MTS Insights

Analysis

Reported progress in US-China negotiations last month had some hopeful that the USTR would reduce or cancel its planned port call fees before the October 14th roll out date. Instead, the past week has featured a flurry of trade tension escalations between the world’s two largest economies.

In addition to tit for tat fees on US-linked vessels making China port calls starting October 14th, China announced new restrictions on rare earth metal exports with some taking effect immediately and others starting December 1st. 

President Trump responded by threatening to cancel his late-month summit with Chinese leader Xi Jinping in S. Korea and to introduce 100% tariffs on all Chinese exports to the US starting November 1st – though the 145% tariff pause that the White House extended back in August will in any case expire on November 10th. The US administration also threatened, among other sanctions, to introduce port call fees or bar entry to vessels flagged in countries that vote for the International Maritime Organization’s net zero framework at the IMO’s meeting this week.

In terms of immediate impact, as some Chinese carriers have stated that the USTR fees will not impact their schedules or lead to surcharges for customers, and most other carriers have reduced the number of liable vessels making US calls, the fees may be unlikely to impact eastbound transpacific freight rates, operations or capacity much for now. And as Clarkson’s Research estimates that China’s port fees would impact only about 5% of port calls, and most impacted carriers will likely adjust vessel deployments to minimize exposure, these fees are unlikely to cause much of an impact.

In any event, the biggest driver of freight rates at the moment is growing container vessel capacity. 

The first stage of the Israel-Hamas ceasefire has increased anticipation of a container traffic return to the Red Sea which, after some period of schedule disruptions and congestion, would release a significant amount of capacity back into the market. CULines and other carriers are already increasing services through the Suez Canal. Most carriers however, will not resume transiting the Red Sea until after a significant period of demonstrated stability and security.

But in the meantime, ocean rates have already fallen to their lowest levels since just before the start of the Red Sea crisis in late 2023. Transpacific rates dipped another 8% last week to about $1,400/FEU to the West Coast and $3,000/FEU to the East Coast. Current US import volumes estimated to be at their lowest since mid-2023 due to trade war frontloading earlier in the year – and projected to continue declining through December – are contributing, along with supply growth, to the strong downward pressure on transpacific container prices. 

But Asia - Europe demand is likely stronger than last year. And despite volume strength and persistent congestion recently worsened by labor disruptions at some key ports, container rates slipped 9% to $1,747/FEU last week and are also back to 2023 levels, pointing to capacity growth as a key driver of current rate behavior.

Carriers will introduce GRIs of about $1,000/FEU for Asia-Europe services in November, with some announcing increases for Asia - N. America as well, in an attempt to push rates up ahead of Asia - Europe contracting season. Significant capacity reductions in October however have so far not succeeded in slowing the rate slide.

For air cargo, President Trump’s November 1st China tariff threat may be driving some recent increase in rates, though the government shutdown is also reportedly causing some congestion in the US and this time last year peak season demand had already started to pick up. Freightos Air Index China - US prices increased 19% last week back to mid-September levels of about $5.30/kg, though rates were approaching the $7.00/kg a year ago.

China - Europe prices fell 3% to $3.92/kg, but remain 5% higher than a month ago and about level with last October. The labor disruptions in Belgium impacting ocean freight are also causing air delays, especially to passenger flights, though so far cargo rates remain unaffected.

The Chicago Fed's final nowcast of retail & food services sales (ex autos) growth in September is 0.5% MoM and 4.3% YoY, revised up from the preliminary nowcast of 0.3% MoM and 4.3% YoY.

• The nowcast is based on positive contributions from transactions (+36 bps) and Census data (+23 bps), while foot traffic & sentiment made a negative contribution of -12 bps.
• The nowcast for retail & food services sales (ex autos) price growth is confirmed at 0.3% MoM and 1.5% YoY.
• The inflation-adjusted nowcast of retail sales is 0.2% MoM as the final increase in retail sales is expected to outpace price growth.

Canada’s manufacturing sales fell -1.0% MoM (revised up from the advance estimate of -1.5% MoM) to $69.4B in August 2025, following a 1.2% MoM July gain, reflecting weaker transportation and food output alongside a rebound in primary metals.

