It’s When Reeves Stops Speaking That The UK Gilt Markets React

Bond

Economic

Summary:

UK Chancellor Rachel Reeves has partly pinned the success of her budget to the reaction in bond markets, but history suggests it might be unwise to rush to a judgment on whether she has succeeded.

When delivering her budget to Parliament in October last year, the market reaction was positive as she laid out her plan to lift taxes and borrow more to fire up the UK economy.

It was only afterwards, once the Debt Management Office had announced its revised remit and the Office for Budget Responsibility had delivered its verdict, that a selloff began in earnest.

The losses accelerated over subsequent days. By January, UK 10-year yields touched their highest since the global financial crisis as investors faced a higher slate of debt sales in the fiscal year and official projections for an extra £142 billion ($186 billion) of borrowing over the next five years.

It was a similar story during the most infamous budget of recent times, which led to the ouster of Prime Minister Liz Truss.

On Wednesday, Reeves is widely expected to announce a "smorgasbord" of tax hikes targeting the wealthy to fill a £20 billion budget hole. Investors and economists may find it tricky to parse if there's a multitude of tweaks, potentially increasing the chance of a delayed reaction.

Once again, it may be the details from the DMO and the OBR that come after the speech that ultimately influence the direction taken by markets.

A Stock Trader's Guide to Navigating a High-Stakes UK Budget

And there's a political dimension to any potential bond-market weakness.

Reeves' foes will be sure to use any fresh uptick in government borrowing costs as ammunition against her — at a time when she's already under pressure. And any suggestion that her position is shaky would only fuel weakness in gilts.

After the ill-fated "mini-budget" of September 2022, the rout in bond markets only really got going in the final minutes of then-Chancellor Kwasi Kwarteng's speech. Benchmark government borrowing costs took a leg higher in the days that followed, surging one percentage point over three days — including a record single-day jump of 42 basis points on Sept. 26.

Ultimately, the Bank of England was forced to intervene.

Source: Bloomberg

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Gerik

Commodity

Economic

Rising Rate-Cut Expectations Fuel Bullion Demand

Gold extended its gains in Asian trading on Wednesday, approaching $4,165 per ounce, as financial markets increasingly price in a December interest-rate cut by the U.S. Federal Reserve. Investor sentiment shifted notably after the release of weaker-than-expected economic indicators notably, a modest increase in September retail sales and a sharp decline in consumer confidence, the steepest drop since April. These data points are reinforcing the belief that the Fed will have room to lower borrowing costs before year-end to counter slowing momentum in consumer spending.

Swaps markets now reflect an over 80% probability of a 25 basis point rate cut at the Fed’s next meeting. This outlook gained further traction following reports that Kevin Hassett, a noted supporter of President Donald Trump’s low-rate policy stance, is the frontrunner to become the next Fed Chair. Hassett’s appointment would likely signal a more dovish monetary path, increasing the appeal of non-yielding assets such as gold.

Gold's Relationship With Interest Rates and Currency Trends

The inverse correlation between gold and real interest rates remains intact. As borrowing costs decline or are expected to decline, the opportunity cost of holding gold an asset that yields no income falls, making it more attractive. Simultaneously, the U.S. dollar weakened for a second consecutive session, with the Bloomberg Dollar Spot Index dropping 0.2% after a 0.3% decline on Tuesday. The weaker greenback makes gold cheaper for international buyers, fueling further demand and amplifying its price momentum.

The current environment reflects a reinforcing feedback loop: macroeconomic weakness fuels rate-cut bets, which in turn weaken the dollar and drive capital into inflation-hedging assets like gold. This causal linkage is central to understanding the metal’s recent price action.

A Historic Rally Anchored in Broader Structural Shifts

Gold’s 2025 performance is among its strongest in modern history. With a year-to-date gain of over 55%, bullion is on pace for its best annual return since 1979. Beyond tactical macro drivers, structural tailwinds have also supported the rally. Central banks around the world have been increasing their gold reserves as a hedge against geopolitical risks and fiat currency debasement. At the retail level, the “debasement trade” wherein investors shun sovereign debt and national currencies in favor of tangible assets has gained momentum amid fears of sustained inflation and fiscal slippage across developed economies.

While gold has retreated slightly from its 2025 peak above $4,380, it continues to consolidate well above the psychological $4,000 level. Spot prices climbed 0.8% to $4,164.30 by mid-morning Singapore time, while silver rose 0.9%. Platinum and palladium saw minor declines, indicating a divergence in performance across precious metals, largely driven by differing industrial and investment demand dynamics.

