Global Trade: Respite But No Relief

Forex

Economic

Summary:

Tentative signs of a truce in the trade tensions between the US and China have given hope that the period of excitement and volatility in global trade is over and a more normal period will begin.

Tentative signs of a truce in the trade tensions between the US and China have given hope that the period of excitement and volatility in global trade is over and a more normal period will begin. It would be too good to be true. In fact, what looks like some relief at first glance will only be respite. Tensions in global trade will remain and could rather re-escalate. Clearly, trade is increasingly becoming a geopolitical instrument.

US and China agree on 'soybeans for fentanyl tariffs' deal

The recently announced trade agreement between the US and China will bring some relief, as it signals at least a willingness on the part of the two largest global players to compromise. However, the facts of the agreement are less impressive than the label "12 out of 10" that US President Trump gave it.

The agreement suspended rare-earth export controls and committed China to substantial soybean purchases: 12 million tons in late 2025 and 25 million tons annually through 2028. In return, the US will reduce fentanyl-related tariffs by 10 percentage points and delay new export restrictions for one year. In short: "soybeans for fentanyl tariffs". This agreement still leaves China with a US tariff rate of more than 40%, and doubts about compliance could arise quickly. This means the accord will offer respite rather than relief, and the risk of new tensions remains high.

US Supreme Court ruling

The start of the US Supreme Court's hearing on parts of the administration's tariffs could bring back new expectations about more trade relief. Predicting how the Supreme Court will rule remains difficult, as there is only one legal precedent. Judging from betting markets, there currently is more than a 60% chance that the court will reject Trump's tariffs. However, a rejection would not mean that the era of tariffs is over. Instead, the US government will use other laws to impose new tariffs, focusing on sectoral ones, which in turn could particularly harm the pharmaceutical and automotive industries in Europe.

Tariffs have become a geopolitical instrument

The Nexperia chip crisis exposed Europe's structural dependence on Chinese mid-tech components, with German carmakers warning of production halts. This is not only a German issue but a broader European one, as rare earth imports to the EU are four times higher than to the US. And while Europe is struggling to walk the walk on previous talks of strategic autonomy, the US and Australia signed an agreement on joint efforts to exploit rare earth reserves in Australia.

Source: ING

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Adam

Economic

Central Bank

This is a busy week for the UK. There has been a large amount of corporate news, then the Chancellor Rachel Reeves paved the way for tax rises at this month’s budget. However, the main event this week is the Bank of England meeting.

Interest rates are expected to remain on hold, and there is only a 24% chance of a rate cut, however there is a whisper, that is getting louder, that the BOE should surprise markets and cut rates today due to the deteriorating economic backdrop, and weaker than expected inflation for September that did not reach the BOE’s expected peak of 4%.

Speculation about the timing of rate cuts reach fever pitch

We expect the BOE to keep rates on hold on Thursday, since the most prudent course of action is to wait until after the Budget. This is expected to see unprecedented tax rises, which could slow growth and may boost inflation if fuel duty relief is scrapped or if VAT is increased.

The effect of any tax increases would be known by the next Monetary Policy Committee meeting in February, so that might be the most prudent time to cut rates, in our opinion. The market seems to agree; there is a 56% chance of a February rate cut priced in by the swaps market ahead of this BOE meeting.

Could the BOE cut in December?

However, the question for investors is whether anything in this Monetary Policy Report meeting will increase the odds of a December rate cut, which currently stand at 39%. If this meeting increases the chance of a cut next month, then it could have big ramifications for financial markets.

Members’ decisions outlined for first time

There are two main points to watch out for at this meeting. Firstly, this will be the first time the Monetary Policy Report will contain detailed sections outlining each member’s vote decision, which is designed to increase transparency at the MPC, and combined with the vote split today, it could help investors to determine the timing of the next rate cut.

Vote split, could there be a swing to the doves?

There could be three members who vote for a rate cut to 3.75% later on Thursday, including David Ramsden. He voted for a 50bp cut in June over fears about employment levels. If Ramsden does dissent and vote for a cut then this could be significant for future policy decisions at the BOE. In the past he has pivoted to the committee to a more dovish stance, calling for rate cuts from May 2024.

