US FLASH PMI

Business activity growth holds close to five-year high, but selling
prices rise at sharpest rate since August 2022

The headline flash S&P Global US PMI Composite Output Index slipped from 58.4 in September to 57.6 in October but remained firmly in strong growth territory. Despite the fall, the index still signalled the second-sharpest increase in activity since March 2022.

Growth dipped lower in both manufacturing and services, but in both cases the rates of expansion were among the highest seen over the past five years.

New orders growth meanwhile ticked higher from September’s elevated reading and was the highest in over four-and-a-half years. However, a weakened rate of increase in manufacturing new orders contrasted with an improved rate of growth of services new business to the strongest since March 2022.

While the upturn in orders was again principally a reflection of rising domestic demand, boosted partly by precautionary stock building, October saw export sales gain traction, registering the strongest gain since May 2022. Export orders for goods rose for the first time since June of last year, accompanied by the largest rise in services exports since July 2023.

Companies’ backlogs of uncompleted orders, a key indicator of capacity utilization and future business growth, rose sharply again, the latest increase being the largest since May 2022. Backlogs accumulated at stronger rates in both manufacturing and services.

The rise in backlogs of work again encouraged firms to take on more staff. Employment rose in October at the fastest rate since June 2022, barring only the jump in payrolls reported in September. Both service sector and manufacturing payrolls increased, the latter notably at the fastest rate since March 2012, while the service sector jobs gain was below that seen in September but still the third largest for over four years.

Business output expectations for the 12 months ahead cooled compared to September but were still the second highest seen this year. A paring-back of optimism in the services economy was countered, however, by a marked improvement in sentiment in the manufacturing sector.

Business expansion plans reflected reports of confidence being buoyed by signs of ongoing demand growth and economic resilience. Manufacturers remained more upbeat than service providers, and factory confidence has more or less returned to its long-run average. In contrast, service providers’ sentiment remained well below its trend level amid worries over the cost-­of-living, higher borrowing costs and political uncertainty.

Selling price inflation picked up further momentum in October. The overall rise in prices across goods and services was the largest since August 2022. The upturn in price pressures was also broad-based: while services inflation edged up to the steepest since August 2022, manufacturers’ selling prices rose at a pace not seen since July 2022, with the rate of inflation accelerating markedly.

Higher prices reflected a further sharp increase in companies’ costs. Average input costs measured across both goods and services rose at the fastest pace since November 2022, excluding only the rise seen in September. The surge in cost pressures was most prominent in manufacturing, though service sector costs also rose sharply again.

Respondents commonly cited oil-based inputs, energy, fuel and freight rates as having pushed costs higher, but various other raw materials including steel, aluminum and copper were also up in price, often due to tariffs or shortages.

Supplier delivery times lengthened to the greatest extent since 2022 amid material shortages, low stock levels, overloaded suppliers, labour shortages, rising back orders and shipping or import delays. Service providers also widely noted higher wage rates and increased utility and insurance costs.

The S&P Global US Manufacturing PMI rose from 55.9 in September to 56.0 in October, according to the flash reading, registering the strongest improvement in operating conditions since May 2022. Although production and new orders growth rates slowed, both remained elevated to register sustained strong expansions. Jobs growth meanwhile accelerated further to reach the highest since March 2012, and input inventories rose at the fastest rate for four months. Suppliers’ delivery times meanwhile lengthened to the greatest degree since July 2022.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence:

“October’s flash PMI data indicate that the US economy continues to boom at the start of the fourth quarter. The output readings from the survey are consistent with GDP growing at a 5% annualized rate after a 4% expansion was signalled for the third quarter. Especially healthy corporate earnings and profits are also indicated, and hiring has surged as companies seek to boost capacity to fulfil stronger customer demand.

“If the reopening of the economy after COVID is excluded,recent months have seen the best growth spell for US businesses since early 2015.

