Markets were given a sharp reminder last week that trade friction between Washington and Beijing remains unresolved. On 10 October, United States (US) President, Donald Trump, announced plans to impose an additional 100% tariff on Chinese imports starting 1 November, alongside new export controls on certain US software. The S&P 500 dropped 2.7% that Friday, the Dow fell 878 points, and the Nasdaq declined 3.6% – the worst single-day performance since April.
What triggered the escalation
On 9 October, China expanded export controls, requiring foreign entities, who want to export rare-earth magnets or semi-conductor materials that contain even 0.1% controlled metals originating in China to obtain licenses from Beijing, before they can export these materials. The timing matters: 10 days earlier, Washington had expanded its export restrictions by placing subsidiaries of already-sanctioned Chinese companies under the same controls, increasing affected Chinese firms from around 3,000 to several thousand more.
Each side views the other as acting in bad faith. Analysts describe the situation as stemming from mutual mistrust following a London agreement in June on rare earths and technology that both sides now believe the other violated. The US sees China’s rare earth restrictions as hostile, while Beijing frames its response as proportional to American measures it considers harmful.
The soybean war
Agricultural trade has emerged as a separate pressure point. China has not purchased any soybeans from the latest US harvest, having halted all purchases since May in retaliation for earlier US tariffs. In 2024, China bought $12.8 billion worth of US soybeans – more than half of total US soybean exports. This year that figure stands at zero.
US soybean exports to China fell from 985 million bushels last year to just 218 million bushels in the first eight months of 2025, with no deliveries recorded in June, July, or August. China has redirected purchases to South American producers, with Argentina suspending export taxes the same day the Trump administration pledged a $20 billion currency swap to bolster its economy.
On Tuesday this week, Trump called China’s refusal to buy US soybeans an “economically hostile act” and threatened to terminate US imports of Chinese cooking oil in retaliation. The administration is reportedly preparing a $10 billion to $15 billion compensation package for farmers, though the ongoing US-government shutdown has delayed implementation.
Market response and recovery
Markets rebounded Monday, with the S&P 500 climbing 1.56% and the Nasdaq jumping 2.21% after Trump posted that relations with China would “all be fine.” Tech stocks led the recovery. However, volatility persisted through Tuesday with President Trump’s criticism of China over soybeans, pushing markets back into negative territory.
Currency markets showed immediate stress. Yuan option volumes surged to their highest levels in four weeks as traders positioned for extended volatility lasting into early 2026. Commodity markets reflected the uncertainty, with oil prices falling on demand concerns.
Current status
US Treasury Secretary, Scott Bessent, confirmed that President Trump’s planned meeting with President Xi Jinping at the Asia-Pacific Economic Cooperation (APEC) Forum in South Korea later this month remains scheduled. The administration claims substantial de-escalation has occurred. Yet the calendar creates pressure: Trump’s tariff deadline of 1 November precedes Beijing’s 1 December implementation date for certain rare earth export restrictions by a full month.
Port call fees on China-linked vessels took effect 14 October, with China implementing reciprocal fees on US-linked vessels calling at Chinese ports. Both measures add friction to maritime trade even as broader negotiations continue.
Looking ahead
The dispute extends beyond traditional tariff battles into technological sovereignty and supply chain control. China controls approximately 70% of global rare earth supply and dominates its processing and refinement – leverage the country appears increasingly willing to use.
Whether the upcoming Trump-Xi meeting produces tangible results or merely postpones further escalation will determine market direction through year-end. What’s clear is that both economies are prioritising strategic autonomy over interdependence, with markets caught between episodic rallies on the back of conciliatory rhetoric, and then selloffs when actions contradict words.
TURNING TO THE MARKETS
The week’s key themes:
- Treasuries rally as economic concerns mount
- Banking jitters weigh on Wall Street
- Gold posts its strongest weekly performance within a nine-week uptrend
- US Dollar Index posts largest weekly decline since July
Bonds
US Treasury yields slid below the 4% mark on Thursday, touching their lowest levels in nearly a year as investors grew increasingly uneasy about the economic outlook and the Federal Reserve’s (Fed’s) next steps. The Philadelphia Fed’s Manufacturing Index plunged to -12.8, sharply underperforming expectations and highlighting a clear loss of industrial momentum. The weak print drove fresh demand for longer-dated government securities. With the ongoing federal government shutdown stalling vital data releases – including the September CPI report – traders now treat two consecutive 25-basis point rate cuts as a near certainty at the next Federal Open Market Committee meetings. Dovish commentary from policymakers and hints of a possible tapering of quantitative tightening added further weight to the decline in yields.