Other members have also sounded more dovish in recent weeks. MPC member Sarah Breedon has voted in favour of all 5 rate cuts since last August and she is not expected to dissent on Thursday. However, she said in a speech on Wednesday that she is confident price pressures will moderate in the coming months, saying that US tariffs have not materially impacted inflation, which is something European corporates have been repeating during their earnings reports in recent weeks.

Overall, recent rhetoric from MPC members suggests that the dovish impulse at Thursday’s meeting could be strong, even if Governor Andrew Bailey has warned about above-target inflation in recent speeches.

A CPI downgrade could indicate a rate cut is close

The BOE will also update their latest forecasts at this meeting. The September inflation report shifted the dial for the BOE’s next set of CPI forecasts after it came in weaker than expected at 3.8%, below the BOE’s expected 4% peak. This could lead to a meaningful reduction in the BOE’s CPI forecasts later today, with the potential for the CPI rate hitting the 2% target before 2027.

A larger number of MPC members voting for a rate cut on Thursday, combined with a reduction in the BOE’s CPI forecast could trigger a surge in expectations for a December rate cut, which currently stand at 39%, as you can see in the chart below.

Chart 1: Market-based Interest rate expectations until September 2026

The market view

The backdrop to this meeting is a strong rally in UK bonds and a weakening of the pound. In the past month, UK bond yields have seen a large scale move lower. The 10-year yield is lower by 27 basis points, the only other country with a larger drop in yields is Argentina.

The 2-year Gilt yield is also lower by 19bps, compared to a 2bp increase in US Treasuries and a 3.5bp decline in French yields. This has corresponded with a 10bp reduction in year-end interest rate expectations in recent weeks, and a sharp decline in sterling. The pound is the second weakest currency in the G10 FX space in the past month.

GBP/USD fell below the 200-day moving average at the end of October. Nothing good happens below the 200-day moving average, so the saying goes, which could be why the pound has been falling since then. Chancellor Rachel Reeves tried to give sterling her best left hook on Tuesday when she delivered an ill-conceived pre-budget address, which sent GBP/USD back towards $1.30. Ahead of today’s meeting, GBP/USD is stabilizing ahead of $1.3010 support, and EUR/GBP remains at its highest level since April 2023. The path of least resistance is another leg lower for sterling, however, if today’s BOE meeting is less dovish than expected, or if a December rate cut looks unlikely, the we could see a broad-based mini pound recovery.

Chart 2: GBP/USD, below the 200-day moving average

Source: xtb

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Adam

Economic

U.S. stock futures edge down after solid corporate earnings and economic data helped to soothe concerns around high stock valuations. Some members of the U.S. Supreme Court’s conservative supermajority express skepticism about the White House’s use of emergency economic powers to impose aggressive tariffs. Qualcomm warns that it could lose some business from a major customer, while Tesla shareholders are set to hold a vote on a $1 trillion pay package for CEO Elon Musk.

Futures inch lower

U.S. stock futures pointed lower on Thursday, following a rebound in the prior session after worries around elevated stock valuations hit equities earlier in the week.

By 02:27 ET (07:27 GMT), the Dow futures contract had slipped by 42 points, or 0.1%, S&P 500 futures had fallen by 7 points, or 0.1%, and Nasdaq 100 futures had declined by 47 points, or 0.2%.

The main averages on Wall Street climbed on Wednesday, with mega-cap technology stocks in particular notching gains. The uptick helped to tamp down emerging fears over the sustainability of heightened stock valuations, especially in the artificial intelligence-driven tech sector.

Bolstering sentiment as well were alternative data sources which suggested that U.S. economic conditions remained solid in October. Officials and policymakers alike have been starved of official figures during an ongoing government shutdown that has dragged on for more than a month.

Media reports suggested that lawmakers in Washington could forge an agreement to end the shutdown by this weekend. Should it linger on, Transportation Secretary Sean Duffy has warned, air travel capacity at 40 major American airports will be reduced by 10% from Friday.

