Situation tightening up again between China and the US

Economic

Summary:

Trump’s tariff threats reignited U.S.-China tensions, sending the S&P 500 down 2.7% and Nasdaq 3.5%. Beijing responded with rare-earth export controls and ship levies as both sides harden positions before the late-October summit.

Finally, it's down. On Friday, a message from Donald Trump on Truth Social threatening exorbitant tariffs on China sent the indices plummeting. The S&P 500 ended down 2.7% and the Nasdaq down 3.5%.

Finally, because until now, US indices had been setting record highs (the S&P 500 has set 33 since the beginning of the year), driven by the theme of artificial intelligence. This almost unstoppable momentum can be summed up in one statistic: the S&P 500 has remained within 2.5% of its record highs since June.

While Donald Trump's threats on Friday may have served as a pretext for a market that was no longer correcting, they nevertheless mark a resurgence of tensions between the world's two leading powers.

A tour of Europe to relax

Indeed, after the tariff clash in April, tensions had gradually eased. This was thanks in particular to a series of meetings in several European cities: Geneva in May, London in June, Stockholm in July, and Madrid in September.

Beyond the extension of the tariff truce, relations seemed to be warming significantly with the agreement on the sale of TikTok's US operations, approved by Donald Trump and Xi Jinping during a telephone conversation on September 19. After this exchange, Donald Trump also confirmed a meeting with Xi Jinping in late October in South Korea, during the APEC summit. He also mentioned a trip to China next year and a visit by Xi Jinping to the United States.

On the markets, the impact of the tariff saga has gradually diminished. Over the months, agreements have been reached with certain trading partners and tensions with China have eased. So much so that the latest tariff announcements at the end of September barely caused a stir.

Negotiating position

But after months of de-escalation, we may now be entering a new phase of escalation, starting with Beijing's announcement on Thursday that it will introduce controls on exports of rare earth technologies.

On Friday, Donald Trump responded by threatening to impose additional 100% tariffs on China starting November 1, along with new export controls on strategic software. The US president also threatened to impose export controls on Boeing aircraft parts.

On the same day, the Chinese regulator announced the opening of an antitrust investigation against Qualcomm, following its acquisition in June 2025 of Israeli chip designer Autotalks.

Finally, China announced the introduction of levies on ships built or registered in the United States (the measure also applies to those owned by companies in which at least 25% of the shares or seats on the board of directors are held by US investment funds). This is a reciprocal measure: in February, the Office of the US Trade Representative (USTR) announced the introduction of fees on ships built abroad. This measure is due to come into force on Wednesday.

Once all these points of tension have been listed, they must be placed in the context of the meeting scheduled between Xi Jinping and Donald Trump at the end of the month in South Korea: each side is hardening its position ahead of the discussions.

On Sunday, Donald Trump himself toned down his inflammatory message from Friday: "Don't worry about China, everything will be fine!" The message was received by the markets. European indices are up, while the S&P 500 is up nearly 1.5% in pre-market trading.

Source: marketscreener

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Adam

Commodity

With gold already trading over $4,100 on Monday afternoon following last week’s unprecedented break above $4,000 per ounce, even a conservative projection of the yellow metal’s medium-term investment demand suggests the price could reach $5,000 per ounce by the end of next year, according to commodity analysts at Societe Generale.

In the French banking giant’s latest commodity research report published Monday, analysts said that the gold price appears poised to gain another $1,000 in relatively short order.

“Last week, gold prices reached $4,042/oz, just $276/oz below our bullish $4,318/oz Q426 forecast we published just one month ago,” they wrote. “As of this morning, prices have risen to $4,072/oz. With ETF flows remaining strong, central bank buying expected to be resilient, we feel confident and compelled to update our target prices for gold.”

“We now see prices reaching $5000/oz by the end of 2026, as the rate of flows has surpassed our initial assumptions,” they said. “Despite having no clarity on positioning (flows) of hedge funds, we have observed what can only be described as extremely strong, admittedly higher than we forecasted, positive ETF flows in the last few weeks. Why is this increase in flows happening now? We have previously noted a strong relationship between ETF flows and uncertainty levels since the Trump victory in November 2024 and believe for now, this to be a critical factor in understanding part of the price action.”

SocGen analysts cautioned that the latest monthly FRED uncertainty indices from September do not take into account China’s sweeping export controls on rare earths on October 9th. “This index would also fail to capture that President Trump then announced, last Friday, to impose additional 100% tariffs on all Chinese goods and almost immediately signal openness to reach a deal to quell trade tensions,” they said. “However, stepping back from these recent events, we do note that in China the general (and trade) uncertainty indices dropped 80 (100) points during the month of September, yet Chinese ETF gold holdings rose to slightly 193t from 189t.

