New Winds, Same Compass - Markets Stay on Track

The United States experienced a week full of economic, political, and market developments, with particular attention focused on trade relations with China, the Federal Reserve's monetary policy, the progress of the corporate earnings season, and the prolonged government shutdown.

On the geopolitical front, the meeting between Donald Trump and Xi Jinping at the APEC summit in Busan concluded with a one-year extension of the trade truce between the two countries. The agreement included détente measures such as China's commitment to curb fentanyl trafficking to the US, increased purchases of US soybeans, and the suspension of rare mineral export restrictions, while the US will moderate certain technological restrictions and partially reduce tariffs. While it does not resolve the structural disagreements or the process of decoupling between the two economies, it offers temporary relief to the markets. At the same time, Trump signed agreements with South Korea and Japan to strengthen the supply of strategic minerals and secure investments, reinforcing the US strategy of diversification away from China.

On the monetary front, the Federal Reserve cut rates by 25 basis points, but Chairman Jerome Powell tempered expectations of a further cut in December, pointing to internal divisions and the need for caution in the face of limited data due to the shutdown, stronger growth, and persistent inflation. The Fed also announced the end of its balance sheet adjustment as of December 1. This pushed up Treasury yields and strengthened the dollar, which closed October with a gain of nearly 1.8%. The federal government shutdown continued without a solution in the Senate, despite growing pressure to pass a "clean" budget resolution, with an estimated economic cost of USD 18 billion. In addition, names are being put forward for a possible successor to Powell at the helm of the Fed, with Christopher Waller, Michelle Bowman, and Rick Rieder among the candidates.

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