Supreme Court shows skepticism on IEEPA tariffs

Meanwhile, markets were highlighting a note of skepticism among members of the U.S. Supreme Court’s conservative supermajority toward President Donald Trump’s use of emergency economic powers to impose sweeping tariffs.

On Wednesday, the high court began hearing oral arguments on Trump’s usage of the 1977 International Emergency Economic Powers Act, or IEEPA, as legal backing for the levies. The matter has been brought before the Supreme Court after lower courts ruled that the president had surpassed his authority by employing the measures.

Some debate has swirled around whether the court’s 6-3 conservative supermajority, which includes three Trump picks, will ultimately choose to strike down or uphold the IEEPA tariffs. For much of Trump’s second term in office, the Supreme Court has broadly supported the White House’s efforts to centralize decision-making powers in the executive branch.

For that reason, sharp questioning of IEEPA’s application to the duties by Chief Justice John Roberts was met with some surprise. The tariffs represented a tax on Americans, Roberts argued, adding "that has always been the core power of Congress."

Bets that the tariffs will survive the fall dropped in prediction markets, although analysts at Vital Knowledge flagged that, if the levies are not upheld, investors could be looking at a more uncertain economic landscape. Trump officials have also hinted that they could take advantage of other legal means to keep the president’s trade war going.

Qualcomm flags possible loss of Samsung business

Shares of Qualcomm sank by more than 3% in extended hours trading after the chip designer unveiled that it may lose some business from top customer Samsung Electronics next year.

The announcement overshadowed current-quarter sales and profit forecasts from the chip designer that surpassed Wall Street expectations thanks in large part to demand for premium smartphones. Qualcomm is a major global supplier of the modem chips which help connect these devices with wireless data networks.

Partially fueling these sales has been Samsung, which uses the chips in its Galaxy S25 model phones. However, CEO Cristiano Amon said Qualcomm is now preparing for the chips to make up a lower share of Samsung’s next-generation versions of the handset, Reuters reported.

Elsewhere, fellow chip technology provider Arm Holdings’ fiscal third-quarter outlook surpassed estimates as well, buoyed by heavy recent AI spending throughout the tech industry. Shares of the U.K.-based group rose after-hours.

Tesla shareholder vote ahead

Tesla shareholders are expected to decide today on a massive compensation package for CEO Elon Musk, with at least one major stakeholder having already outlined plans to vote against the measure.

Earlier this week, Norway’s sovereign wealth fund -- and the world’s largest -- said it would reject the roughly $1 trillion pay package Tesla has put forward for Musk, citing concerns over the scope and effect of the award.

Norges Bank Investment Management, which manages the $1.9 trillion fund, said that while it "appreciate[s] the significant value created under Mr. Musk’s visionary role" at the helm of the electric carmaker, "we are concerned about the total size of the award, dilution, and lack of mitigation of key person risk."

But Tesla’s board has flagged that should shareholders say no to the compensation, there is a risk that Musk -- the world’s richest man -- will leave the company, potentially pushing down its stock price.

BoE decision

While last week’s Federal Reserve interest rate cut, as well as policy holds by the European Central Bank and Bank of Japan, were widely anticipated, the Bank of England’s announcement later today is far from certain.

Markets are projecting that the BoE will keep rates steady, although there was still a roughly one-in-three chance that the central bank will ease borrowing costs by a quarter of a percentage point.

Leaving rates unchanged would be the first slowing in a cycle of policy loosening which began last year, but some analysts now expect a possible drawdown because of recently softer-than-expected -- albeit relatively elevated -- consumer price inflation and wage data.

The BoE has consistently slashed rates every three months since August last year, yet it is now unclear if it will maintain this pace, with Governor Andrew Bailey saying in September that the path ahead is "more uncertain."

Source: investing

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Warren Takunda

Economic

The Bank of England (BoE) held its key interest rate at 4% on Thursday, mainly in line with expectations, as the central bank navigates a backdrop of stubborn inflation and sluggish growth.

Commenting on the final decision, policymakers said the current economic conditions did not warrant a change.

However, the decision was a close call, as four out of nine monetary policy committee members voted for a 25-basis-point cut. Governor Andrew Bailey had the casting vote.