‘All that glitters is fear’ as $5,000 gold is now ‘increasingly inevitable’ – Societe Generale_1

“Meanwhile, using our preferred weekly U.S. uncertainty index, which captures the period when China announced the rare earth export controls and Trump’s response last week, the level of uncertainty jumped to 354 - an increase of 18 points over the week and an increase of 44 points over the month (see upper right graphic),” they noted. “This, 354-level index, is still three times the level witnessed the 5 months prior to the U.S election.”

The analysts said that under the circumstances, it was not surprising to see global gold ETF flows rise by 23 tonnes over the last week – and by 100 tonnes in the last month alone. “Critically, however, our China economics team highlighted on Sunday there is less than a 30% chance of the new tariffs materializing, but these scenarios, realized or not, seem to cause massive flows into gold ETFs,” they wrote. “We cannot imagine a situation where we return to pre-Trump index uncertainty normalcy over our forecast horizon, so ETF flows are a key component to our price forecasting.”

SocGen said they maintained the core assumptions in their September forecast. “Specifically, in that outlook, we presented the case for extremely resilient gold investor and central bank demand, and we outlined that since 2022, the average quarterly increase in flows has been 72.5t across all managed money, ETFs, central banks and demand for coins and bars,” the analysts said. “For ETFs in particular, (where we can currently observe almost real time transparency on flows), quarterly changes have averaged +31.5t since 2017.”

They added, however, “a highly significant 100t of flows into global gold ETFs, 69t more than ‘normal’” through the end of Q3. “This flow by itself partially explains the significantly increased gold price over the month of September,” the analysts wrote. “These elevated ETF flows, the highest level we have seen since Q3 2020 (when we witnessed 238t of positive flows) are significantly higher than our original flow assumptions, and explain, according to our framework, roughly $160/oz of the rise in gold prices over the course of the last three months.”

SocGen analysts said they continue to take “a conservative and cautious approach to flow forecasting and only assume an additional 67t of gold is purchased each quarter above ‘normal’ levels, for all categories of flows” – including central banks and ETFs – across all quarters.

‘All that glitters is fear’ as $5,000 gold is now ‘increasingly inevitable’ – Societe Generale_2

“We do this despite the recent elevated uncertainty but maintain the view that central banks accumulate gold so the percentage is higher in their total reserves,” they said. “Therefore, we continue to add this incremental amount to average demand and use that in the model framework shown in the [above] chart to forecast prices through to the end of 2026 (our forecast horizon). Recalibrating our gold framework to forecast from today’s gold price (i.e., marking to market the base price but leaving assumptions unchanged), the model points to $4,217/oz by the end of 2025 and $5000/oz by the end of 2026, a 14% increase from our $4,300/oz we released in September.”

“Recognizing our conservative assumptions on ETF and central bank flows, we view the upside risk to our forecast is significantly greater than the downside,” they added.

Spot gold continues to rise further above the $4,100 per ounce level on Monday after setting a fresh all-time high of $ 4,117.42 just before 1:30 pm EDT.

‘All that glitters is fear’ as $5,000 gold is now ‘increasingly inevitable’ – Societe Generale_3

Spot gold last traded at $4,106.09 for a loss of 2.23% on the session.

Source: kitco

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Daniel Carter

Economic

The country aims to unveil the initiative at the COP30 world leaders summit in Belem on Nov. 6-7 and is currently drawing up a list of potential signatories, according to people familiar with the matter, who requested anonymity to discuss private details. India and Italy have signaled their intention to join, one of the people said.

Sustainable fuels usually include liquid biofuels, biogases and green hydrogen, along with solutions like e-fuels, which are made using captured carbon dioxide and renewable electricity. An early round of discussions on the plan in Japan last month indicated nations would pledge to lift output from a base year of 2024.

Brazil's government didn't immediately respond to a request for comment.

The pledge is designed to address a perceived hole in a landmark deal struck at COP28 to transition away from fossil fuels, which also included promises to triple renewable energy capacity globally and double the average annual rate of energy efficiency improvements by the end of this decade. Sustainable fuels are seen as a key tool to cut emissions in some of the hardest-to-decarbonize sectors, like aviation.

Accelerating deployment of the technologies could deliver investments of as much as $1.5 trillion between 2024 and 2035 and create 2 million jobs, the International Energy Agency said in an Oct. 13 report.