In Europe, the German 10-year Bund yield has risen to 2.58%, reflecting improved political stability in France after the government survived a parliamentary challenge. Meanwhile, renewed US – China trade tensions are keeping global risk sentiment cautious despite upcoming diplomatic talks.
Back home, the South African 10-year Government yield has eased to 9.03%, continuing a multi-week rally in local bonds supported by steady demand and contained local inflation expectations.
Equities
US equity futures softened after Zions Bancorporation and Western Alliance issued warnings over deteriorating credit quality in their loan books, rekindling concerns about regional bank exposure. The sell-off spread broadly, leaving major indices down between 0.47% and 0.65%, with financials dragging 10 of the S&P 500’s 11 sectors lower. Focus now turns to results from regional banks, Comerica and Fifth Third, for further insight into the sector’s resilience. Market mood is also being dampened by persistent trade friction between Washington and Beijing and uncertainty surrounding the ongoing US government shutdown, which is in its third week.
In London, the FTSE 100 is hovering around 9,440, as August United Kingdom (UK) gross domestic product (GDP) edged up 0.1%, reversing July’s pullback thanks to modest manufacturing gains. However, the UK’s trade deficit has widened to £21.2 billion, its largest in almost four years, amid softer exports to the US and Europe. Hospitality company, Whitbread, sank 10% on weaker profits, while speciality chemicals company, Croda International, climbed 6% after reaffirming full-year guidance.
Germany’s DAX advanced 0.4% to 24,275, lifted by easing French political risks. Science and technology company, Merck, dropped 5% on disappointing forecasts, but upbeat updates from biotechnology company, Sartorius, and online brokerage firm, FlatexDEGIRO, lent support.
In South Africa, the JSE All Share Index added 1.24% to close at 113,024, extending this year’s more than 30% gain, even as US tariff rhetoric and global uncertainty linger.
Commodities
Energy markets remain soft, with Brent crude trading below $61/barrel – a five-month low and its third straight weekly decline, the longest losing streak since March. Talk of a potential dialogue between Russian President, Vladimir Putin and President Trump over the Russia-Ukraine war raised speculation about a possible return of Russian supply to global markets. Indian refiners, meanwhile, signalled they would scale back but not completely halt Russian crude imports pending policy guidance. US stockpiles climbed by 3.5 million barrels, underlining demand weakness amid trade-driven economic jitters.
Precious metals continue to shine. Gold is hovering near $4,330/ounce, marking its ninth consecutive weekly gain and closing in on record highs. Safe haven buying persists as political standoffs and trade disputes intensify. The metal has now surged over 60% year-to-date, fuelled by central-bank purchases, exchanged-traded-fund inflows, and risk aversion linked to slowing global growth. Fed Chair, Jerome Powell’s remarks acknowledging softening labour conditions reinforced expectations of rate cuts in both November and December, further underpinning bullion’s rally.
Currencies
The US Dollar Index has slumped to around 98.2, notching its steepest weekly decline since July as investors priced in aggressive Fed easing and reacted to the deepening government shutdown. Renewed stress in regional banks and trade hostilities with China added to the bearish tone. Fed officials Chris Waller and Stephen Miran underscored the need for continued policy support, citing a weakening job market and faltering consumer spending in the Fed’s survey.
The euro has strengthened to $1.165/€ from a two-month low after France’s government overcame a key legislative test, reducing political uncertainty. The European Central Bank is expected to maintain its policy stance, contrasting with the Fed’s dovish tilt.
The British pound is trading just above $1.34/£, supported by August GDP growth of 0.1%, though stagnant services and falling construction highlight a fragile recovery. Chanceller of the Exchequer, Rachel Reeves, is reportedly considering £30 billion in fiscal tightening via tax and spending adjustments ahead of next month’s budget, as markets increasingly price in Bank of England rate cuts despite International Monetary Fund caution on persistent UK inflation.
The South African rand is hovering near R17.34/$, drawing modest support from higher precious-metal prices and expectations of softer US monetary policy.
*Please note that all information is at the time of writing.
Key indicators:
USD/ZAR: 17.43
EUR/ZAR: 20.41
GBP/ZAR: 23.43
GOLD: $4,349.55
BRENT CRUDE: $60.62
Sources: Bloomberg, International Trade Administration, Investing.com, Reuters, The White House and Trading Economics.
Written by: Citadel Advisory Partner and Citadel Global Director, Bianca Botes.