_"_It is perhaps no surprise he has taken a more cautious approach, particularly given the UK continues to suffer from higher inflation compared to peers," said Lindsay James, investment strategist at Quilter.

Governor of the Bank of England Andrew Bailey said in a statement: "Rather than cutting Bank Rate now, I would prefer to wait and see if the durability in disinflation is confirmed in upcoming economic developments this year."

UK consumer price growth was 3.8% in September, still well above the Bank of England’s 2% target. The BoE nonetheless said on Thursday that inflation had peaked and that progress on underlying disinflation was continuing.

At the same time, figures on wages and employment point to a softening labour market. Analysts say the combination of slower inflation and weaker jobs data has increased expectations that interest rates could be cut in the coming months.

The Bank also highlighted potential challenges from global uncertainties and upcoming fiscal tightening, suggesting any move on rates would be cautious.

According to Quilter's James, the BoE decision comes as a blow to the UK Chancellor Rachel Reeves, who is expected to outline tax rises in her budget on 26 November.

"With a fresh set of tax hikes incoming, the Chancellor would have liked to have been in a position where rates were below 4%," James said. The government will want to stimulate the economy, she added, but will have to balance this with ambitions for fiscal restraint.

In light of challenges facing the British economy, analysts expect more rate cuts on the table in the coming months.

Source: Euronews

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Michelle

Forex

Economic

The Bank of England kept rates unchanged on Thursday in a tight decision following recent signs that inflation is slowing, which brought the pound below the highs of the day, while boosting UK government bond prices.

The poundwas last up 0.2% on the day at $1.30799, from around $1.30925 prior to the decision. It weakened a touch against the euro, which was up 0.1% at 88.1 pence, from 87.98 earlier.

British government bond yields fell, with two-year gilt yields last trading at 3.78% (GB2YT=RR), down 3 basis points on the day and down from 3.802% previously, while the blue-chip FTSE-100 indexCURRENCYCOM:UK100was down 0.2%, having pared some of the day's losses.

COMMENTS:

KIRSTINE KUNDBY-NIELSEN, ANALYST, DANSKE BANK, COPENHAGEN:

"The bar for a December cut is definitely low, with only one vote needed to tip the scale. With significant tightening in the budget in a couple of weeks' time, this should further underpin this view of the next cut being delivered in December.

"For sterling, I still think we are in for more weakness with a dovish sentiment still present in the MPC. The cut is just postponed to the next meeting."

KENNETH BROUX, HEAD OF CORPORATE RESEARCH FX AND RATES, SOCIETE GENERALE, LONDON:

"There's certainly a dovish tone, for example they are talking about the upside risk to inflation decreasing, and that along with the voting split gives it a dovish feel. December is certainly in play, but not a done deal."

"It's going to be tough for the pound, but good for rates, especially at the front end."

NEIL WILSON, UK INVESTOR STRATEGIST, SAXO MARKETS, LONDON:

"No surprise cut, no fireworks - the market called this one, just. Andrew Bailey cast the deciding vote to hold rates unchanged at 4.0% in a 5/4 split with four members preferring to cut. The calculation is that it's best to wait until after the Budget before moving - no big risk in waiting six weeks is the assumption. But equally, I would argue: why wait?"

MICHAEL BROWN, SENIOR RESEARCH STRATEGIST, PEPPERSTONE, LONDON:

"On the whole, it's a more dovish decision than expected, it's the narrowest possible margin in terms of the 5-4 vote."

"(There is) also a bit more of an explicit easing bias to the statement, having got rid of this reference to gradual and careful, and instead explicitly saying if there is further progress on disinflation then we are going to continue cutting rates."

"This is a Bank of England that is fairly confident that inflation has peaked, and it's a Bank of England that clearly wants to continue lowering rates."

NEIL MEHTA, INVESTMENT GRADE PORTFOLIO MANAGER, RBC BLUEBAY ASSET MANAGEMENT, LONDON:

"The market was pricing in a 25% chance of a cut today, but it was always going to be a difficult one ahead of the Budget.

The fact that it was 5-4 means that Bailey really does have the swing vote here and the reason for a quite muted market reaction is that focus has shifted to December.