Fragile Market Confidence Creates Volatile Terrain

Despite the bullish outlook for gold, analysts caution that sentiment remains highly volatile. As Vantage Markets’ Hebe Chen noted, “The Fed’s next decision has become the ultimate Pandora’s box for risk,” with optimism easily shaken by marginal shifts in data or Fed rhetoric. The recent swings in equity and crypto markets underscore how quickly market narratives can reverse, reinforcing gold’s role as both a safe haven and a barometer of policy uncertainty.

Gold’s latest ascent is anchored in a confluence of weakening macroeconomic indicators, declining U.S. dollar strength, and the increasing likelihood of a Federal Reserve rate cut. With a supportive structural backdrop and growing geopolitical concerns, gold appears well-positioned to maintain its upward momentum. However, given the fragility of investor sentiment and the decisive role of the Fed’s December meeting, near-term volatility remains a defining feature of the precious metals landscape.

Source: Bloomberg

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Gerik

China–U.S. Trade War

Economic

Renewed Agricultural Commitments Surface in Trump-Xi Dialogue

U.S. President Donald Trump revealed that Chinese President Xi Jinping has tentatively agreed to expand and expedite purchases of American agricultural products, particularly soybeans. Speaking aboard Air Force One, Trump said he requested a faster and larger buying schedule from Xi during their one-hour phone conversation on Monday, and that Xi “more or less agreed” to the request. While the language suggests informal consensus rather than finalized policy, the statement reinforces recent moves by China to restore large-scale U.S. soybean imports after nearly a year of restrained purchases.

This latest development builds on earlier confirmations from U.S. officials, including Treasury Secretary Scott Bessent, that China would buy 12 million metric tons of soybeans this season and commit to 25 million tons annually over the next three years. That deal helped lift U.S. soybean futures to a 15-month high and restore optimism among farmers and exporters who had been heavily affected by the protracted trade standoff.

Strategic Trade Discussions Amid Asia-Pacific Geopolitical Tensions

The Trump-Xi exchange also addressed rising tensions between China and Japan concerning Taiwan. Trump later briefed Japanese Prime Minister Sanae Takaichi, calling their conversation “great” and affirming his view that “that part of the world is doing fine.” Yet, this optimistic tone comes against a backdrop of deteriorating diplomatic ties between Beijing and Tokyo. The dispute, triggered by Takaichi’s remarks about possible Japanese military involvement in the Taiwan crisis, has escalated into tit-for-tat responses China issuing travel advisories, suspending Japanese cultural imports, and initiating maritime patrols, while Japan plans missile deployments near Taiwan.

By attempting to mediate in this geopolitical dispute, Trump is positioning the U.S. as a stabilizing influence in East Asia while simultaneously using diplomacy to advance trade interests. The interlinking of these two tracks security and commerce shows the multidimensional nature of U.S.-China relations at this stage.

Rare Earths and Mineral Export Licenses Still on the Table

Another key issue Trump is pressing is the finalization of “general licenses” for U.S.-bound Chinese exports of rare earths and critical minerals, a vital component of the trade truce struck during last month’s bilateral summit in South Korea. The licenses are expected by the end of November, and their implementation is seen as crucial for maintaining momentum in the broader trade reconciliation process.

These licenses are not only economically significant but also carry strategic importance. As the global race for control over critical mineral supply chains intensifies, a stable export framework from China to the U.S. would be a notable de-escalation in what has otherwise been a tense trade environment. If China delivers on this front, it could also enhance the credibility of its renewed agricultural commitments.

Underlying Motivations and Strategic Calculations

Trump’s emphasis on agricultural purchases reflects both political and economic motives. Domestically, it addresses concerns in key farm states particularly Iowa and Illinois where soybean producers have faced a volatile export environment due to tariff battles and retaliatory boycotts. Internationally, it seeks to portray Trump as a dealmaker capable of extracting concessions from China while reinforcing the U.S. presence in regional diplomacy.

However, the causality remains conditional. Xi’s reported willingness to purchase more U.S. products does not necessarily guarantee follow-through unless the broader terms of the truce especially around tariffs, technology access, and strategic trust are honored. Moreover, U.S. domestic politics, such as upcoming elections and agricultural lobby pressures, may also influence how Trump positions these negotiations publicly.