“However, cost pressures remain a key concern, notably as the renewed surge in oil prices reverberates through to impact a wide variety of goods and services. Supply chain bottlenecks have meanwhile intensified, and order book backlogs are growing, making it easier for companies to pass higher costs on to customers. The result is the sharpest increase in selling prices for over four years toa pace that indicates consumer price inflation is likely to rise further above the Fed’s target in the coming months.”

 

As Goldman Sachs illustrates, manufacturing output price inflation is particularly strong in the US …

… allowing US manufacturers to pass their increasing costs along thanks to strong demand.

The October Flash PMI confirms September’s:

• US economic growth is broadening and accelerating to “booming conditions”.
• Employment growth is also accelerating, “at the fastest rate since June 2022”.
• Corporate costs are also surging due to “material shortages, low stock levels, overloaded suppliers, labour shortages, rising back orders and shipping or import delays”.
• Strong demand allows businesses to broadly boost selling prices.

The strengthening labor demand is particularly interesting since wage inflation is the only missing ingredient in current subdued inflation scenarios. But unemployment claims declined 18% since July to their lowest level since 1969. Continued claims are down 12.5% since July while job postings on Indeed rose 4% (inversed below).

The Atlanta Fed composition-adjusted wage tracker pinned the low point in overall wage growth at 3.5% last April. It was 3.9% in August. Wage growth for job switchers also troughed in April at 3.7%. It jumped to 4.7% in August.

“Optimism that the war and the interruption to supply that it causes will soon be over has drained away”: (John Authers)

If you look closely at this next chart, you should see the delayed impact that oil prices have on services inflation. Service providers’ costs are mainly wages and energy. Higher for longer oil prices will incite businesses to start passing along their rising costs given strong demand.

The Truflation CPI has surged from 2.5% to 3.3% in just 3 weeks:

Truflation CPI

Treasury yields opened at 4.94% on September 23, jumped to 5.1%  after the scary Flash PMI out that morning, to 5.2% on September 24 and peaked at 5.32% on October 6. The subsequent “AI scare” drove yields back to 4.96% last Thursday but they rose back to 5.0% on Friday after the October Flash PMI.

This AI scare is really a “CoreWeave financing scare”, limited to the smaller AI players. SemiAnalysis’ comprehensive data confirm that data center construction will be very strong through 2027: net capacity addition will rise from 15.6GW in 2025 to 25GW in 2026 and to 51.2GW in 2027, 77% of which is already financed and under construction per SA’s research.

The Q3 CFO Survey by Duke University’s Fuqua School of Business and the Federal Reserve Banks of Richmond and Atlanta was conducted from Aug. 17 to Sept. 4.

“Overall, CFOs remain optimistic about the U.S. economy and their own company’s prospects,” said Sonya Ravindranath Waddell, vice president and economist with the Federal Reserve Bank of Richmond. “Where there are challenges, they are most pronounced for small or financially constrained firms. Rising optimism among large firms is accompanied by strong expectations for revenue and employment growth in 2026 and 2027. Not only did optimism decline among small firms, but 20 percent reported financial constraints that prevented them from covering costs or pursuing new business opportunities, compared to about 10 percent of large firms.” (…)

About 90 percent of companies expect demand over the next year to be about the same or stronger than last year. Likewise, most firms continue to hire replacements and fill new positions — only 12 percent report not filling open positions or laying off workers.

These are tough times to be small.

Interestingly, in the third quarter, “labor costs and profitability/pricing power made new appearances on the list” of concerns.

Because nothing above is hard data, favored by Kevin Warsh, the FOMC this week may well dismiss it as soft data, however hard it may be. Many members have already said there’s no urgency to raise rates again.

Last June, Warsh told reporters at a press conference that he didn’t want the central bank to give too much forward guidance because he wants the market to form its own conclusions from economic data and that he plans to “listen to the signal from markets more”.