Bailey's comments do read more tilted towards the dovish side. If we have another month where wage and inflation remain in line I think December is very much a goal and Bailey will be tilted towards swinging that 5-4 towards a cut."

ZARA NOKES, GLOBAL MARKET ANALYST, JPMORGAN ASSET MANAGEMENT, LONDON:

"While there has been some positive news on the inflation front in recent weeks, the bottom line is that headline inflation is running at 3.8% - almost twice the BoE's target."

"On the growth side, the labour market is cooling, but other economic data such as retail sales and consumer confidence paint a more resilient picture of the UK economy.

The balance of risks could shift next year if large near-term tax hikes are announced at the Autumn budget. But until there is more meaningful progress on bringing inflation down, the Bank must exercise a high degree of caution in lowering rates."

GEORGE BROWN, SENIOR ECONOMIST, SCHRODERS, LONDON:

"Holding rates today was the right decision, with inflation still nearly double the 2% target. The Bank will be in a stronger position after the dust settles from the budget, armed with additional jobs and inflation data, to judge whether further easing is warranted in December."

"A cautious approach remains appropriate given the risk that high inflation becomes entrenched, due to sticky wage growth and subdued productivity. However, this may change if reports the Chancellor intends to double her fiscal headroom to 20 billion pounds($26.84 billion), through fiscal tightening in the region of 40 billion pounds, are true. Alongside mooted tax cuts on household energy bills, if these measures materialise, they could create scope for the Bank to cut multiple times next year."

MATHIEU SAVARY, CHIEF STRATEGIST, BCA RESEARCH, MONTREAL:

"The BoE opted for a dovish hold. The MPC is not rushed and is waiting for the Treasury's Autumn Statement, but the labour market is clearly softening and wage inflation is slowing faster than the Committee expected this summer. With fiscal tightening ahead, a December cut remains our base case. We stay overweight gilts."

Source: TradingView

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Winkelmann

Stocks

Economic

Nvidia CEO Jensen Huang has issued a stark warning that China will surpass the United States in the artificial intelligence race, citing China's lower energy costs and less restrictive regulatory environment.

"China is going to win the AI race," Huang stated Wednesday at the Financial Times' Future of AI Summit. His comments follow the Trump administration's decision to maintain restrictions on Nvidia selling its most advanced chips to Beijing, despite recent talks between President Donald Trump and Chinese leader Xi Jinping.

Huang criticized what he described as "cynicism" in Western nations including the US and UK, calling for "more optimism" instead. He specifically pointed to the potential burden of "50 new regulations" from various US states implementing their own AI rules.

The Nvidia chief highlighted China's energy subsidies as a key advantage for local tech companies running Chinese alternatives to Nvidia's AI chips. "Power is free," Huang remarked, referring to the cost benefits Chinese competitors enjoy.

Recent reports indicate China has increased energy subsidies for major data centers operated by tech giants including ByteDance, Alibaba and Tencent. These subsidies were reportedly implemented after Chinese tech companies complained about higher costs associated with using domestic semiconductors from firms like Huawei and Cambricon, which are generally less energy-efficient than Nvidia products.

Huang has previously cautioned that the latest American AI models hold only a narrow lead over their Chinese counterparts, and has urged the US government to allow more open market access for its chips to maintain global technological dependence.

Source: Yahoo Finance

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Michelle

Stocks

Economic

Signs that U.S. economic activity remains brisk helped steady the stocks ship, but this also cast more doubt on why the Federal Reserve needs to ease again next month and that has pushed Treasury yields higher.

The week's latest tech wobble calmed on Wednesday as service sector surveys impressed, although valuation concerns smoldered. Chip designer Qualcomm's stock fell back 4% overnight despite headline earnings beats as it warned on loss of business from client Samsung.

But a rare trickle of macro data during what's now a record long government shutdown was the focus on Wednesday. Private sector jobs rose above forecast last month, service firms reported rising activity and prices and quarterly Fed lending data showed relatively stable household credit conditions.

With futures showing little more than a 60% chance of another Fed cut next month, Treasuries balked and the long-dated yields hit their highest in almost a month. A string of the Fed's heavy hitters are speaking again later on Thursday.