President Trump’s comments suggest renewed momentum in U.S.-China trade normalization, particularly in agriculture. While Xi’s tentative approval is a positive signal, the ultimate outcome depends on whether both sides institutionalize these verbal commitments through enforceable agreements. At the same time, the U.S. is navigating a delicate geopolitical landscape, balancing its role as a trade negotiator with that of a regional power broker amid growing Sino-Japanese frictions over Taiwan. These overlapping challenges highlight that progress in trade may hinge as much on geopolitical stability as on economic diplomacy.

Source: Reuters

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Gerik

Economic

Recalibrating Policy Focus: From U.S. Uncertainty to Yen-Led Inflation Pressures

The Bank of Japan (BOJ) is reasserting its hawkish stance in response to a resurgent depreciation in the yen, signaling that an interest rate hike could occur as soon as December. Sources familiar with internal discussions indicate a shift in BOJ communications away from external economic concerns such as the U.S. Federal Reserve’s outlook toward domestic inflationary risks tied to currency weakness. This pivot in tone aims to prepare financial markets for a potential near-term policy tightening without triggering volatility.

A key meeting last week between Prime Minister Sanae Takaichi and BOJ Governor Kazuo Ueda appears to have eased political resistance to rate hikes. With the new administration's acceptance of gradual tightening, the BOJ now has a clearer runway to act. Finance Minister Satsuki Katayama added further support, noting she had “no particular objection” to the current direction of monetary policy.

While Takaichi is traditionally seen as a monetary dove, her silence on the matter combined with Katayama's public comments has been interpreted as tacit endorsement. This reduces the political risk of a December hike and suggests that the BOJ’s evolving narrative has backing from the government’s highest levels.

Board Sentiment Turns Decisively Hawkish

A chorus of voices within the BOJ’s nine-member policy board now supports raising rates from the current 0.5% level. Notably, Junko Koeda and Kazuyuki Masu who both expressed concerns about persistent inflation may soon align with the two board members who previously proposed hikes in September and October. Masu’s remark that the timing of a hike was “nearing” helped push Japan’s five-year bond yield to a 17-year high on Tuesday, illustrating the causal link between policy commentary and bond market reactions.

Even Governor Ueda, known for his dovish stance, acknowledged in parliament that the BOJ is now openly discussing the “feasibility and timing” of a hike marking a subtle but important shift in tone that breaks from his earlier ambiguity.

Structural Inflation Concerns Amplified by Weak Yen

The BOJ’s evolving stance is driven in large part by the view that a weak yen is no longer a transient concern. Rather, it is seen as structurally inflationary due to its direct impact on import prices. As the yen sinks to 10-month lows against the dollar, it feeds through into higher consumer prices potentially pushing inflation beyond the BOJ’s 2% target for longer than anticipated.

This inflationary feedback loop is compounded by a gradual normalization in wage expectations. Early indications suggest next year’s wage negotiations could produce stronger outcomes, undermining Governor Ueda’s previous rationale for caution and increasing the likelihood of a policy move.

External Factors Still Loom Large in Timing Decision

Despite the BOJ’s stronger signaling, a December rate hike remains contingent on the U.S. Federal Reserve’s policy decision scheduled for the week before the BOJ’s December 18–19 meeting. If the Fed holds rates or hints at fewer future cuts, this could further weaken the yen and pressure the BOJ to act. Conversely, a dovish Fed outcome might alleviate yen depreciation and delay the BOJ’s tightening to January.

The timing decision also involves managing internal divisions. Some of Takaichi’s economic advisers continue to warn of the risks of a premature hike. While their influence appears muted for now, their views could re-emerge if global economic indicators deteriorate or the yen stabilizes unexpectedly.

Market Repricing Reflects Heightened Expectations

Financial markets are increasingly pricing in a BOJ hike, with a Reuters poll showing a slim majority of economists expecting the policy rate to rise to 0.75% by March. Yields on Japanese government bonds have responded accordingly, reinforcing the narrative that normalization is no longer a distant prospect.

Kristina Hooper of Man Group summarized the situation aptly: “There is a real desire to normalise monetary policy.” She pushed back on the notion that Prime Minister Takaichi would force the BOJ into long-term dovishness, arguing instead that current signals reflect a deliberate and institutionally supported policy recalibration.

The Bank of Japan’s renewed hawkishness represents a fundamental shift from years of ultra-loose monetary policy. While uncertainties remain, particularly around U.S. policy and political sensitivities, the combination of sustained yen weakness, firming inflation, and coordinated messaging points to a genuine willingness to move. If implemented, a December rate hike would mark not only a tactical response to currency pressures but also a broader move toward long-overdue policy normalization.