Here’s one signal on the eve of the meeting:

EARNINGS WATCH

The Earnings Boom Is Heavily Reliant on Just a Handful of Stocks Ten companies—including Nvidia, Micron and other AI giants—account for roughly two-thirds of corporate profit growth

Analysts expect companies in the S&P 500 to report a 30% jump in third-quarter earnings from a year ago, according to FactSet, boosting investor confidence that the good times can keep rolling so long as businesses keep printing money. But just two companies—Nvidia and Micron—account for 34% of that growth, according to a Dow Jones Market Data analysis.

And only 10 companies—including Broadcom and Meta Platforms—account for roughly two-thirds of the profit growth. Others include oil-and-gas giants that benefited from higher energy prices caused by the conflict in Iran. (…)

Even without the top 10 stocks juicing growth, the rest of the S&P 500 is expected to deliver a 10% jump in profit from a year ago—a respectable showing, especially for a bull market that has now stretched into its fourth year, said Chris Grisanti, chief market strategist at MAI Capital Management. (…)

I have been beating that drum for a while. And even that “respectable 10% jump in profit” should be qualified. Excluding the war-related boost in commodity prices, the 6 “normal-economy” sectors are expected to grow their earnings 4.8% on average in Q3 on revenues rising 6.5% on average. Declining margins.

So far, with 24% of S&P companies in:

121 companies in the S&P 500 Index have reported earnings for Q3 2026. Of these companies, 82.6% reported earnings above analyst expectations and 14.9% reported earnings below analyst expectations. In a typical quarter (since 1994), 67% of companies beat estimates and 20% miss estimates. Over the past four quarters, 82% of companies beat the estimates and 15% missed estimates.

In aggregate, companies are reporting earnings that are 6.6% above estimates, which compares to a long-term (since 1994) average surprise factor of 4.4% and the average surprise factor over the prior four quarters of 7.7%.

Of these companies, 63.6% reported revenue above analyst expectations and 36.4% reported revenue below analyst expectations. In a typical quarter (since 2002), 63% of companies beat estimates and 37% miss estimates. Over the past four quarters, 77% of companies beat the estimates and 23% missed estimates.

In aggregate, companies are reporting revenues that are 1.7% above estimates, which compares to a long-term (since 2002) average surprise factor of 1.3% and the average surprise factor over the prior four quarters of 2.5%.

The estimated earnings growth rate for the S&P 500 for 26Q3 is 31%. If the energy sector is excluded, the growth rate declines to 26.3%.

The estimated revenue growth rate for the S&P 500 for 26Q3 is 12.5%. If the energy sector is excluded, the growth rate declines to 11.7%.

The estimated earnings growth rate for the S&P 500 for 26Q4 is 30.1%. If the energy sector is excluded, the growth rate declines to 25.5%. (LSEG IBES)

Forward EPS are now $405.63, up 6.3% in just 3 weeks!

If you don’t mind investing on forward earnings, the current 18.8x P/E is back into its historical channel. It is 18.1x 2027 estimates of $424.

The S&P 500 median stock is at 16.6x forward EPS (charts from Ed Yardeni):

The S&P 500 is only down 2.8% from its October 6 high but AI-related stocks are down 24% from their June high.

@negligible_cap

The chart above plots Goldman Sachs’ broad AI basket, a proprietary custom thematic basket designed to track the comprehensive AI ecosystem. Rather than focusing solely on mega-cap tech stocks, Goldman Sachs structures its broad basket around a multi-phase framework that spans hardware, infrastructure, data management, and the eventual business productivity beneficiaries.

Among the worst performers from their respective 2026 highs (with their current NTM P/Es):

MRVL: –30% (40.4x), ORCL: –49% (14.8x), VRT: –49% (24.5x), CRWV: –62% (NA), CEG: –29% (20.5x), VST: –23% (13.8x).

Ed Yardeni charts his own AI-11 stocks’ October performances …

… and their YtD.

The S&P IT stocks are now selling at par with the S&P 500 P/E. NVDA, the dominant full stack AI company, sells at 17.4x NTM EPS. Last time: 2016 when its EBITDA margins were 19.6% vs 66.4% currently per Koyfin data.