• Transportation equipment sales declined -5.7% MoM to $10.7B, led by aerospace products (-8.6%), motor vehicle parts (-5.2%), and motor vehicles (-3.3%), following July’s 7.7% surge; exports of motor vehicles and parts fell -4.7% MoM.

• Food manufacturing decreased -1.9% MoM to $12.9B, the second straight decline, driven by lower real sales (-2.7%) and broad weakness across grain, oilseed, and dairy industries.

• Primary metals rose +3.6% MoM to $5.8B, supported by alumina and aluminum production; unwrought aluminum exports jumped +45.1% MoM.

• Provincial performance: Sales fell in six provinces, led by Quebec (-1.6% MoM) and Ontario (-0.8% MoM), while Manitoba posted the largest gain. Quebec’s drop was driven by aerospace (-10.2%), and Ontario’s by transportation equipment (-5.3%).

• Inventories increased +0.3% MoM to $121.6B, the highest since November 2023, pushing the inventory-to-sales ratio up to 1.75 (from 1.73).

• Unfilled orders edged up +0.3% MoM to $112.8B, mainly from aerospace (+0.7%).

• Capacity utilization rose to 78.6% (from 77.2%), with chemical (+6.7 pp) and transportation (+3.7 pp) sectors showing the largest gains.

Canada’s wholesale sales (ex. petroleum and oilseed/grain) fell -1.2% MoM (revised up from the advance estimate of -1.3% MoM) to $85.4B in August 2025, though were still up +4.3% YoY, with volume sales down -1.3% MoM amid sharp declines in vehicles and food.

• Motor vehicle and parts sales dropped -8.8% MoM to $14.0B, led by a -10.7% fall in the motor vehicle group to $11.1B, reversing gains from earlier in the summer.

• Food, beverage, and tobacco sales decreased -3.8% MoM to $15.6B, mainly on lower food sales (-4.2% to $13.8B), marking one of the largest monthly declines of 2025.

• Offsetting gains came from the miscellaneous subsector (+4.0% MoM to $11.1B), driven by agricultural supplies (+9.1%) and mineral, ore, and precious metals (+17.1%).

• Machinery, equipment, and supplies rose +2.3% MoM to $18.4B, supported by strong farm, lawn, and garden equipment sales (+18.7%).

• Provincial trends: Ontario led the national decline (-2.4% MoM to $43.8B) after three monthly gains, driven by motor vehicles (-8.7%), while Quebec fell -1.0% MoM to $15.3B and Saskatchewan rose +9.6% MoM to $3.9B.

• Inventories increased +0.7% MoM to $134.7B, led by personal and household goods (+5.6%) and miscellaneous (+0.8%).

• The inventory-to-sales ratio rose to 1.58 (from 1.55 in July), reflecting slower turnover as sales softened.

The Empire State Manufacturing Survey reported a modest rebound in business activity in October, with the General Business Conditions index rising +19.4 pts to 10.7, its third positive reading in four months.

• New Orders recovered sharply, up +23.3 pts to 3.7, indicating a pickup in demand following September’s steep drop.

• Shipments increased +31.7 pts to 14.4, reflecting a rebound in deliveries after a weak prior month.

• Employment improved modestly, with the index rising +7.4 pts to 6.2, while the Average Workweek remained negative at -4.1, suggesting slightly shorter hours worked.

• Prices Paid rose +6.3 pts to 52.4, signaling faster growth in input costs, and Prices Received climbed +5.6 pts to 27.2, pointing to stronger selling price gains.

• Delivery Times lengthened slightly (+3.9), while the Supply Availability Index stayed negative (-10.7), suggesting ongoing supply constraints.

• Inventories were largely unchanged (-1.0), consistent with stable stock levels.

• Firms grew more optimistic about future conditions, with nearly half expecting improvement ahead, though capital spending plans remained subdued.

The MBA Mortgage Applications Composite Index fell -1.8% WoW last week as mortgage activity continued to moderate from the spike in recent weeks.

