Credit, Trade and Liquidity Concerns Contribute to Investor Anxiety

For the week ending 17 October 2025

As of midday Friday, global equities were modestly firmer on the week after bouncing back from losses in premarket trade on Friday morning. Late in the week, investors grew more cautious amid an uptick in credit concerns in the US and signs of decreased liquidity in US bank funding markets. The yield on the US 10-year note fell as low as 3.935% in London Friday morning before edging up to 4.01%, about 10 basis points lower than the same time last week. The price of a barrel of West Texas Intermediate crude oil fell to $57.50, down about $2.50 on the week amid a projected 2026 supply glut. Volatility, as measured by futures contracts on the Cboe Volatility Index (VIX), rose to 22 from 17.7 a week ago after spiking as high as 24 on Friday morning.

MACRO NEWS

“Cockroach” watch intensifies

During JP Morgan’s earnings call early this week, CEO Jamie Dimon, regarding the recent bankruptcies of two private-credit-funded companies, repeated the old Wall Street axiom that “there’s never just one cockroach in the kitchen” and warned that there are more bankruptcies to come. Later in the week, the news that two regional banks in the western US had taken write-downs related to fraudulent loans intensified market concerns and sent share prices skidding on Thursday afternoon and early Friday morning. So far, these blowups seem idiosyncratic, but investors are now watching credit more closely.

Trump says coming tariff rates on China “not sustainable”

In a clip from an interview to be released Sunday, US President Donald Trump said that his threatened 100% tariffs on China — a response to recent restrictions on rare earths — are unsustainable on top of the existing 57% levies. He confirmed that he will meet with Chinese President Xi Jinping in two weeks in South Korea and said, “I think we’re gonna be fine with China, but it has to be a fair deal.” Equity futures rallied sharply after these comments, earlier losses.

Critical minerals supply chains in focus

Western governments are working to set up alternate supply chains for rare earth metals, as China intends to require importers to apply for licenses for all products containing even trace amounts of Chinese rare earths. As part of a potential resources agreement with the US, the Australian government is considering creating a strategic minerals reserve. The Financial Times also reported this week that the Pentagon is seeking to procure up to $1 billion worth of critical minerals as part of an effort to stockpile strategic materials to counter Chinese dominance of metals that are essential to defense manufacturers. China's Ministry of Commerce clarified that these new rare earth export controls are not an outright ban. “As long as the rare earths are used for civil purposes, [exports] will be approved," their spokeswoman said on Thursday. Finance ministers from the G7 nations, meeting this week in Washington, will consider a joint response to discourage China’s planned move to control the global supply of rare earths. Meanwhile, JPMorgan Chase & Co. has said it will help funnel $1.5 trillion into industries that bolster US economic security and resiliency over the next 10 years, plus invest an additional $10 billion of its own capital in these industries.

Reappointed French PM drops pension reform

French President Emmanuel Macron reappointed Sébastien Lecornu as prime minister last Friday, just days after his resignation. Lecornu promptly suspended Macron’s signature pension reforms, which would gradually raise the retirement age from 62 to 64, until after the 2027 presidential election. This move increases the odds of passing a 2026 budget. Lecornu survived two no-confidence motions on Thursday, one filed by the left and the other from the right, which is another sign that he will likely be able to cobble together a majority to pass a budget. After the votes, the spread between French and German 10-year debt narrowed to its tightest level since August.

Powell signals rate cuts to continue

Despite a dearth of government economic data due to the current government shutdown, Federal Reserve Chair Jerome Powell indicated that the economic backdrop is little changed since the Fed met in mid-September. Markets took that as a sign that the rate cut path laid out last month is unchanged and have priced in two additional cuts before year end. The Fed’s Beige Book, released Wednesday, later confirmed Powell’s view. Powell reiterated that the downside risks to the labor market have increased but that current strong economic activity is in tension with the employment outlook. The Fed will likely end its balance sheet runoff in the months ahead, Powell added.