Japan’s Top Union Group Calls For 6% Wage Increases in 2027

Japan’s largest labor union federation will push for wage increases of around 6% in next year’s pay negotiations, seeking to build on recent gains as the government targets sustained pay rises to help drive consumer spending and boost economic growth.

Rengo plans to urge affiliated unions to demand total pay increases of at least 5% and ideally 6%, in annual wage negotiations culminating next spring, according to targets outlined in its draft policy framework Thursday. That includes base-pay increases of at least 3% and ideally 4%.

Workers affiliated with Rengo secured an average wage increase of 5.01% in negotiations earlier this year, with the gains feeding into the government’s monthly wage data through the summer. Along with easing inflationary pressures, the pay increases helped lift Japanese workers’ real wages for an eighth straight month in August, the longest streak of gains in almost a decade. (…)

Sustained wage growth is crucial to policymakers’ efforts to achieve their respective economic goals. The Bank of Japan is hoping to spur a mutually reinforcing cycle of wage and price growth as it gradually proceeds with interest rate increases toward levels not seen in decades.

Prime Minister Sanae Takaichi also emphasized wage growth in her policy speech earlier this month, saying Japan was at a crossroads in establishing a virtuous cycle of corporate investment, higher wages and stronger consumption. She stressed the need for sustained pay gains that outpace inflation. (…)

• Japan government, BOJ gap on inflation laid bare ahead of key policy meeting

Japan has yet ‌to meet the conditions for officially declaring victory over deflation, Economy Minister Minoru Kiuchi said on Friday, exposing a divide with the Bank of Japan as it sees the economy on the cusp of durably achieving its 2% inflation goal.

Kiuchi’s remarks, from a close ally of dovish ​Prime Minister Sanae Takaichi, underscore a disconnect between the government and the BOJ on price moves.

They also come ​ahead of the BOJ’s policy meeting next week, when it is seen signalling that underlying inflation has ⁠hit its 2% target as the Iran war-induced energy shock and rising import costs from a weak yen push up ​prices.

The government, however, has stopped short of declaring victory over deflation, saying it needs clearer evidence that the economy will ​not slide back into a period of persistent price declines.

While fuel subsidies have helped temper price pressures, core consumer inflation has hovered near the BOJ’s 2% target for four years, challenging the government’s view that Japan has yet to fully escape deflation.

The core consumer price index (CPI), which excludes volatile fresh food but includes fuel costs, rose 2.1% in September from a year earlier, data showed on Friday.

Some analysts say the government’s reluctance ​to declare an end to ​deflation reflects concern that doing ⁠so would narrow its room to pursue accommodative fiscal and monetary policy.

Declaring an official end to deflation could also draw calls to tweak a joint government-BOJ statement, signed in 2013, pledging ​coordinated efforts by the two sides to end deflation including by “pursuing monetary easing to achieve ​the BOJ’s inflation ⁠target at the earliest date possible.” The government and BOJ reaffirmed the joint statement in 2025.

“I hope the BOJ conducts monetary policy appropriately to stably and sustainably achieve its 2% inflation target, taking into account the principles of the joint BOJ-government statement,” Kiuchi ⁠said.

Considered an ​advocate of loose monetary policy, Kiuchi has repeatedly signaled his reservation over ​the BOJ’s rate-hike plans.

Kiuchi said on Tuesday he hoped to attend the central bank’s policy meeting next week, when it is seen keeping interest rates steady, but revising up its ​inflation forecast and signalling its resolve to keep hiking borrowing costs.

FYI:

Japanese investors have now sold foreign bonds for five consecutive weeks, the longest selling streak in four years, and the consequences for global bond markets could be significant. 

As you all know, for decades, Japan has been one of the world’s largest exporters of capital. With interest rates close to zero, Japanese banks, insurers, and pension funds had every incentive to invest abroad but that dynamic is changing.