Source: Reuters

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Gerik

Economic

Beyond the Cash Rate: A Complex Web of Global Impacts

Penelope Smith, head of the international department at the Reserve Bank of Australia (RBA), underscored in a speech on Wednesday that Australia’s financial conditions are not solely determined by domestic monetary policy. Instead, international factors such as global credit spreads, equity risk premia, and capital market trends play a growing role in shaping the domestic financial environment. While the cash rate remains a primary tool of policy, Smith argued that its effectiveness is increasingly moderated by developments abroad, highlighting a growing divergence between domestic policy levers and actual financial conditions on the ground.

A central theme of Smith’s address was the uncertain trajectory of the so-called neutral rate the theoretical interest rate at which monetary policy is neither expansionary nor contractionary. According to Smith, post-pandemic economic shifts have challenged earlier assumptions that neutral rates would decline. Instead, current evidence suggests that these rates have remained stable or possibly even increased. This introduces ambiguity into the RBA’s task of calibrating monetary settings, especially in light of recent data indicating that financial conditions may be easier than the headline policy rate implies.

Bank-Dominated System Buffers Global Capital Flows

One mitigating factor in Australia is the structure of its financial system, which is dominated by domestic banks rather than capital markets. Smith noted that this makes Australia’s financial conditions somewhat less sensitive to international capital market fluctuations compared to economies like the United States, where bond markets and equity valuations exert greater influence on the cost of finance. However, she acknowledged that even in a bank-heavy system, global influences still seep in through channels such as wholesale funding costs and international risk sentiment.

Smith also presented a broad review of international financial developments over the past year. She observed that while there has been no major flight from U.S. dollar-denominated assets, some reserve managers are increasing their gold holdings as a precautionary response to geopolitical events particularly after Russia’s reserves were frozen following its 2022 invasion of Ukraine. This trend suggests a growing effort among emerging market central banks to diversify their portfolios and hedge against currency-specific risks.

Policy Caution Amid Domestic Inflation Concerns

Despite having cut interest rates three times in 2025, bringing the cash rate to 3.6%, the RBA faces renewed inflationary pressures. The third-quarter surge in consumer prices has fueled debate over whether the current stance is still restrictive. Market pricing now indicates less than a 50% chance of another rate cut in May 2026, reflecting skepticism over the central bank’s room to ease further. The neutral rate’s ambiguity complicates this outlook: if it has indeed risen, then a 3.6% policy rate may be closer to neutral than previously assumed, limiting the scope for further accommodation without reigniting inflation.

In conclusion, Smith emphasized that financial policymakers should brace for future episodes of market volatility and dislocation. Given the fluid global landscape ranging from monetary tightening in major economies to geopolitical uncertainty there is a heightened need for flexibility and resilience in the RBA’s policy approach. The central bank must navigate not just domestic inflation and output data, but also complex and interdependent global financial dynamics.

Smith’s remarks signal a growing awareness within the RBA that monetary policy cannot operate in isolation. The interplay between global financial conditions and domestic lending rates, risk perception, and liquidity makes it increasingly challenging to assess whether policy is appropriately calibrated. As inflation risks persist and the neutral rate remains elusive, Australia’s central bank faces a delicate balancing act shaped as much by external factors as by domestic economic fundamentals.

Source: Bloomberg

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Winkelmann

Political

Economic

· Kevin Hassett is the leading candidate for Fed Chair.

· He strongly supports significant interest rate cuts.

· Trump's influence over the Fed may grow with this appointment.

Kevin Hassett, who served as Donald Trump's top economic adviser, is now the leading contender to become the next Chair of the U.S. Federal Reserve. Known for his vocal support of sharp interest rate cuts, Hassett's potential appointment could signal a major shift in the central bank's approach to monetary policy.

As the 2024 presidential election looms, this move could reflect Trump's intent to reshape the Fed with allies who support his pro-growth, low-rate economic philosophy. Hassett has been consistent in advocating for lower rates to boost economic activity, even at the risk of inflation.

What This Means for Monetary Policy

If appointed, Kevin Hassett could steer the Federal Reserve toward an aggressive rate-cutting strategy. This approach contrasts with the current Fed policy, which has focused on keeping inflation in check through higher interest rates.

