There is a lot of activity on the global economic stage. The United States (US) is going through its second longest government shutdown in history, global geopolitical tensions are still high and trade uncertainty reigns as a result of US President, Donald Trump’s tariff war. Despite all of this, US equity markets continue to extend their record-breaking runs, with the S&P 500, Nasdaq, and Dow Jones all hitting multiple fresh all-time highs during the past week.
Adding to positive sentiment is the outcome of Trump’s Asia tour, which concluded Thursday, and reportedly delivered a series of successful trade agreements.
Japan: Building strategic partnerships
Trump’s visit to Tokyo on 27 and 28 October produced substantive agreements with Japan’s new Prime Minister, Sanae Takaichi. Building on the $550 billion framework deal announced in July, the leaders signed a critical minerals agreement aimed at diversifying supply chains away from Chinese dominance, covering rare earth mining and processing, shipbuilding capacity expansion, and technology cooperation in AI, 6G, and quantum computing.
The 15% tariff rate that applies to Japanese goods, including automobiles, gives Tokyo a significant advantage over other exporters. Takaichi gifted Trump items belonging to late Prime Minister, Shinzo Abe, including his putter and a gold-leafed golf ball, and nominated Trump for the 2026 Nobel Peace Prize.
The US-Japan critical minerals deal represents strategic repositioning even if near-term impact is limited, given China controls approximately 90% of global rare earth processing.
South Korea: Framework finalised
After months of deadlock, Trump and South Korean President, Lee Jae Myung, finalised the US-South Korea trade deal on Wednesday in Gyeongju. The breakthrough came after Seoul agreed to structure its $350 billion commitment as $150 billion in direct shipbuilding investments and then, $200 billion being funnelled through a flexible fund allowing for loans and loan guarantees.
The deal lowers auto tariffs from 25% to 15%, putting Hyundai and Kia on equal footing with Japanese competitors. Seoul also secured approval to build a nuclear-powered submarine and committed $3 billion for US power grid infrastructure and increased Korean purchases of US LNG.
Lee presented Trump with a golden crown replica and South Korea’s highest civilian honour, the Grand Order of Mugunghwa, while bands played the famous 70s hit by the Village People, “YMCA” upon Trump’s arrival. South Korea avoided the worst tariff outcomes while maintaining economic flexibility through the loan structure.
China: One-year truce reached
Trump and Chinese President, Xi Jinping’s approximately 90-minute meeting on Thursday in Busan delivered what Trump called “amazing,” and he rated it “12 out of 10”, saying the two sides reached agreement on “almost everything”.
Trump reduced the overall tariff rate on Chinese goods from 57% to 47% by halving the fentanyl-related tariff from 20% to 10%. China agreed to resume “massive” soybean purchases and pause its planned rare earth export controls for one year, while the US suspended its expansion of subsidiary restrictions for the same period. Both sides also agreed to pause special port fees targeting each other’s vessels. Trump announced plans to visit Beijing in April, with Xi to visit the US sometime after.
Critical issues, however, remain unaddressed. Taiwan wasn’t discussed, according to Trump. TikTok’s ban in the US also wasn’t mentioned despite earlier expectations. The agreement is explicitly structured as a one-year deal subject to annual renegotiation, which represents the easing of hostilities rather than resolution – a tactical pause that gives both economies breathing room while leaving fundamental tensions unresolved.
The US Fed cautious, despite upbeat sentiment
On Wednesday, the US Federal Reserve (Fed) approved its second straight interest rate cut by a 10-to-two vote, lowering the benchmark overnight borrowing rate to 3.75% to 4%. Fed Governor, Stephen Miran, dissented in favour of a larger half-point cut, while Kansas City Fed President, Jeffrey Schmid, voted for no cut at all.
Fed Chair, Jerome Powell’s press conference shifted market expectations when he said, “A further reduction in the policy rate at the December meeting is not a foregone conclusion, far from it,” noting “strongly differing views” among committee members. Powell pointed to inflation that “has moved up since earlier in the year and remains somewhat elevated” while acknowledging slowing job gains.
