Trade Truce, December FOMC in Focus

For the week ending 31 October 2025

As of midday Friday, global equities traded near record levels amid an extended US-China trade détente and mostly solid US tech earnings. The yield on the US 10-year Treasury note rose 11 basis points to 4.10% after the US Federal Reserve raised doubts about an additional rate cut in December. The price of a barrel of West Texas Intermediate crude oil declined $1.50 to $60.50. Volatility, as measured by futures contracts on the Cboe Volatility Index (VIX), were unchanged on the week at 18.5. 

MACRO NEWS

Trump, Xi extend trade truce

On Thursday, US President Donald Trump and China’s President Xi Jinping met on the sidelines of the Asia-Pacific Economic Cooperation Summit in Busan, South Korea. The meeting resulted in the two sides extending their delicate trade truce for a year. They agreed to a number of de-escalatory steps including a pledge from China to work hard to stop the flow of fentanyl and its precursor chemicals into the US. As a result, the US agreed to lower its fentanyl-related tariff on Chinese goods from 10% to 20%, lowering the average tariff rate to 47%. China agreed to purchase 12 million metric tons of US soybeans this year and 25 million annually for the next three years. China agreed to suspend new export restrictions on rare earth minerals for one year, while the US will suspend its 50% rule restricting exports of US technologies to companies that are at least 50% owned by already sanctioned companies. The two sides will also suspend port fees on each other’s ships. The agreement doesn’t resolve fundamental issues in the US-China relationship or reverse the long-term trend toward decoupling, but it does calm the waters in the near term.

Powell pours cold water on December cut

The big news from Wednesday’s FOMC meeting would have been the dissent by Governor Stephen Miran in favor of a half-point rate cut juxtaposed against the dissent from Kansas City Fed President Jeffrey Schmid in favor of leaving rates unchanged after the Fed lowered its target rate range a quarter-point to 3.75% - 4% from 4% - 4.25%. Alternatively, it might have been the committee’s decision to end its balance sheet runoff beginning December 1. But all that changed when Fed Chair Jerome Powell opened his press conference by stressing that a further rate cut in December, which was fully priced in by the market, isn’t a foregone conclusion. Far from it, Powell added. He emphasized that there were strongly differing views on the committee and some think it would be wise to skip a meeting amid signs of stronger growth, still sticky inflation and the government data blackout. Powell said that with the government shutdown limiting economic data, a case could be made to slow down, as one would when driving in fog. Odds of a December hike fell from 100% the day before the meeting to 61% Friday morning, while yields have risen.

QUICK HITS

After meeting with President Trump in Kuala Lumpur, Brazilian President Luiz Inácio Lula da Silva expressed confidence on Monday that his country and the United States will reach a trade deal. 

Against a better global trade backdrop and in anticipation of fiscal stimulus, Japan’s Nikkei 225 Index closed above 50,000 for first time this week while posting its best monthly performance in 35 years.

The Bank of Canada cut its policy rate 0.25% on Wednesday to 2.25% and said rates are now “about the right level,” suggesting the bar is set high for additional rate cuts. Both the Bank of Japan and the European Central Bank held rates steady this week.

Treasury Secretary Scott Bessent  said this week that the candidate pool to replace Jerome Powell as Fed chair has narrowed to current Fed board members Christopher Waller and Michelle Bowman, former Fed Governor Kevin Warsh, White House National Economic Council Director Kevin Hassett and BlackRock executive Rick Rieder.

The coalition led by Argentina’s President Javier Milei won the country’s midterm parliamentary election on Sunday, suggesting Milei’s drive for free market reforms will continue.

Spot gold prices continued their correction this week, falling nearly 11% from their 20 October high before stabilizing around $4,000 per ounce.

ADP announced it will release a four week moving average of its estimated change in US payrolls on a weekly basis each Tuesday at 8:15 am Eastern time. The payroll processing firm estimates that payrolls increased 14,250 on average in the four weeks ended 11 October, according to a statement Tuesday.

On Wednesday, the US and South Korea agreed on details of their trade agreement, including a cash investment of $200 billion, capped at $20 billion per year, as a part of the total $350 billion investment plan, according to South Korean officials.

The Case-Shiller National Home Price Index rose 1.5% year over year in August. In September, US pending home sales also rose 1.5% from year-ago levels.

China’s five year plan for 2026 through 2030 pledged to boost domestic demand significantly while keeping tech and manufacturing as the top priorities. The document shows that China plans to become less reliant on trade as the engine of its economic growth.

Pressure on Senate Democrats grew this week as the largest US federal workers union called for the passage of a “clean” continuing resolution to reopen the government. The House of Representatives passed such a resolution in late September but it has languished in the Senate, unable to garner the necessary support from Democrats to overcome the 60-vote threshold. The shutdown has already cost the US economy $18 billion, the Congressional Budget office estimated.

During a stopover in Japan during his Asian swing, President Trump signed an agreement with Japanese Prime Minister Sanae Takaichi to cooperate in securing supplies of rare earth minerals and to invest in their mining and processing. Both countries are seeking to reduce their reliance on China to source these strategically important materials.

UK Prime Minister Keir Starmer on Wednesday refused to rule out raising income tax, national insurance or value added tax at the coming budget.

On Wednesday, Nvidia became the first company in the world to achieve a $5 trillion market cap.

France’s Socialist Party has threatened to topple Prime Minister Sébastien Lecornu unless the government adopts a wealth tax. Such a tax was repealed in 2018 and replaced with a tax on real estate after an exodus of wealthy French citizens.

Several large US employers, including Amazon, UPS and Target, announced large layoffs this week. 

EARNINGS NEWS

With about 63% of the constituents of the S&P 500 Index having reported for Q3 2025, blended earnings per share (which combines reported data with estimates for those that have yet to report) show that earnings rose around 10.6% compared with the same quarter last year, according to data from FactSet. Blended sales rose 7.9% year over year. About 87% of the companies that have reported have beaten analysts’ expectations, a figure well above the five-year average of 78%. 

THE WEEK AHEAD

Monday: Global manufacturing PMIs

Tuesday: Japan manufacturing PMI; Australia RBA meeting

Wednesday: Global services and composite PMIs; US Supreme Court hears arguments on IEEPA tariffs

Thursday: Japan services and composite PMI; eurozone retail sales

Friday: New York Fed inflation expectations survey

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