QUICK HITS

The US government shutdown entered its third week, with few signs of progress. Senate Majority Leader John Thune said he offered Democratic leaders a vote on extending Affordable Care Act subsidies if they agree to end the government shutdown, but Democratic leaders want the subsidies included in any fund package to reopen the government.

The Russell 2000® index of small cap stocks set a record high this week amid hopes for continued Fed cuts, as well as lighter taxes and regulatory burdens.

According to Kelley Blue Book, the average transaction price of a new vehicle in the US was above $50,000 for the first time in September. Contributing to this gain was the expiration of a $7,500 tax credit for EV purchases, which ended September 30, sparking a last-minute sales rush.

US Treasury Secretary Scott Bessent said Wednesday that the US won’t change its trade negotiating stance toward China due to stock market volatility.

Bank of England Governor Andrew Bailey continues to warn that a stock market bubble could be about to burst as fears grow over the inflated value of AI tech companies. This week, Bailey wrote to counterparts across the G20 to sound the alarm about a mismatch between rising asset prices and weak global economic growth.

Bloomberg reported this week that the European Union is considering forcing Chinese firms to transfer technology to European companies if they want to operate locally, mirroring Chinese policy toward western firms. While these rules — expected in November — would technically apply to all non-EU firms, the goal is to keep China’s manufacturing might from overwhelming European industry, Bloomberg reported.

China sanctioned the US subsidiaries of South Korean shipbuilder Hanwha Ocean. This move came after both the US and China slapped special port fees on each other’s vessels, further enflaming already high trade tensions.

Bank of America said a record 54% of global fund managers surveyed believe AI stocks are in a bubble, reflecting rising valuation concerns.

The International Energy Administration this week projected a record oversupply of four million barrels of crude per day in 2026.

The International Monetary Fund boosted its 2025 global GDP forecast to 3.2%, up from its 3% June forecast. Its 2026 forecast held steady at 3.1%. Global inflation is seen at 4.2% this year, declining to 3.7% next year. The US economy is expected to grow 2% in 2025, up from the 1.9% June estimate.

For fiscal year 2025, which ended in September, the US posted at $1.78 trillion deficit, slightly narrower than the $1.82 trillion 2024 shortfall. The US paid a record $1.22 trillion in interest last fiscal year and collected net customs duties of $202 billion, also a record.

Australia’s unemployment rate rose to 4.5% in September, the highest level since November 2021, further increasing the odds of a Reserve Bank of Australia rate reduction.

Lower US mortgage rates helped boost homebuilder sentiment by more than expected in September as the National Association of Homebuilders index rose to 37 from 32.

The British economy grew 0.1% month-over-month in August after contracting 0.1% in July.

Bessent said Wednesday that US support for Argentina could total $40 billion, including a $20 billion partnership with the private sector that is in the works. The US entered markets to buy pesos on Wednesday and Thursday.

In September, the pace of decline in Chinese producer prices slowed to 2.3% from the year before, down from 2.9% in August. CPI fell 0.3% in September from the year before after falling 0.4% in August.

Ahead of a meeting schedule with Ukrainian President Volodymyr Zelenskyy on Friday, President Trump spoke by phone with Russian President Vladimir Putin on Thursday. The two leaders agreed to meet soon in Budapest to discuss ending the war in Ukraine after their foreign ministers confer in coming days. Trump said a great deal of time was spent discussing the prospects for US–Russia trade after the war ends.

THE WEEK AHEAD

Monday: US leading economic indicators

Tuesday: Canadian CPI

Wednesday: Japan trade balance; UK CPI

Thursday: US existing home sales; Canada retail sales

Friday: Global flash PMIs; UK retail sales, US CPI, new home sales

Stay focused and diversified
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Past performance is no guarantee of future results.

Sources: MFS research, Wall Street Journal, Financial Times, Reuters, Bloomberg News, FactSet Research.