The yield on 10-year Japanese government bonds has risen by more than 80 basis points since the beginning of the year reaching unseen levels in decades. Some will argue that US bonds still offer higher yields but it ignores the cost of currency hedging. A US bond yields 5% but if currency hedging costs 2.5%, the hedged return falls to 2.5%. Compared with a Japanese bond yielding nearly 2.9%, without currency risk, the decision becomes far less obvious.

Japanese life insurers manage around $2.5 trillion in assets. Several are already planning to maintain or increase their purchases of domestic bonds so we could be looking at a gradual reallocation of capital over several years.

For the United States, which must finance enormous fiscal deficits, this is quite an issue. If Japanese investors reduce their purchases of Treasuries, other buyers will have to step in. Attracting those buyers could require the US Treasury to offer higher yields. (@C_Barraud)

China medtech exports surge, challenging global incumbents

Chinese medical equipment makers are increasingly challenging US, European, and Japanese competitors in hospitals around the world, extending Beijing’s technological prowess to yet another industry.

While treatment centers long relied on machines from GE, Siemens, and Philips, some are now embracing machines like Shanghai-based United Imaging Healthcare’s CT scanners, which can perform full-body scans in five minutes versus the 20 it takes conventional equipment. (…)

Shrinkflation

After decades of increasing in size, newly built homes are shrinking. (Daily Shot)

AI Credit Crunch?

Ed Yardeni chimes in after my October 8 post AI Capital Crunch?

(…) Does enough capital even exist to finance everyone’s ambitious AI spending plans?

Meta’s earnings announcement on Wednesday brought these concerns to the fore. Despite revenues rising 26% y/y to $64.6 billion, the company reported negative free cash flow of $2.1 billion. It raised the lower end of its 2026 capital expenditure guidance to $135–$145 billion and announced a new class of non-voting shares to facilitate future capital raising. Investors interpreted the move as a sign that even hyperscalers may be rushing to secure financing before competitors absorb the available capital.

Indeed, the Meta report stated: “Recent significant capital raises from peers like Alphabet and SpaceX, alongside anticipated fundraising from Anthropic and OpenAI, have created an increasingly challenging fundraising environment.”

Several industry leaders have confirmed this concern. Broadcom CEO Hock Tan recently warned that capital could become the biggest constraint on AI development. BlackRock CEO Larry Fink said that competition for capital was the fiercest he had witnessed in his career. On Thursday, Nvidia CEO Jensen Huang warned that neocloud demand is “off the charts” but capital is scarce.

As AI companies compete for capital, rising financing costs increase the returns required to justify investments, amplifying the original worry about whether all that spending will pay off. Today’s market action showed how these concerns are playing out across stock and bond markets:

Meta’s shares plunged 7.0% today after yesterday’s announcement, leading a broad selloff in AI-related stocks. Nvidia fell 4.4%, CoreWeave fell 10.1%, and Lam Research fell 11.8%. SOXX dropped 6.8%.

The Nasdaq dropped 2.6%, its worst day in four months. (…)

The 10-year Treasury yield fell below 5.00% for the first time in nearly a month, returning to what we consider its old-normal range of 4.00%–5.00% (chart). The Treasury market rally suggests that investors are increasingly concerned that tightening access to capital could slow the AI buildout, one of the economy’s most important growth engines. (…)

We view market-driven tightening access to capital as healthy for the AI boom, resulting in more efficient capital allocation and reducing over-investment risks.

Importantly, we expect the key players to retain financing access. The five major hyperscalers (Amazon, Alphabet, Meta, Microsoft, and Oracle) alone are projected to spend almost $780 billion in 2026. Over each of the following four years, from 2027 through 2030, that figure is expected to exceed $1 trillion annually. Their strong cash flows, balance sheets, and market access should allow them to continue investing in AI.

So, Treasury investors’ wish of an AI-led slowdown is only wishful thinking and AI financing will keep crowding out other borrowers, including the US of A.