• The Purchase Index fell -2.7% WoW, and the Refinance Index eased -1.0% WoW.
• The total number of purchase applications fell -2.4% WoW but was up 19.9% YoY, and the total number of refinance applications fell -1.0% WoW but was up 59.0% YoY.
• The 30-year fixed mortgage rate fell just -1 bp to 6.42%, now up about 8 bps from the near-term low set three weeks ago in mid-September of 6.34%.

Euro area industrial production fell -1.2% MoM (vs -1.6% MoM expected) in August 2025 (EU -1.0% MoM) after modest gains in July, while both regions recorded a +1.1% YoY increase, showing mixed momentum between short- and long-term trends.

• In the euro area, production declined across categories: capital goods (-2.2% MoM), durable consumer goods (-1.6% MoM), energy (-0.6% MoM), and intermediate goods (-0.2% MoM), while non-durable consumer goods rose +0.1% MoM.

• In the EU, output remained stable for intermediate goods but fell for capital goods (-1.6% MoM), durable consumer goods (-1.1% MoM), energy (-0.7% MoM), and non-durable goods (-0.4% MoM).

• Germany (-5.2%), Greece (-4.5%), and Austria (-3.1%) saw the sharpest MoM declines, while Ireland (+9.8%), Luxembourg (+4.8%), and Sweden (+3.6%) posted the largest gains.

• YoY, euro area output rose +1.1%, driven by non-durable consumer goods (+8.2%), while durable goods (-2.6%), intermediate goods (-1.7%), and capital goods (-0.4%) weakened.

• In the EU, YoY production rose +1.1%, supported by non-durable goods (+6.5%) and capital goods (+0.5%), while other categories declined.

• The strongest annual gains were recorded in Ireland (+28.6%), Luxembourg (+9.5%), and Sweden (+8.3%), while Bulgaria (-8.6%), Slovakia (-6.3%), and Denmark (-5.0%) posted the steepest drops.

Spain’s CPI fell -0.3% MoM in September 2025, while the YoY rate rose to +3.0% (up from +2.7% in August). These were both slight upward revisions of the flash estimates of -0.4% MoM and +2.9% YoY.

• The HICP rose +0.2% MoM and +3.0% YoY, also revised up from the flash estimates of 0.1% MoM.
• Core inflation (excluding unprocessed food and energy) remained at +2.4% YoY in September, revised up from the flash estimate of 2.3% YoY.
• Transport inflation increased to +2.2% YoY (+1.0 ppt), as fuel prices declined less sharply than a year earlier, partly offset by a steeper drop in passenger air transport costs.
• Housing inflation accelerated to +7.1% YoY (+1.1 ppt), mainly because electricity prices fell less than in September 2024.
• On a monthly basis, prices were weighed down by leisure and culture (-4.2% MoM), driven by cheaper tourist packages, subtracting -0.368 pts from the overall index.
• Transport prices also fell -0.7% MoM, led by lower passenger air transport, contributing -0.105 pts.
• Clothing and footwear rose +2.5% MoM, adding +0.084 pts, reflecting seasonal price increases at the start of the autumn-winter period.

France’s CPI fell -1.0% MoM in September 2025, following a +0.4% MoM increase in August, while the YoY rate rose to +1.2% YoY (from +0.9% YoY), confirming the flash estimates.

• Core inflation was -0.1% MoM and +1.3% YoY (up from +1.2% YoY), and the HICP slipped -1.1% MoM but rose +1.1% YoY, both confirming provisional estimates.
• Services prices climbed +2.4% YoY (vs +2.1%), driven by health services (+2.6% YoY) and rents/water/refuse collection (+2.5% YoY); “other services” inflation eased slightly to +3.0% YoY, while transport services declined -2.0% YoY.
• Energy prices fell 4.4% YoY (vs -6.2%), their least steep decline in months, as petroleum products rebounded +0.2% YoY, with diesel up +0.7% YoY and petrol nearly stable (-0.4% YoY); electricity prices dropped -13.7% YoY and gas rose +6.4% YoY.
• Food inflation ticked up to +1.7% YoY (from +1.6%), supported by higher prices for meat (+1.8% YoY), bread/cereals (+0.9% YoY), and non-alcoholic beverages (+9.5% YoY), while sugar/confectionery slowed to +5.4% YoY.
• Fresh food inflation eased to +1.6% YoY (from +1.7%), with fruit decelerating (+2.4% YoY) but vegetables (+2.6% YoY) and fish (+4.1% YoY) accelerating.
• Manufactured goods prices declined 0.4% YoY (vs -0.3%), with notable drops in major household appliances (-3.2% YoY) and furniture (-0.4% YoY); vehicle prices rose +0.9% YoY, partially offsetting the broader weakness.
• Tobacco prices remained stable MoM and rose +4.1% YoY, continuing to provide a small upward contribution to headline inflation.