However, doves will point to rising layoffs as a reason to keep cutting rates and a report on Thursday from Challenger, Gray & Christmas said U.S.-based employers cut more than 150,000 jobs in October, marking the biggest reduction for the month in more than 20 years.

The overall picture left Wall Street stock index futures flat ahead of today's bell despite Wednesday's modest bounce. The dollar fell back across the major currency pairs, while gold nudged higher and Bitcoin retreated again.

Britain's pound perked up after a rough week ahead of a likely knife-edge policy decision from the Bank of England later. Markets see 40% chance of a UK rate cut as soon as Thursday as this month's critical government budget plan is expected to tighten fiscal policy.

Elsewhere, Asia stocks firmed and China's markets outperformed again. European stocks slipped.

Wednesday's Supreme Court hearings raised doubts over the legality of President Donald Trump's sweeping tariffs, with betting markets seeing just a one-on-four chance that they will give the use of emergency powers clearance. That potentially creates a hiatus in the plan as Trump would then need to seek other routes to impose the tariffs.

While the Supreme Court typically takes months to issue rulings after hearing arguments, the administration asked it to act swiftly. The timing of a decision remains unclear.

Pressure to end the record 36-day government shutdown was building meantime, with Transportation Secretary Sean Duffy saying he would order a 10% cut in flights at 40 major U.S. airports, citing air traffic control safety concerns.

In today's column, I take a look at tech sector bubble jitters and how long-term success of the AI transformation may be independent of whether current frothy valuations are justified.

Today's Market Minute

U.S. Transportation Secretary Sean Duffy said on Wednesday that he would order a 10% cut in flights at 40 major U.S. airports, citing air traffic control safety concerns as a government shutdown hit a record 36th day.
The U.S. Supreme Court's tough questioning of PresidentDonald Trump's global tariffs fueled increased speculation that they will be struck down, but raised the specter of additional chaos as he is widely expected to shift to other trade tactics in the wake of an adverse ruling.
Tesla's(TSLA.O)board of directors has pushed in all its chips onElon Musk. Now investors must decide whether to back the biggest bet in company history. Shareholders will vote Thursday on whether to pay Musk up to $878 billion in company stock or take the risk he will leave.
Gold's recent retreat from a record high has raised questions about whether the precious metal has run out of steam. But ROI Asia commodities columnist Clyde Russell notes that this might not be the case, as the current rally is only the third-strongest in terms of percentage gain in the past 50 years.
Fund money has surged into the London Metal Exchange (LME) aluminium contract over the past couple of months as investors bet that the market's days of chronic oversupply are coming to an end, writes ROI metals columnist Andy Home.

Chart of the day

Thomson ReutersUK's Reeves has little headroom against budget shocks

Thursday's Bank of England rate decision remains a close call with markets split on whether the BoE will pull the trigger today or wait until after the government's annual budget plan on November 26. Finance Minister Rachel Reeves flagged likely tax rises this week as she struggles to keep the budget within her own fiscal rules, where room for maneuver is more limited than many of her predecessors.

Today's events to watch

* Bank of England policy decision, minutes, monetary policy report and press conference with BoE Governor Andrew Bailey

* Federal Reserve Board Governors Christopher Waller and Michael Barr both speak; New York Fed President John Williams, Philadelphia Fed President Anna Paulson, Cleveland Fed boss Beth Hammack and St. Louis Fed chief Alberto Musalem all speak; Bank of Canada Governor Tiff Macklem speaks in parliament

* U.S. corporate earnings: Microchip Technology, News Corp, Warner Bros Discovery, Moderna, Dupont De Nemours, Kenvue, Expedia, Airbnb, Wynn Resorts, ConocoPhillips, Consolidated Edison, Ralph Lauren, Monster Beverage, Parker-Hannifin, Mettler-Toledo, Trade Desk, Vistra, Insulet, Tapestry, Alliant Energy, NRG, Evergy, Akamai, Gen Digital, Rockwell Automation, Block, Viatris, EOG Resources, Camden Property, Take-Two Interactive, Epam, Solventum