Risk sentiment struggles to maintain previous optimism as fresh developments from the U.S., China, and Beijing, along with Trump’s actions on Ukraine and Russia, challenge market confidence. This, coupled with headlines concerning the Middle East and a cautious mood ahead of the U.S. Consumer Price Index (CPI) release, weighs on sentiment. Additionally, concerns about the government shutdown and global PMIs for October add to the uncertainty. Amid these international concerns, Japan has drawn significant attention due to political changes, with the USDJPY pair initially dipping before recovering.
President Donald Trump made a series of comments that significantly impacted public sentiment. He announced plans to increase tariffs on Colombia due to rising tensions over the drug trade. In China, he laid out his demands, including restarting soybean purchases to previous levels, stopping fentanyl shipments, and ending the "rare earth game." Trump also suggested that tariffs on China could be reduced, showing a willingness to de-escalate the trade conflict. Trump’s earlier remarks that “everything will be fine” with China, along with news of an official meeting with Chinese President Xi Jinping, helped calm trade war fears on Friday. White House adviser Kevin Hassett expressed confidence in restoring a good relationship with China. Also, U.S. diplomats’ efforts to prevent mass layoffs in the federal workforce supported the risk appetite.
The White House reported positive developments in its relations with Russia, following Trump’s call with President Putin, which raised hopes for peace talks on Ukraine. Meanwhile, a “suspicious stand” was discovered by the U.S. Secret Service near Trump’s airport in Florida, raising security concerns.
Vice President J.D. Vance addressed two key issues: he highlighted that there is no adequate infrastructure in place to ensure Hamas is disarmed and noted that Trump has yet to decide whether to provide Tomahawk missiles to Ukraine.
In China, the third quarter (Q3) Gross Domestic Product (GDP) showed quarterly growth of 1.1%, surpassing expectations of 0.8%. However, year-over-year GDP growth of 4.8% was the slowest in a year, indicating ongoing economic challenges. Other data showed industrial output for September growing by 6.5%, retail sales increasing by 3.0%, and a steady jobless rate of 5.2%. However, fixed-asset investment fell by 0.5%, and property investment contracted by 13.9%, highlighting the continued struggles in China’s property sector.
Despite cumulative GDP growth reaching 5.2%, keeping China on track to meet its full-year target of 5%, the housing market remains a drag on growth. New home prices recorded their 28th consecutive monthly decline, undermining consumer confidence.
The People’s Bank of China (PBoC) left its benchmark 1-year and 5-year loan prime rates unchanged at 3.00% and 3.50%, respectively.
China’s top trade negotiator, Li Chenggang, was removed from his post amid growing concerns over rising protectionism and instability in global trade. China’s exports of rare earth magnets also dropped, including a 28.7% month-over-month decline in exports to the U.S.
In Japan, the Liberal Democratic Party (LDP) confirmed a coalition agreement with the Japan Innovation Party (Ishin), setting the stage for LDP leader Sanae Takaichi to become the new Prime Minister. This political development led to a brief dip in USDJPY, though the pair quickly recovered. The market is now focused on Takaichi’s policy stance, particularly regarding fiscal stimulus and its potential impact on Bank of Japan (BOJ) policy. BOJ policymaker Hajime Takata, who has been pushing for a more hawkish stance, reiterated that Japan has nearly achieved the BOJ’s inflation target and should gradually shift its monetary policy approach.
In the Eurozone, ECB President Christine Lagarde gave an interview warning that the U.S. dollar’s dominance is starting to fade. She pointed to rising gold prices and capital flowing out of the U.S. into Europe as signs of this trend. Lagarde emphasized that for a currency to maintain global trust, it needs geopolitical credibility, the rule of law, and a powerful military force. While the U.S. remains dominant in some of these areas, she cautioned that this dominance could erode over time.
In France, S&P Global downgraded the country’s credit rating from AA- to A+ due to significant political instability.
