, and may also continue to disrupt Russian oil supplies. The key issues going forward are the speed of allied deliveries, Russia's monthly production capacity of approximately 120 to 140 ballistic missiles, and the intensity of both sides' attacks and defenses against refineries, power grids, and transportation hubs.

Market Correlation and Today's Observation

The most important asset pricing contradiction today is that "slowing growth" is not enough to offset "energy reinflation". Weak US employment has lowered the probability of an October rate hike, which is theoretically beneficial to bonds and high-duration technology stocks. However, oil prices, 3.8% inflation in Europe, and a shortage of refined oil products will support term premiums, preventing long-term yields from falling simultaneously. The US dollar may also remain strong thanks to interest rate spreads and safe-haven demand. The euro faces a dilemma: a more hawkish stance from the European Central Bank could provide interest rate support, but it would increase financing pressure on highly indebted economies such as France. In terms of commodities, a distinction should be made between crude oil and refined chemical products. Currently, the spread between the cracking prices of diesel, jet fuel, and gasoline reflects tight real supply better than the price of a single oil, while gold continues to be pulled by geopolitical risks and real interest rates.

Risk appetite is still maintained by AI investment, but the coexistence of $34.76 billion in equity fund inflows and net outflows from technology funds suggests that a strong index does not mean that sectors rise indiscriminately. Highly valued companies need to demonstrate a return on nearly trillion-dollar capital expenditures using orders, utilization, and free cash flow. The immediate variable in Chinese policy is refined oil export arrangements: ensuring domestic supply helps reduce volatility in domestic fuels, but it could push up external costs through Asian trade chains, which in turn could affect export manufacturing, shipping, and exchange rate expectations. Today, we should focus on interest rate pricing before the US CPI, the trend of the US dollar and euro, the Asian spread, signals of European reserve release, and whether winter air defense aid to Ukraine can be implemented. These variables will collectively determine whether the market will trade for "cooling growth" or resume trading for "longer periods of high inflation and high interest rates."

Cover image:Jakub Żerdzicki / Unsplash