The Fed also announced it will end quantitative tightening on 1 December. The complication: the ongoing government shutdown has cut off key economic data, leaving the Fed “flying somewhat blind,” as Powell acknowledged.
What it means
The Asia deals provide a constructive backdrop for global trade but vary significantly in substance. Japan’s critical minerals agreement has strategic value beyond investment dollars. South Korea’s deal represents compromise on both sides. China’s agreement is explicitly temporary – a one-year pause rather than a durable framework.
For markets, the deals are good news. With solid corporate earnings and the stellar AI investment cycle, the world is now seeing trade tensions easing rather than escalating.
But two things are worth noting. Firstly, the Fed made it clear that a December rate cut is not a foregone conclusion. Secondly, while the US administration demonstrated it can secure deals, the one-year structure with China, shows just how fragile progress remains.
Equity valuations reflect an optimistic view that rates will decline gradually while growth holds up. If inflation proves stickier or growth decelerates beyond expectations, then any trade deals will be tested, and quickly.
As we prepare for the week ahead, we will see more earnings results and limited economic data, given the ongoing US government shutdown. Markets will be paying attention to whether corporate guidance supports current valuations and whether preliminary indicators challenge the Fed’s patient stance.
A LOOK AT THE MARKETS
The week’s key themes:
- Global bond markets navigate central bank signals and economic shifts
- Major equity markets show mixed performance amid tech volatility and policy uncertainty
- Energy and precious metals navigate supply pressures and policy shifts
- Currency markets react to central bank caution and geopolitical developments
Bonds
US Treasury yields climbed past 4.1% this week following the Fed’s quarter-point rate reduction. While the cut met expectations, Powell dampened hopes for December rate cuts, citing persistent US inflation of above 3%. The US central bank plans to halt its balance sheet reduction in early December, shifting maturing securities into Treasury bills to ease funding-market pressures. Despite recent volatility that pushed yields to 3.95% in late October, markets anticipate three additional cuts through mid-2026.
British gilt yields dropped below 4.4% – their lowest level in nearly a year – as forecasters prepare to revise United Kingdom (UK) productivity estimates downward by 0.3 percentage points. This adjustment could expand the fiscal deficit by £20 billion, complicating the Chancellor of the Exchequer, Rachel Reeves’ upcoming budget that must address a potential £35 billion funding gap. Cooling UK inflation data has prompted traders to assign a 68% likelihood to a December rate reduction.
German Bund yields reached 2.65%, their October peak, responding to the European Central Bank’s (ECB’s) steady policy stance and the Fed’s measured approach. October European Union (EU) inflation data showed prices moderating to 2.3% while economic growth remained flat.
South African bonds rallied to 8.85% after the country’s removal from international financial monitoring lists. Improved governance, stable coalition politics, enhanced power reliability, and successful inflation management have strengthened investor confidence.
Equities
US futures rebounded this morning on strong technology earnings. Amazon jumped 13% after its cloud division delivered 20% revenue growth, while Apple added 2.5% on robust results and positive holiday forecasts. Netflix rose over 3% announcing a 10-to-one share division. This followed Thursday’s sharp decline, where the Dow shed 0.23%, with broader indices falling harder as the S&P 500 dropped 0.99% and the Nasdaq tumbled 1.57%. Investors are growing uneasy about escalating AI infrastructure costs, while the Trump-Xi summit offered little market encouragement.
London’s FTSE 100 edged to a new high of 9,760.1 despite volatile trading. Multinational financial services company, Standard Chartered, rallied 3.6% projecting income toward its upper guidance range, and energy giant, Shell, climbed 0.3% on solid gas performance and sustained buyback plans. Conversely, advertising giant, WPP, collapsed 16% after reporting a nearly-6% revenue contraction and announcing strategic reassessment.