Brazil is a biofuels powerhouse. A program started in the wake of the 1973 oil crisis created a domestic ethanol industry, and most cars in the country can now run on gasoline, ethanol or a blend. Brazil is the second-largest ethanol exporter in the world.

Yet crop-based biofuels in particular are controversial, with environmental activists warning that they can aggravate food and land insecurity, harm biodiversity and actually increase emissions. By comparison, the market for e-fuels, which can in theory be carbon neutral, is nascent and expensive. Critics say that the power generated by wind and solar can be better used elsewhere.

A global declaration could help spur investments in the technologies, as well as create an international set of standards covering how much CO2 can be emitted during their production and from possible knock-on effects on the food supply and biodiversity, the people said.

The European Union is weighing whether to sign but has reservations about the role of biofuels, said another of the people. Italy has been pushing to exempt cars running on biofuels from the EU's combustion engine ban that takes effect in 2035.

Italy and the EU have been contacted for comment. India's government didn't immediately respond to a request for comment made outside usual office hours.

Brazil is pitching the pledge as a key pillar of its Action Agenda for COP30, as it tries to focus the climate talks on implementation of promises that have already been made. The country is also working on a Carbon Markets Coalition that aims to align standards of different national systems.

Source: Bloomberg Europe

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Adam

Stocks

A record share of global fund managers said artificial intelligence stocks are in a bubble following a torrid rally this year, according to a survey by Bank of America Corp.

About 54% of participants in the October poll indicated tech stocks were looking too expensive, an about-turn from last month when nearly half had dismissed those concerns. Fears that global stocks were overvalued also hit a peak in the latest survey.

US stocks have scaled multiple records, driven by enthusiasm around AI spending and related productivity benefits. The tech-heavy Nasdaq 100 has rallied 18% this year, lifting its forward price-to-earnings ratio to nearly 28, above an average of 23 over the past decade.

That’s led some market participants to question if valuations have overshot the cohort’s earnings outlook, although Goldman Sachs Group Inc. strategists have said it’s too early to be afraid of a tech bubble.

Fund managers’ equity allocation also reflects some optimism. The BofA survey showed exposure to US stocks rose to the highest in eight months — stretching back to before tariff anxieties took hold. Worries about a recession subsided to the lowest since early 2022.

Cash holdings declined, but BofA strategist Michael Hartnett said unease over AI as well as concerns around the private credit market were tempering “full-bull” sentiment.

Renewed worries about a US-China trade war have roiled the mood more broadly in recent days. The Nasdaq 100 has led declines in the US, and futures tracking the benchmark were down about 1% on Tuesday.

The BofA survey showed an AI bubble was viewed as the biggest tail risk, followed by a resurgence in inflation and worries about the loss of Federal Reserve independence and dollar debasement.

The poll was conducted between Oct. 3 and Oct. 9, and canvassed 166 participants with $400 billion in assets.

Source: Bloomberg

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Damon

Economic

Global markets are getting too comfortable with risks like trade wars, geopolitical tensions and yawning government deficits, which, combined with already overpriced assets, increase the chance of a "disorderly" market correction, the International Monetary Fund said on Tuesday.

Underscoring the IMF’s warning, President Donald Trump’s revived threats on Friday to hike tariffs on China stoked investor fears of a major asset price correction. The comments sparked a sell-off in U.S. stocks and sent bitcoin tumbling.

Despite this recent volatility, markets have mostly been resilient since April, when Trump unleashed his trade war, underpinned by expectations of monetary easing in most major advanced economies. However, this market optimism masks the potential damage from tariffs and high government debt. The IMF warned that the close ties between banks and less-regulated financial firms could amplify these risks.

"Beneath the calm surface, the ground is shifting in several parts of the financial system, giving rise to vulnerabilities," the body wrote in its semiannual Global Financial Stability Report.

"Valuation models indicate that risk asset prices are well above fundamentals, increasing the probability of disorderly corrections when adverse shocks occur," it wrote.

Despite some negative economic data, equity and corporate credit valuations are "fairly stretched" as enthusiasm over AI mega-cap stocks drives historic stock market concentration. That creates the risk of a "sudden, sharp correction" if expected returns fail to justify lofty valuations, the IMF said.

ASSET PRICES SIGNAL DANGEROUS BUBBLE TERRITORY

Analysis of sovereign bond markets also highlights growing pressure from widening fiscal deficits on market functioning. While bond markets have been mostly stable so far, abrupt jumps in yields could strain bank balance sheets and pressure open-ended funds like mutual funds, the IMF said.