• Scott Bessent shrugs off ‘systemic’ AI risks at closed-door investor conference

Treasury secretary Scott Bessent told investors in a private meeting that he did not see a “systemic problem” with the AI boom, downplaying concerns that the industry is in a bubble like the one that preceded the dotcom bust. (…)

“I’m good at figuring out when there are problems in systems,” Bessent, a former macro hedge fund manager, said when asked about AI in an interview with Bridgewater chief executive Nir Bar Dea, according to three people who were present at the event. 

“I don’t see a systemic problem.” (…)

Here’s where there might be a problem:

Firms rated Caa and below face $27 billion in debt maturities over the next year and $91 billion by fall 2028, the rating agency warned Tuesday.

At this time in 2025, one- and two-year figures were $23 billion and $42 billion, respectively.

That low-rated cohort now accounts for one-third of all sub investment-grade maturities next year and more than 25% of the 2028 total.  By way of context, triple-C-rated credits compose only 8.5% of the high-yield market, data from Janus Henderson show. (ADG)

Refinancing is now done at 7%+, a huge hit for borrowings made pre-2023.

Source:  Topdown Charts Research Services

Meanwhile, Ed continues:

Another development amplifying risk-off sentiment today was escalating geopolitical tensions in the Middle East. The New York Times reported that the US and Israel have developed plans for possible renewed strikes against Iran following the November 3 midterm elections.

Meanwhile, intensifying Houthi attacks on Saudi infrastructure prompted the US to order nonessential diplomatic personnel and their families to leave Saudi Arabia, while Saudi Aramco evacuated staff from its Dhahran headquarters.

The price of Brent crude oil jumped to $113.17 per barrel Thursday, while West Texas Intermediate crude rose to $103.95. (…)

Prices remain elevated partly because of higher shipping costs, but more importantly because of a geopolitical risk premium (…).

BTW: US is prepared for long stand-off with Iran, says Trump envoy

Mike Waltz, Donald Trump’s ambassador to the UN, acknowledged that a year from now the US could still be mired in a stalemate with Iran, without a deal on Tehran’s nuclear programme or a return to prewar shipping through the Strait of Hormuz. (…)

But “the president and the US Navy can maintain this blockade [on Iranian ports] for the foreseeable future,” he said, and the administration is “tightening” its economic pressure campaign. (…)

Waltz said the US will not have accomplished its strategic objectives in the conflict until it has disposed of Iran’s highly enriched nuclear material and reached a “meaningful agreement on their domestic enrichment” with Tehran. (…)

• Iran’s IRGC Navy says seven vessels hit, warns US of wider response

Iran’s Islamic Revolutionary Guard ​Corps Navy said ‌on Thursday that four vessels involved ​in illegal oil ​transfers in the northern ⁠Persian Gulf ​were simultaneously hit ​and caught fire after being tracked by its ​forces on ​Wednesday.

The IRGC added that three ‌more ⁠vessels collided with mines west of the Strait ​of Hormuz, ​and ⁠warned the US military ​that continued provocations ​could ⁠lead to a wider response ⁠against ​its regional ​bases.

There is also a Term Premium on oil prices. Back to Ed:

The bottom line is that the Middle East conflict remains a wild card. However, we expect US consumer spending and business investment to remain robust, while federal deficits of roughly 6% of GDP (during a solid economic expansion) provide additional economic stimulus.

We expect the US economy will continue to pass the latest stress tests originating in the AI ecosystem and in the Middle East.

But more than half of the 6% deficit is now interest expense. What’s the multiplier on that?

Data: Office of Management and Budget via FRED, U.S. Treasury. (2026 GDP estimated using extrapolated Q3 growth.) Chart: Emily Peck/Axios

FLASH PMIs

Eurozone: October sees softer expansion in eurozone output

• Flash Eurozone PMI Composite Output Index: 51.9 (September: 53.1). 4-month low.
• Flash Eurozone Services PMI Business Activity Index: 51.7 (September: 53.0). 2-month low.
• Flash Eurozone Manufacturing Output Index: 52.4 (September: 53.6). 4-month low.
• Flash Eurozone Manufacturing PMI: 52.4 (September: 52.9). 3-month low.