Frankfurt’s DAX hovered near 24,139 as the ECB maintained current interest rates. German inflation moderated to 2.3% though exceeding forecasts, while the economy showed 0% growth. Telecommunications company, Deutsche Telekom, fell 2.5% on competitive pressures, and vehicle manufacturer, Volkswagen, dropped 1.9% reporting its first quarterly deficit in five years. Aerospace corporation, Airbus, gained 2.1% maintaining annual projections.
Johannesburg’s JSE FTSE All Share Index declined 0.6% to 109,670 as commodity weakness and global caution offset mid-week strength in resources and financials.
Commodities
Brent prices slipped toward $64/barrel, marking three months of consecutive losses. The pressure stems from expanding global supplies, with the expanded Organisation of the Petroleum Exporting Countries, OPEC+ contemplating a December production increase of 137,000 barrels daily to reclaim market influence. Saudi shipments already touched six-month highs of 6.41 million barrels per day in August, while American wells pumped record volumes of 13.6 million barrels weekly. These expanding flows may compensate for Washington’s penalties against Russian producers, though market participants are tracking how sanctions affect export patterns to primary customers. In diplomatic developments, Trump announced China’s commitment to purchase American energy resources, potentially including major Alaskan transactions. A strengthening dollar is also adding downward pressure across commodity markets.
Gold retreated to approximately $4,010/ounce, down 3% for the week, extending losses into a second week as prospects dimmed for Fed easing and following the US-China diplomatic breakthrough. The nations agreed to a temporary 12-month arrangement where Washington halved fentanyl-related import duties to 10% while Beijing committed to restricting precursor chemicals and resuming American agricultural purchases, though durability concerns linger. Powell’s reluctance to confirm December policy moves supported the dollar to near three-month peaks, raising bullion costs internationally. Despite recent weakness, prices remain elevated and have surged roughly 50% annually. Central bank appetite stayed robust with 220 tons of the precious metal purchased during the third quarter – up 28% from the previous period – predominantly by Kazakhstan, while Brazil resumed buying after a four-year hiatus.
Currencies
The US Dollar Index has climbed toward 99.5, a nearly 2% monthly appreciation as monetary easing expectations faded. Wednesday’s anticipated quarter-point reduction came with Powell’s warning against assuming December action, sending probability estimates for a December rate cut plunging from above 90% to roughly 75%. The presidential summit between Trump and Xi yielded commitments on synthetic opioid controls, agricultural trade resumption, and strategic mineral export pauses alongside tariff reductions. Japanese yen weakness accelerated in October following Prime Minister Takaichi’s election, given her support for expansionary spending and accommodative monetary conditions.
The euro slipped toward $1.15/€ amid dollar resilience. Frankfurt’s central bank maintained its third consecutive rate freeze, emphasising flexible, information-dependent decision-making while noting stable inflation trajectories and moderate expansion. EU third-quarter growth reached 0.2%, exceeding 0.1% forecasts, with unemployment near historic lows. Inflation trends varied regionally, cooling in Germany while accelerating in Spain. Markets anticipate no European policy shifts through year-end.
Sterling tumbled below $1.32/£ to April lows as traders amplified their bets on Bank of England easing. Parliamentary exchanges revealed that Prime Minister, Keir Starmer, wouldn’t exclude tax increases across income, payroll, or consumption levies. UK productivity forecasts face potential 0.3-percentage-point downgrades, threatening £20 billion fiscal gaps. Grocery deflation data reinforced monetary loosening expectations.
South Africa’s currency weakened to R17.30/$ following Powell’s measured commentary. The South African Reserve Bank appears set to maintain 7% rates at its November gathering, targeting its revised 3% inflation objective while monitoring Beijing-Washington trade arrangements given China’s economic significance.
*Please note that all information is at the time of writing.
Key indicators:
USD/ZAR: 17.32
EUR/ZAR: 20.02
GBP/ZAR: 22.75
GOLD: $4,023
BRENT CRUDE: $64
Sources: Bloomberg, Investing.com, Reuters, Trading Economics and TradingView.
Written by: Citadel Advisory Partner and Citadel Global Director, Bianca Botes.