U.S. bond markets sold off last month as concerns about global fiscal health escalated, although the pain was quickly reversed and bonds rallied on weak economic data.

The IMF added that central banks should remain alert to tariff-driven inflation risks and take a cautious stance on monetary easing to minimize further valuation spikes in riskier assets. Central bank independence is "critical" for anchoring market expectations and allowing those institutions to fulfill their mandates, it added, without referring to a specific institution.

Trump’s attacks on Federal Reserve policymakers are emerging as the biggest threat to central bank independence in decades, sparking worries among central bankers worldwide, Reuters reported in August.

The IMF also called for "urgent fiscal adjustments" to curb deficits and ensure resilient bond markets.

NONBANK FINANCIAL FIRMS CREATE CONTAGION RISK

Heightened interconnectedness between banks and the more lightly regulated nonbank sector would amplify any shocks stemming from sectors such as private credit or cryptocurrencies, the IMF said.

The group for years warned about patchy nonbank oversight but cautioned on Tuesday that the sector - which includes insurers, pension funds and hedge funds - continues to grow and now holds roughly half of the world’s financial assets. In the United States and Europe, many banks have nonbank exposures that exceed their high-quality loss-absorbing capital, the IMF said.

Roughly 10% of U.S. banks and 30% of European banks would experience a substantial hit to their capital if nonbanks drew down all their credit lines, according to an IMF analysis.

"Vulnerabilities in the nonbank sector are interconnected," the IMF wrote. "They can quickly transmit to the core banking system, amplifying shocks and complicating crisis management."

The body urged policymakers to adopt a more comprehensive approach to assessing these less visible risks, particularly around interactions between banks and nonbanks.

Echoing European policymakers, the IMF also called on governments to adopt a comprehensive policy response to crypto assets, including stablecoins, the adoption of which could weaken a government’s control over its own currency and disrupt the traditional banking system.

Source: Investing

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Samantha Luan

Economic

Political

Forex

Palestinian-Israeli conflict

Israeli Defense Minister Israel Katz said on Sunday that the Israeli military would destroy tunnels in Gaza after the remaining Israeli captives are released by Hamas, which has happened on Monday."Israel’s great challenge after the phase of returning the hostages will be the destruction of all of Hamas’s terror tunnels in Gaza, directly by the IDF and through the international mechanism to be established under the leadership and supervision of the United States," Katz wrote on X.

“This is the primary significance of implementing the agreed-upon principle of demilitarizing Gaza and neutralizing Hamas of its weapons. I have instructed the IDF to prepare for carrying out the mission,” he added.

According to the outline of the Gaza ceasefire proposal released by the White House, all “military, terror, and offensive infrastructure, including tunnels and weapon production facilities, will be destroyed and not rebuilt,” and there will be a “process of demilitarization of Gaza under the supervision of independent monitors.” But the details of how those steps will be taken, including who will be doing it, are unclear. A senior Hamas official has also said that Hamas won’t disarm unless it can hand its weapons to a Palestinian state.

So far, Israel and Hamas have just entered the first phase of the ceasefire deal, which involves the release of the Israeli hostages in exchange for thousands of Palestinians held in Israeli jails, the IDF pulling back to an agreed-upon line, and Israel allowing more aid to enter Gaza. Details on implementing the rest of the agreement still need to be worked out in negotiations between Israel and Hamas.Katz’s comments come as many are concerned Israel will restart its brutal war once Hamas releases the Israeli captives. Also on Sunday, Israeli Prime Minister Benjamin Netanyahu said the military “campaign is not over,” though he could be referring to other areas where Israel is at war or potential escalations elsewhere in the region.

“And I want to say: Everywhere we fought – we won. But in the same breath, I must tell you: The campaign is not over. There are still very great security challenges ahead of us,” Netanyahu said, according to a statement from his office. “Some of our enemies are trying to rebuild themselves to attack us again. And as we say – ‘We’re on it.'”According to a report from Israel Hayom, the US has given Israel a guarantee that it would back Israeli military action if it determined Hamas violated the deal in a way that “poses a security threat.” The report said the understanding “constitutes a side agreement” between the US and Israel.The US gave Israel a similar side deal for the November 2024 Lebanon ceasefire agreement, which Israel continues to violate on a near-daily basis.

Source: Zero Hedge

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Adam

Economic

The bankruptcies of automotive-related companies First Brands and Tricolor, along with potential losses at banks and investment funds, are raising new concerns about hidden risks in parts of the credit market — prompting investors to take a closer look at risky debt.

