Market Report.
🤝 While U.S. Treasury Secretary Bessent said Trump plans to meet with Xi Jinping in late October, a Chinese commerce ministry spokesperson said the U.S. cannot seek talks while also making threats.
🇨🇳 China’s Commerce Ministry announced sanctions on 5 U.S. subsidiaries of Hanwha Ocean over their alleged involvement in Washington’s probe into the Chinese shipping industry. The sanctions prohibit Chinese organizations and individuals from doing business with the sanctioned companies, effective immediately. This move by China comes in retaliation for the U.S. decision to impose steep fees on Chinese ships docking at American ports starting the same day.
🚢 China has also retaliated with a similar charge of 400 yuan ($56) on American vessels, as stated in yesterday’s report.
🌍 According to Bloomberg, the global economy is adapting to the new realities of trade, as countries and companies seek to bypass the highest U.S. tariffs since the 1930s.
🇨🇦 Canada is importing more cars from Mexico than the U.S., while China is buying more soybeans from South America instead of U.S. farmers. Smaller economies like Peru and Lesotho are pivoting to new markets in Asia, Europe, and Africa to avoid the higher costs of reaching U.S. consumers. A group of 14 countries, including New Zealand, Singapore, and Switzerland, have formed a partnership to boost trade and investment. China’s exports to Southeast Asia, the EU, and Africa are growing, while its shipments to the U.S. have plunged, indicating a shift in global trade flows.
📉 The global economy has defied expectations of a recession, with the WTO revising its forecast for merchandise trade growth in 2025 from 0.9% to 2.4%. The shift towards more bilateral and regional trade agreements threatens to squeeze out smaller economies that have relied on the rules-based WTO system.
🇫🇷 Who would have told France that the fiscal expansion resulting from the closure of the economy during the COVID-19 epidemic would cost the government to Macron?
💰 France has the largest fiscal deficit in the Eurozone, and President Macron has charged a series of prime ministers with passing tighter budgets, leading to the ousting of Lecornu’s two immediate predecessors. Lecornu, who was just renominated as prime minister after resigning last week, faces two possible no-confidence votes and it is unclear if he has the votes to survive the end of the week.
📊 According to the French newspaper La Tribune, Prime Minister Sebastien Lecornu aims to implement a over 30-billion-euro budget squeeze next year to reduce the fiscal deficit. The proposed budget aims to cut costs by 31 billion euros through a mix of spending cuts and increased revenue. The budget is expected to include a tax measure targeting holding companies used by the wealthy, and will not raise pensions and social benefits in line with inflation.
💼 As per CNBC’s report, UBS sees in the European market investment opportunities due to the potential impact of a weaker US dollar on European exports. The strong euro compared to the weakening dollar could have a negative impact on European exports, leading to a slowdown in GDP growth, according to UBS’s Gerry Fowler.
📈 However, UBS sees domestic industries in Europe, such as consumption, investment, and government spending, as still performing well. Fowler highlights utilities, telecoms, banks, and industrial sectors focused on electrification as attractive investment opportunities in Europe. While defense stocks are hot, UBS considers them “really quite expensive and crowded,” making it difficult to see further outperformance.
🤖 Europe is making a renewed push to claim a bigger piece of the global AI boom, but faces significant challenges in competing with the US and China. European leaders like Macron and Starmer are making major investments and policy efforts to boost Europe’s AI capabilities and reduce reliance on US tech giants. European companies like Pigment, Nebius, and Mistral are racing to develop homegrown AI solutions, but often still rely on American technology like OpenAI models.
⚠️ There are concerns in Europe about over-dependence on US tech, including fears that the US government could force companies to cut off access to critical services. Europe’s public and private investments in AI are dwarfed by the massive spending of US tech giants, raising doubts about Europe’s ability to credibly rival the US and China.
💡 European leaders are divided on the best approach, with some favoring building up domestic infrastructure like data centers, while others argue Europe should focus on AI software and applications.
💵 Milei, the defender of economic liberalism, negotiates a US financial intervention to provide monetary stability. The U.S. Treasury Department has extended a $20 billion currency swap line to Argentina’s central bank in an effort to provide financial stability and head off a potential emerging market crisis. The move is aimed at addressing liquidity concerns in Argentina as it faces upcoming midterm elections. The swap line will exchange stable U.S. dollars for volatile Argentine pesos.
📉 While Argentina poses limited systemic risk, the U.S. is concerned about potential capital flight and volatility in debt and commodity markets that could spill over. The immediate market reaction was a sharp appreciation of the Argentine peso against the dollar, though concerns remain about the sustainability of the arrangement.
🇯🇵 Japan. The finance minister’s remarks suggest Japan is recognizing the need to shift its economic approach away from the Abenomics playbook to better address the current inflationary environment.
💬 Japanese Finance Minister Katsunobu Kato says Japan needs a new economic strategy to address the current situation of rising inflation, rather than the deflation-fighting “Abenomics” policies. Kato acknowledged that the economic situation has changed, with inflation now a concern instead of the deflation that Abenomics was designed to address. He stated that “it is necessary to develop policies that are appropriate for the current circumstances” where inflation, rather than deflation, has become the challenge.
📅 Kato’s comments come as the newly elected leader of the ruling Liberal Democratic Party, Sanae Takaichi, is expected to pursue reflationary policies similar to Abenomics. The yen has weakened significantly since Takaichi’s selection, dampening market expectations for a near-term interest rate hike and boosting stocks.
🌍 Geopolitics.
✈️ President Trump has declared the war in the Middle East is over, as he embarks on a trip to the region to finalize a peace deal for Gaza. Trump arrived in Israel and addressed the Knesset (the Israeli Parliament), saying the “long and painful nightmare” for Israelis and Palestinians is finally over. He announced that Hamas will disarm as part of a ceasefire deal, and called for a peace deal with Iran, saying “they want to make a deal.”
📉 Market View.
🔄 The attempt at a bullish rebound and recovery has failed. China does not seem willing to relent, and Asian markets are experiencing various declines. S&P 500 futures have retreated to around 6,648 points, while Nasdaq 100 futures have fallen to 24,695 points.
💵 The dollar index remains extraordinarily strong, holding around 99.30 points, which prevents EUR/USD from consolidating above 1.16.
📉 European stock futures are also down, with DAX 40 futures retreating to 24,365 points and Eurostoxx 50 futures losing the 5,550 points mark.
⛽ Crude oil is again under pressure due to rising tensions between China and the United States, with Brent crude currently trading at $62.65 per barrel.
💰 Gold futures have surpassed $4,190 per ounce in recent hours but have since retraced to the current $4,125.
💻 Bitcoin, which saw a bullish rebound that brought it close to $116,000 yesterday, is once again falling, currently trading below $112,000.