India’s auto industry saw mixed results in Q2 FY2025–26, with total vehicle sales showing strong export performance and robust gains in two- and three-wheelers, while passenger vehicle demand began to recover late in the quarter amid GST relief and festive buying.

• Passenger vehicle sales totaled 1.04 million units in Q2 FY2025–26, down -1.5% YoY, though September sales rose +4.4% MoM on improved sentiment and GST cuts; utility vehicles declined -2.1% YoY while passenger cars were flat.

• Passenger vehicle exports hit a record 242,000 units, up +23% YoY, underscoring strong overseas demand.

• Two-wheeler sales reached 5.56 million units, up +7.4% YoY, with scooters (+12.4%) outpacing motorcycles (+5.0%); exports also reached a record 1.3 million units (+25% YoY).

• Three-wheeler sales rose +9.8% YoY to a record 229,000 units, driven by passenger carriers and stronger urban transport demand; exports surged +51% YoY to 123,000 units.

• Commercial vehicle sales grew +8.3% YoY to 240,000 units, supported by freight, logistics, and construction activity; exports increased +22% YoY to 24,000 units.

• For September 2025 alone, production totaled 3.07 million vehicles, with domestic sales of 372,458 passenger vehicles, 84,077 three-wheelers, and 2.16 million two-wheelers, each posting record monthly levels despite GST 2.0 taking effect only in the final nine days.

• Industry leaders expect continued growth in H2 FY2025–26, supported by a longer festive season, healthy agricultural output, and stronger rural and urban demand under stable macroeconomic conditions.

Japan’s industrial production fell -1.5% MoM and -1.6% YoY in August 2025, revised down from the initial estimates of -1.2% MoM and -1.3% YoY.

• Shipment growth was just 0.2% MoM (vs 0.5% MoM initial estimate) and was down -1.3% YoY.
• Inventory growth was unrevised at -1.0% MoM and -2.9% YoY, as inventories were drawing down on the month.
• The inventory ratio was up 2.3% MoM (vs 2.5% MoM initial estimate) and up just 0.4% YoY.
• Production capacity dropped -0.5% MoM, the largest monthly drop so far this year, and was down -1.8% YoY.
• Capacity utilization dropped -2.3% MoM, the largest monthly decline since March, and was mostly flat at an annual increase of 0.3% YoY.

China’s CPI fell rose +0.1% MoM (vs +0.2% MoM expected) in September 2025 and was down -0.3% YoY (vs -0.1% YoY expected) slightly above -0.4% YoY in August, reflecting ongoing food price weakness offset by modest non-food gains.

• Core CPI was flat on the month, but up 1.0% YoY in September, the strongest increase since February 2024.
• Food prices dropped -4.4% YoY, subtracting roughly 0.74 ppts from the CPI, led by fresh vegetables (-13.7% YoY), pork (-17.0% YoY), and eggs (-11.9% YoY).
• Fuel prices were also notably weak, down -1.7% MoM and -6.0% YoY in September, dragging down the headline inflation rate.
• Non-food prices increased +0.7% YoY, supported by higher costs in other supplies and services (+9.9% YoY), daily necessities and services (+2.2% YoY), and clothing (+1.7% YoY).
• Service prices rose +0.6% YoY, while consumer goods prices fell -0.8% YoY, reflective of the weakness in food prices.
• On a MoM basis, food prices climbed +0.7%, driven by fresh vegetables (+6.1% MoM), eggs (+2.7% MoM), and fruit (+1.7% MoM), though aquatic products (-1.8% MoM) and pork (-0.7% MoM) fell.
• Non-food prices declined -0.1% MoM, with transportation and communication (-0.9% MoM) and education, culture, and entertainment (-0.4% MoM) posting notable decreases.
• For January-September 2025, average CPI edged down -0.1% YoY, indicating broadly flat consumer price trends through the year.