Auto parts supplier First Brands and subprime lender and dealership Tricolor both filed for bankruptcy protection last month. The two collapses have rattled some stakeholders in Wall Street's multitrillion-dollar credit machinery, from leveraged loans and collateralized loan obligations (CLOs) to trade‑finance funds and subprime auto loans, raising questions about exposure levels of a number of Wall Street fund managers, which pool capital from investors to provide loans to companies.

"This would serve as a strong precedent for LPs (investors) to question risky offerings," said Zain Bukhari, associate director of risk and valuations at S&P Global. LPs, referring to limited partners, are passive investors that provide capital to a fund.

Some investors may ask for audited statements or quality of earnings from independent audit firms before investing in unsecured assets, Bukhari added. First Brands had roughly $800 million in unsecured supply chain financing liabilities.

A sign of such scrutiny appeared in July when First Brands was trying to raise a $6 billion loan to refinance its debt. In August, however, it became clear that potential lenders would require further diligence, including a quality-of-earnings report, according to a document filed by the auto parts company's chief restructuring officer in bankruptcy court.

Investors and analysts are now assessing the fallout for the individual firms exposed as well as for the broader market. They hope to gain some clarity during the third-quarter earnings season, which kicks off this week.

"The third quarter earnings become a very interesting litmus test for how this shakes out - people will be very closely following the bank reporting," said Andrew Sheets, global head of corporate credit research at Morgan Stanley. "There will be big questions about where auto loan trends are, (and) other consumer credit charge-off trends are."

First Brands filed for bankruptcy protection on September 29, listing more than $10 billion in liabilities. Some of the finance industry's most prominent names, including Jefferies and UBS Group (UBSG.S), have since disclosed exposure of more than $1 billion tied to the collapse of the Ohio-based company. Earlier in October, Jefferies said a fund in its asset management division, Leucadia Asset Management, has about $715 million of receivables tied to First Brands. UBS is assessing more than $500 million of exposure across certain funds.

Some investors have asked Jefferies-linked Point Bonita Capital's fund to return money invested in the fund, a source familiar with the matter told Reuters. On Sunday, Jefferies said its exposure to First Brands Group is limited and that any potential losses would be "readily absorbable." When Jefferies was asked if it will face pressure from investors for more scrutiny on risky investments, a spokesman for the firm declined to comment on Monday.

Other banks exposed include SouthState Bank and CIT Group, which is now owned by First Citizens. A broad range of funds including Sound Point Capital Management, Benefit Street Partners and Palmer Square Capital Management hold CLOs, which collectively hold hundreds of millions of the $4 billion of first-lien term loans of First Brands, according to court documents. Investment firms with over $100 million CLO exposure each include AGL Credit and PGIM, according to the recent court filings.

The funds and banks either declined to comment or did not respond to requests for comment. A UBS spokesperson said the bank was "working to determine the potential performance impact on the small number of our affected funds."

Meanwhile, Tricolor listed over $1 billion in liabilities, with more than 25,000 creditors, according to its bankruptcy petition. Lenders such as JPMorgan (JPM.N) have nearly $200 million of exposure to Tricolor, Reuters has previously reported.

CREDIT RALLY SPUTTERS

The credit rally, which got off to a robust start earlier in October, has hit a speed bump in recent days as investors reduced exposure to certain sectors over concerns around weakness in consumer and auto lending, experts said.

"We now seem to have a catalyst important enough to engender a shade of fear," said Neha Khoda, head of U.S. credit strategy at Bank of America, in a note dated October 10. "Credit investors are questioning if they need to be all-in at super-tight spreads, and they won't get a pushback from us."

To be sure, the collapse of First Brands is unlikely to cause a widespread global meltdown across credit markets, some experts said.

"On a deal-by-deal basis, we don't see conditions in the leveraged finance markets as materially different from historical norms," said Logan Nicholson, senior managing director at asset manager Blue Owl Capital.

In the U.S., the overall exposure of CLOs to First Brands currently stands at 0.21%, according to estimates from Morgan Stanley in a note dated September 26. For the CLO funds currently holding First Brands loans, the exposure levels range between 0.001% and 1.8%.

Some experts said that a divergence has emerged in the CLO industry between holders of senior and junior loans, as a cohort of companies with weaker credit ratings have been buffeted by slower macroeconomic growth and headwinds from the Trump administration's tariff policy.

"Probably the larger impact on markets has been on the loan side," said Morgan Stanley's Sheets, adding that the ripple effect from the bankruptcies could impact junior parts of a CLO's capital structure.