All eyes on China-U.S. trade tensions

Transcript

Hi, welcome to the market weekend review for the week ending 17th of October 2025. My name is Alex Kusley. I'm a senior portfolio manager here based out of Sydney. And this week was quite interesting. So if you cast our eyes back to Friday last week, the market had a pretty pretty big down day uh on the back of heightened trade tensions between China and the United States. That kicked off with China announcing licenses and export restrictions on rare earths and then Trump responding with a 100% tariff threat. Uh through this week we've seen a willingness to talk. So both sides have kind of ratcheted down the tensions a little bit. We're heading into the apex summit where President Trump and President Xi are likely to meet. Uh and that will be the the sort of center point for the negotiations. And we think that as we head through there volatility will remain a little bit elevated. uh but the cooler head should prevail because neither side really wants to go down a path of 100% tariffs uh more broadly on the macro front. So we're still in the US government shutdown. So there is no official data coming through. Uh but we do have a couple of things that we did get to see. So the first was the NFIB survey which is a survey of small businesses. That was a little bit softer than expected. We had the Philly Fed and the New York Fed um survey. So their PMI versions uh where they were mixed. Philly Fed was a bit softer, New York Fed was a bit stronger. And then finally on Thursday, we got the initial jobless claims by state and what you can do is you can add them up to get the official or you know to get the the nationwide and based on that it looks like jobless claims fell through the week. So bit of a mixed bag but that jobless claims is a really important indicator for the strength of the labor market and that is an encouraging sign uh on the week. Uh on monetary policy and interest rates, we saw the US tenure uh fall through the week. We're recording this as of Thursday close. Uh both uh Jerome Pal, so the Fed chair and um Governor Waller gave speeches this week really pointing to an October rate cut being still on the cards and and quite likely and I think interestingly Waller Med also comments that uh beyond October it's quite a bit uncertain. There's a bit uncertainty around what the future path of rates would be. So still quite data dependent but really pointing towards that October rate cut given that the labor market uh is still showing some signs of cooling and slowing. Um the final bit to touch on there's two two more bits actually. The first is on earning season. So earning season kicked off this week in the United States. We had the big banks reporting uh for the large cap space and I think generally the theatic that came through there was strength. uh we've seen pretty strong earnings numbers and also we saw um signs that the consumer is still in a decent spot. So charge offs and delinquencies for consumers uh were both better than expected and so that is an encouraging sign. Outside of the United States in large cap space we had ASML and TSMC so Taiwan semiconductors uh both report better than expected and that's really a continuation of that AI thematic and you know they're very integral to uh the AI trade. So that drunk dynamic has continued and then on Thursday we got a couple of regional banks in the small cap space in the United States that were a bit softer than expected and that led to small cap underperforming on Thursday and seeing a pretty meat material uh decline and so there is clearly um some pockets of stress in uh regional banks in the earnings uh but on the large cap space it is still a sign of resilience. Finally a bit closer to my home in China. We got a few pieces of data. Uh we got the trade data and the credit impulse data. On the trade data, we saw exports and imports a bit stronger than expected. Um that moves around quite a bit monthtomonth. I think the more important thing and something that we focus on a lot at Russell Investments on looking at China is the credit impulse. Uh and there we've seen that loan demand is still quite soft and actually was softer than expected through the month. And so uh we what we haven't seen still is uh a resurgence in consumer confidence and resurgence in business confidence. And so as long as those confidence numbers aren't improving, it's likely that we're going to remain in this world where credit impulse in China remains quite soft. Uh, okay. With that, that's all I have for this week, but thank you for listening and we look forward to speaking to you soon. Hi, I'm Sophie Antaly, head of portfolio and business consulting at Russell Investments. If you liked what you just saw and heard, consider subscribing to our YouTube channel or check us out on LinkedIn. Thanks for tuning in.

Key takeaways

Trade friction between U.S. and China returns
Fed rate cut likely this month
Solid start for Q3 earnings season

On this week’s edition of Market Week in Review, Director and Senior Portfolio Manager Alex Cousley discussed the recent flare-up in trade tensions between the U.S. and China. He also reviewed U.S. economic and earnings data as well as the latest credit numbers from China.

Trade spat between U.S., China resurfaces

Cousley noted China-U.S. trade tensions picked up late last week after China announced export restrictions on rare earth minerals. In response, U.S. President Donald Trump threatened a 100% tariff on Chinese imports. Markets were initially rattled by the development but have calmed in recent days as both countries have signaled a willingness to talk, Cousley said.

“President Trump and Chinese President Xi Jinping are likely to discuss this at next month’s APEC summit in South Korea. We expect cooler heads to prevail, because neither side probably wants to see 100% tariff rates again,” he remarked. That said, Cousley thinks volatility could remain elevated as the meeting approaches.

Is a Fed rate cut likely this month?

With the U.S. government shutdown entering its third week, Cousley said no official economic data has been released. However, there are other indicators that can be used to gauge the health of the economy, including the NFIB’s (National Federation of Independent Business) survey of small businesses. The most recent survey pointed to a drop in small-business optimism, he noted, while PMI (purchasing managers’ index) surveys of business activity in Philadelphia and New York were mixed.

On the labor market front, Cousley explained that with data unavailable at the federal level, one way to get an estimate of the current backdrop is to add up unemployment filings from all 50 states. Doing this shows U.S. jobless claims probably declined in the past week, he said. “This likely drop in initial unemployment filings is an encouraging sign and points to a pretty resilient labor market,” Cousley said.

However, the job market is still showing some signs of cooling, which makes a U.S. Federal Reserve (Fed) rate cut later this month likely, he added. Beyond October, the path of monetary policy is much more uncertain, Cousley stressed.

Q3 earnings season starts strong

Third-quarter earnings season in the U.S. kicked off on a solid note this week, Cousley said. “The earnings from big banks were strong and show consumers are still in a decent spot,” he remarked.

The story was a little different for regional banks, however, with softer-than-expected numbers. This led to a selloff in small-cap stocks, Cousley said. “It’s clear there are some pockets of stress in regional banks,” he noted.

China’s credit market remains weak

Cousley finished with a look at key economic data from China. He said the latest trade numbers were a bit better than expected, while the credit numbers remained weak.

“Loan demand in China is still quite soft, as there hasn’t been a resurgence in either consumer or business confidence,” he concluded.

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