Written by US and China remain at odds
The latest flareup in trade tensions between the world's two largest economies doesn’t seem to be anywhere close to abating, keeping investors on edge just as doubts creep in about the sustainability of the recent market rallies in precious metals and AI-related stocks.
Wall Street wobbled on Wednesday after President Trump implied that the US is in a trade war with China, even as Treasury Secretary Scott Bessent extended an olive branch to Beijing by suggesting that higher tariffs could be paused for longer than three months when the current truce expires on November 10.
However, the war of words resumed soon after when Bessent sharply criticised China’s trade negotiator, Li Chenggang, calling him “unhinged”.
On the bright side, the planned meeting between Trump and China’s President Xi on the sidelines of the APEC meeting in South Korea in two weeks’ time still appears to be on, raising hopes that a further escalation will be avoided until then.
Gold hits $4,200 amid supply chain threat
The main risk from the latest standoff is that China’s retaliatory move against the US to restrict the export of crucial rare earths could have a damaging impact on global supply chains. The curbs on rare earth exports are in addition to the tit-for-tat hike in port fees on US-operated ships berthing in Chinese ports. It comes after Washington announced similar duties on Chinese vessels and imposed fresh tariffs on certain goods such as kitchen cabinets and upholstered furniture, which were mainly targeted at Beijing.
This raising of the stakes has added fuel to gold’s engines, pushing the yellow metal to new all-time highs above $4,200. The price hit an intra-day high of $4,241.77/oz earlier today.
The US dollar, on the other hand, has been sliding since trade relations started to worsen again. Against a basket of currencies, the dollar tumbled to a more than one-week low today before recovering slightly.
Dollar struggles under the weight of shutdown and dovish Fed
Fed Chair Powell’s remarks this week have also been weighing on the greenback. An October rate cut is almost certain after Powell once again emphasized the growing downside risks to the labour market, even in the absence of official payrolls data.
The ongoing government shutdown is another risk that could upend the dollar’s mini rebound since mid-September.
With no end in sight to the stalemate in Congress, there is growing talk that the shutdown could last well into November. Senators again failed to reach a deal after a vote on a funding bill failed for the ninth time yesterday.
Somewhat lessening the blow to the economy, however, was a US district court ruling that blocked the Trump administration from firing federal workers who are temporarily laid off during the shutdown.
Politics takes centre stage for euro and yen
Elsewhere in the currency markets, the euro traded marginally higher against the dollar as investors awaited the two votes of confidence to be held in France’s National Assembly on Prime Minister Sebastien Lecornu and his new cabinet. Lecornu, who was reappointed by President Macron just days after resigning, looks set to survive the votes following his compromise to suspend the controversial pension reforms until after the 2027 presidential election.
There have been some positive developments in Japan too as newly elected LDP leader Sanae Takaichi has opened talks with a smaller right-leaning party for forming a possible coalition after the LDP’s 26-year-old alliance with Komeito broke down.
The yen is trading slightly lower today against its main peers, with the dollar edging back above 151 yen.
The pound is up for a second straight day, getting an additional lift today from a positive monthly GDP reading. The Australian dollar, meanwhile, has pared back earlier losses from a surprise jump in Australia’s unemployment rate, which put the prospect of an RBA rate cut at the next meeting back on the table.
Stock market bulls fight back, TSMC earnings awaited
In equities, US futures are stretching yesterday’s gains for the S&P 500 and Nasdaq, with shares in Europe and Asia also mostly positive today.
Tech stocks were boosted on Wednesday from Dutch chipmaker ASML’s positive earnings guidance for 2026 despite missing its revenue estimate for Q3.
Wall Street’s big banks have also had a good week, as Morgan Stanley and Bank of America joined Goldman Sachs and JPMorgan Chase in reporting a strong set of earnings.
The focus today will again be on the chip sector, with Taiwan Semiconductor Manufacturing Company scheduled to report.
By XM.com