China’s industrial producer prices were flat MoM in September 2025 and down -2.3% YoY (vs -2.3% YoY expected), up from -2.9% YoY in August and the smallest decline since July 2024, with the pace of annual decline narrowing for a third straight month, indicating a gradual easing in deflationary pressures.

• The ex-factory price of means of production dropped -2.4% YoY, led by extractive industries (-9.0% YoY), raw materials (-2.9% YoY), and processing (-1.7% YoY). Means of living prices fell -1.7% YoY, weighed by durable consumer goods (-3.9% YoY).
• Producer purchase prices declined -3.1% YoY but rose +0.1% MoM, showing a modest rebound in input costs. Fuel & power (-8.1% YoY) and chemical raw materials (-5.5% YoY) posted sharp annual drops, while non-ferrous metal materials rose +6.6% YoY.
• On a MoM basis, extractive industry prices increased +1.2%, while processing dipped -0.1%, keeping the overall ex-factory index unchanged from August.
• Among major industries, coal mining prices fell -16.8% YoY, oil & gas extraction -8.6% YoY, and petroleum/coal processing -7.8% YoY, while non-ferrous metal mining surged +13.9% YoY.
• From January to September, ex-factory prices averaged -2.8% YoY and purchase prices -3.2% YoY, reflecting persistent but gradually narrowing declines in industrial costs through 2025.

The S&P Global Investment Manager Index (IMI) Risk Appetite Index rebounded to +4% in October from -26% in September, reflecting renewed investor optimism following the Federal Reserve’s first rate cut of the year.

• The rate cut drove a broad improvement in sentiment, though optimism remains well below levels seen early in 2025 amid lingering concerns over valuations and political uncertainty.

• Equity fundamentals were viewed more favorably, with U.S. macroeconomic conditions exerting the smallest perceived drag since February.

• Sector sentiment shifted toward cyclicals, with technology stocks seeing the sharpest rebound, now the second-most favored sector behind financials, while materials, communication services, and industrials also improved.

• Bearishness in consumer discretionary moderated, while sentiment turned more negative for real estate and weakened sharply for consumer staples.

• Globally, equities became the most favored asset class since April 2021, followed by commodities, which saw their most bullish sentiment since April 2022.

• Regionally, Japanese and Chinese equities led investor preference for expected year-end performance, while the UK and Latin America ranked lowest.

• Fiscal policy was no longer viewed as a drag for the first time in nine months, and easing Middle East tensions reduced geopolitical risk, though Russia remained a top concern.

Global growth is projected at 3.2% in 2025 and 3.1% in 2026, according to the IMF’s October 2025 World Economic Outlook, reflecting moderate improvement since July but still weaker than pre-tariff forecasts due to ongoing protectionism and uncertainty.

• The IMF revised up its July 2025 estimate (3.0%) following tariff reductions and fiscal stimulus in some economies, but growth remains 0.2 ppts below the October 2024 forecast.

• The United States is expected to grow 2.0% in 2025, while advanced economies overall expand about 1.5%; emerging markets are projected just above 4.0%.

• Global inflation is forecast to ease to 4.2% in 2025 and 3.7% in 2026, with U.S. inflation expected to stay above target as tariff pass-through effects rise.

• World trade volume is projected to grow 2.9% in 2025-26, down from 3.5% in 2024, as fragmentation and policy uncertainty continue to limit gains.

• The IMF warned that restrictive immigration policies could constrain labor supply, particularly in aging advanced economies, adding to medium-term output risks.

• Downside risks remain dominant, including prolonged policy uncertainty, further protectionist measures, fiscal vulnerabilities, and potential corrections in AI-linked asset prices.

• Upside risks include renewed reform momentum, lower tariffs from trade breakthroughs, and stronger-than-expected productivity gains from technological advances.

• Policymakers are urged to rebuild fiscal buffers, maintain central bank independence, and modernize trade rules to restore confidence and sustain long-term growth.