Geopolitics and inflation interfere with the short-term, focusing on the fundamentals of the United States, Japan and Taiwan and the momentum of AI production expansion

Zheng Zhuwen

Global stock markets are facing a sharp correction as geopolitical tensions in the Middle East push up oil prices, and higher-than-expected U.S. inflation raises concerns about the Federal Reserve (Fed) raising interest rates in October. However, it is observed that global economic growth is still resilient, AI infrastructure investment and chip demand continue to be strong, and it is expected that the market will return to fundamental performance as corporate profit momentum continues to spread.

The global economy has shown resilience, and AI infrastructure and semiconductor demand continue to drive corporate profits. It is expected that the market will return to the fundamental growth path after adjustment. (Bloomberg)

According to the U.S. Bureau of Labor Statistics, the U.S. Consumer Price Index (CPI) increased by 0.6% on a seasonally adjusted month in September, and an annual increase of 3.7%, higher than the expected 3.6%. The core CPI, which excludes food and energy prices, increased by 2.6% year-on-year, which was also higher than the 2.4% increase in the previous month, indicating that price pressure has not been completely alleviated.

Please read on...

The outlook for U.S. stocks remains positive and Japan’s fundamentals continue to improve

However, according to the latest "World Economic Outlook" report released by the International Monetary Fund (IMF), thanks to the booming development of AI-related industries, which has driven a related investment boom and has provided positive support to the global economic boom, the global economic growth rate is estimated to be 3.1% in 2026, an increase of 0.1 percentage points from the July forecast, and will further grow to 3.4% in 2027.

Although inflation is heating up again, the U.S. non-farm payrolls data unexpectedly weakened, and the market expects a higher chance that the Fed will hold off on holding its meeting this month. However, the fundamentals of U.S. stocks have not worsened, and the outlook for the fourth quarter is still positive. However, short-term volatility may increase, and the investment atmosphere will turn cautious.

As for Japanese stocks, the momentum of wage growth in Japan continued in August. Basic wages increased by 3.8% year-on-year, maintaining high levels in recent years. Real wages also increased by 1.5% year-on-year, continuing to maintain positive growth. Corporate profits are solid, the labor market continues to be tight, and expectations for a salary increase in spring next year are rising, which is expected to further support the recovery of consumption and domestic demand, and is expected to provide support for Japanese stock fundamentals.

European market is relatively weak, AI production expansion is bullish, supporting Taiwan stock market outlook

In addition, the European market has been affected by rising bond yields, French fiscal risks and high oil prices, and the recent stock market performance has been relatively under pressure. As high interest rates and inflationary pressures constrain consumer spending, although wage growth and the job market remain solid, the recovery in domestic demand remains moderate. As a result, retail sales in the Eurozone only increased by 0.1% monthly in August, lower than market expectations of 0.2%.

Regarding Taiwan stocks, in view of the global investment boom in AI and the strengthening demand for semiconductors, the IMF has significantly revised Taiwan's real GDP growth forecast for 2026 from 5.2% to 10.7%, indicating that Taiwan's economic fundamentals are solid. As AI demand and supply chain expansion news continue to support market confidence, whether the subsequent September revenue and third-quarter earnings forecasts of Taiwanese manufacturers can lead to an upward revision of profit estimates will be an important basis for whether the Taiwan stock market can continue.

Interest rate pressure remains and reduced supply will help stabilize the credit bond market

In terms of the outlook for the fixed income market, inflation and fiscal concerns are still weighing on the bond market. If U.S. inflationary pressures are not significantly alleviated, the Federal Reserve will not rule out continuing to tighten policy rates. As short-term U.S. bonds are highly sensitive to changes in policy interest rates and have risen significantly, long-term U.S. bonds are supported by inflation expectations and market capital demand, so the increase is relatively limited. Further observation is that the interest rate spreads of the overall 30-year and 2-year government bonds have gradually converged, and the overall yield curve has become flat.

On the other hand, according to estimates by foreign institutions, the issuance volume of US dollar corporate bonds in the remainder of 2026 will be approximately US$305 billion, and the fourth quarter will be the quarter with the lowest supply throughout the year. Among them, large cloud service providers may issue another US$50 billion in bonds, but the impact will be limited compared to the US$253 billion issued so far this year. If we look at net issuance rather than total issuance, supply pressure has been significantly reduced in the fourth quarter, which will help credit spreads remain stable.

(The author is the deputy general manager of the Investment Strategy Department of Metropolitan Investment Trust)

Grasp the economic pulse with one hand. Click here to subscribe to Free Finance Youtube Channel