Matching the trend for business activity, new orders increased at the slowest pace in the current four-month sequence of expansion at the start of the final quarter of the year. Here, the rate of growth was only slight as both monitored sectors saw only modest improvements in new business.

While the rate of expansion in new export orders (which include intra-eurozone trade) also eased, an increase was recorded for the third consecutive month, an improved
picture following a period of amost four-and-a-half years
in which new export business had fallen continuously on a monthly basis. In fact, the latest rise in new export orders. (…)

Manufacturers efforts to secure inputs were hampered by ongoing disruption to supply chains. Supplier lead times lengthened markedly, and to the largest degree in four months.

Manufacturers reported a sharp and accelerated increase in input prices in October, often linked by respondents to higher costs for energy, fuel and transportation. The latest rise was the steepest since May and above the average for the year-to-date.

The strength of the rise in manufacturing input prices meant that input cost inflation overall quickened for the second month running despite a slower rise in services input prices.

In contrast to the trend in input costs, the rate of output price inflation slowed in October. Both Germany and France posted weaker increases in selling prices than in September, but the rest of the eurozone as a whole saw the rate of inflation accelerate.

 

Japan: Business activity rises solidly again in October

• Flash Japan Composite PMI Output Index: 52.3 (September: 52.3)
• Flash Japan Services PMI Business Activity Index: 52.0 (September: 51.3)
• Flash Japan Manufacturing PMI: 53.3 (September: 54.1)
• Flash Japan Manufacturing PMI Output Index: 53.1 (September: 54.9)

Demand conditions softened across Japan during October, with new business at the composite level rising to the smallest extent in three months. Sales growth in the service sector rose at a steeper, yet still modest pace, but goods producers recorded the slowest rise in new orders since March.

External demand conditions also remained positive, though new export business rose at the softest rate in four months.

The rate of input cost inflation across Japan’s private sector accelerated slightly in October, and was marked overall. Firms frequently mentioned that higher raw material and labour costs were sources of inflation at the start of the fourth quarter.

Companies raised their output charges sharply again in October in response, though the rate of inflation eased to a four-month low.

 

US Treasury proposes tighter rules on investing in sensitive Chinese tech Restrictions would apply to investments in areas including AI, hypersonic weapons and biotech

US companies and investors would face tighter restrictions on investing in sensitive areas in China from AI and hypersonic weapons to biotech under proposed rules unveiled by the Trump administration.

The Treasury on Thursday published regulations implementing the Comprehensive Outbound Investment National Security Act, which Congress passed in 2025 to boost scrutiny of investment in China and other adversaries including Iran and Russia to protect American national security.

The proposed regulations would impact investments in advanced chips and AI. They would also target a range of biotech-related compounds and materials and technology such as brain-computer interfaces. (…)

Craig Singleton, an expert on US-China competition at the Foundation for Defense of Democracies, said the proposed regulations for biotechnology were the most significant element of the package released by Treasury. “

Biotech matters to both Wall Street and Main Street,” he said. “It shapes the future of medicines and therapeutics, but some of the same technologies can also strengthen China’s military capabilities or deepen US dependence on Chinese supply chains.”

He added: “Treasury is putting investors on notice that money flowing into parts of China’s biotech sector carries national security consequences and will face much closer scrutiny.” (…)

The proposal sets up a lobbying fight between the administration and the US biotech sector, which has increasingly turned to China for early drug development. (…)

However, the regulations spare certain deals that US pharmaceutical companies have done in China. Eli Lilly, Pfizer, Bristol Myers Squibb and other US companies have paid billions of dollars to Chinese drugmakers to license their new medicines.

These licensing deals avoid the regulations if they were paid in cash without an equity investment, said Will Humphrey, a vice-president at Capstone, a healthcare policy and consulting firm.