Markets may interpret his leadership as a pivot toward looser monetary policy, especially if economic conditions weaken or political pressure mounts. This shift could have far-reaching effects on everything from the U.S. dollar to global crypto markets, as lower rates often stimulate risk-on investment behavior.

Political Implications and Market Reactions

Trump's increasing influence over the Fed could reignite debates about central bank independence. Critics argue that politically motivated rate cuts could undermine long-term financial stability. On the other hand, supporters believe such measures are necessary to sustain economic momentum.

If Kevin Hassett is officially nominated and confirmed, markets may brace for a more dovish Fed stance. This development could energize both stock and crypto markets, which typically benefit from low-interest environments.

Source: CryptoSlate

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Gerik

Economic

Commodity

New Purchases Reflect Policy Shift After Trade Truce

China has recently resumed large-scale purchases of U.S. soybeans, securing at least 10 to 15 cargoes for January shipment from Gulf Coast and Pacific Northwest ports. This buying spree comes directly after a reported breakthrough in trade negotiations between the U.S. and China. According to traders familiar with the deals, contracts were signed beginning Tuesday, reflecting a sudden reactivation of Chinese demand for American soy amid improving bilateral relations.

This development follows U.S. Treasury Secretary Scott Bessent’s October 30 announcement that China had agreed to a strategic soybean purchasing commitment. The deal includes an immediate purchase of 12 million metric tons for the current season and an annual commitment of 25 million tons through 2028. This announcement was part of a broader reconciliation framework discussed during a summit between President Donald Trump and President Xi Jinping in South Korea.

Chicago Futures React Sharply as Prices Reach New Highs

Soybean futures on the Chicago Board of Trade responded swiftly to the news. The most active contract rose 1.4% to $10.09-1/2 per bushel in overnight trading, after initially dipping. It later peaked at $11.14-1/2 its highest level since July 2024 surpassing this week’s previous 15-month high. This price movement reveals a direct causal relationship between geopolitical announcements and commodity markets, especially when the asset is highly exposed to export dynamics, as with U.S. soybeans.

CM Navigator analyst Donatas Jankauskas noted that if the outlined commitments are fulfilled, Chinese demand could return to the 2023/24 levels by 2026/27. This statement emphasizes that the deal is not merely a short-term political gesture but could mark the beginning of a multi-year demand restoration for American soybean producers.

This change in Chinese procurement behavior reverses months of reduced engagement with U.S. agricultural exports. Previously, amid a tense trade standoff, China had significantly curtailed its reliance on U.S. supply, instead turning to Brazilian and Argentine sources. The recent pivot suggests a strategic recalibration that prioritizes diversified sourcing while leveraging geopolitical alignments.

Iowa Farmers Stand to Benefit as Prices and Exports Rebound

For U.S. agricultural states particularly Iowa and Illinois, the two largest soybean-producing regions the announcement provides a timely boost. Iowa Agriculture Secretary Mike Naig stated that expanded purchases by China would have a “meaningful impact” for farmers currently navigating a challenging economic environment. The sentiment was echoed by Tom Adam, president of the Iowa Soybean Association, who highlighted that the agreement helps address long-standing concerns about market access and purchasing volatility.

This policy-driven demand shift offers not only immediate pricing support but also long-term stability to U.S. growers. Farmers in the Midwest, who had suffered from years of trade disruptions, may now re-engage in forward contracting and investment planning with greater confidence.

Outlook Hinges on Policy Follow-Through and Logistics Execution

While the commitment figures are substantial, their impact will depend on consistent implementation and logistical delivery. COFCO’s recent purchase of three soybean cargoes ahead of the Trump-Xi summit already hints at an operational shift in Chinese import planning. Still, the durability of these agreements depends on political stability and ongoing negotiations over broader trade terms.

The relationship between political diplomacy and commodity markets remains evident. Price movements, trading volumes, and farmer sentiment are highly responsive to official statements and policy shifts. As such, markets will likely continue to monitor follow-up purchases and export data to validate whether these commitments translate into sustainable trade flows.

China’s purchase of at least 10 new soybean cargoes, framed within a wider long-term purchasing agreement, reflects not just a diplomatic breakthrough but also a potential structural reset in U.S.-China agricultural trade. With futures surging and Midwest farmers regaining export access, the economic consequences of this trade truce are already unfolding in both market behavior and producer optimism. However, full realization of these benefits will depend on continued adherence to the agreement and on-the-ground execution of the trade volumes promised.