Meanwhile, in the UK, the housing market showed signs of stalling, with asking prices rising only 0.3% in October, well below the typical increase for this time of year. This added to the uncertainty ahead of the November budget. The UK government also launched the ‘Sterling 20’ initiative, aimed at encouraging the country’s largest pension funds to invest in domestic infrastructure and businesses.
New Zealand released its Q3 inflation data, showing a year-on-year CPI of 3.0%, which was in line with expectations but marked the highest rate in a year. Core inflation stood at 2.5%, within the Reserve Bank of New Zealand’s target range of 1–3%. The RBNZ’s preferred underlying measure, the sectoral factor model, printed at 2.7% year-on-year.
The U.S. Dollar Index (DXY) reversed its Friday recovery, while gold prices fluctuated after pulling back from their all-time high of $4,380 the previous day. EURUSD and GBPUSD posted mild gains, while USDJPY edged higher after an initial fall, extending Friday’s rebound. AUDUSD and NZDUSD remained firmer, and USDCAD continued its previous decline. The U.S. dollar remains under pressure, hitting its lowest level since early May. Bitcoin (BTC) and Ethereum (ETH) are on a three-day winning streak after a tough week. In the Asia-Pacific region, equities gained ground, reflecting Wall Street’s recovery.
The U.S. Dollar’s pullback and some cautious optimism helped EURUSD and GBPUSD recover from Friday’s losses. However, the recovery lacks momentum due to individual factors. S&P’s downgrade of France’s credit rating and ECB President Lagarde’s cautious comments put pressure on EURUSD buyers. Meanwhile, weak UK housing market data, combined with the British government’s efforts to ease pension fund restrictions and uncertainty ahead of the November budget, challenged GBPUSD buyers.
As LDP leader Sanae Takaichi moves closer to becoming Japan’s next Prime Minister, market players are concerned that her support for former PM Abe and easy money policies could halt the Bank of Japan's hawkish stance, despite policymakers like Takata advocating for tighter policies. Meanwhile, Japan’s latest economic data and uncertainty surrounding U.S.-Japan relations allowed the USDJPY pair to edge higher, even with a soft U.S. Dollar.
AUDUSD extends Friday’s recovery, supported by market optimism, mostly positive China data, and a softer USD. Similarly, NZDUSD edges higher as New Zealand’s inflation challenges the RBNZ’s plans for rate cuts. On the other hand, USDCAD drops for the second day in a row, ignoring softer crude oil prices—Canada’s key exports—due to a weaker USD and hopes for a U.S.-Canada trade deal.
Gold buyers paused on Friday after reaching an all-time high, but the downside quickly faded early Monday, with bullish momentum weakening recently. This could be tied to mixed market sentiment and strong physical demand from India, one of the world’s largest gold consumers, due to the Hindu New Year.
Crude oil remains under pressure, hitting its lowest level since early May and declining for the third straight day. Concerns over energy demand from China, driven by the Sino-American trade war, alongside expectations of higher supplies from OPEC+, easing tensions in Gaza, and speculation that Iran might re-enter the energy market after months of sanctions, are weighing on prices.
With a touch of optimism in the markets and a softer USD, leading cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH) saw gains for the third consecutive day, while Asia-Pacific equities also edged higher, following Wall Street’s lead. It’s worth noting that, despite a two-week downtrend in crypto benchmarks, equities posted mild gains last week, even after two days of losses.
After an active start to the week, driven by weekend news and data from China, markets may experience a quieter day due to a light economic calendar. Traders will likely stay on edge with anxiety building ahead of the October PMIs and U.S. CPI later this week. News on U.S.-China trade tensions, a potential Russia-Ukraine peace deal, and Fed signals will be key in shaping near-term market movements.
As a result, the U.S. Dollar could pare some of its recent losses and test the recovery seen in risk assets like equities and cryptocurrencies. However, Gold and USDJPY may remain supported due to their own specific catalysts.
May the trading luck be with you!
