Trade tensions cool after China-U.S. meeting

Transcript

Hello everyone. Welcome to market weekend review for the week of October 31st, 2025. My name is Bay Chan Lynn. I'm a senior investment strategist and head of Canadian strategy here at Russell Investments. Today we'll be discussing three major topics. First, we'll talk about the latest US China trade developments. Next, we'll recap the central bank actions this week. And finally, we'll wrap up with a look at the US earnings season. So, let's get started. First, in terms of US China trade developments this week, the big story was the meeting between President Trump and President Cingping. And after the two presidents met, it was announced that both sides had agreed to certain things. And while it's not necessarily a full-fledged final trade deal, per se, at least it was an incremental step in the positive direction. We saw the US agree to lower its tariffs on Chinese products by 10%. We saw the Chinese side agree to purchasing a significant quantity of soybeans and other agricultural products from the US. We saw both countries agree to delay their imposition of port fees on each other. And finally, we saw China agreed to delay the imposition of controls on rare earth minerals in exchange for the US delaying the imposition of some controls on critical exports to China. So, broadly speaking, from our perspective, we wouldn't necessarily call this agreement groundbreaking per se. And I think when you look at equity market reactions, equity market futures overnight were relatively measured. and into the trading day on Thursday, October 30th, you actually saw equity markets pull back instead of gaining momentum. Nevertheless, we do think that this development represents a bit of a dialing down of the temperature between two countries. And ultimately, we do think it's a step in the positive direction in terms of both countries being able to continue to work towards a more all-encompassing trade agreement perhaps later on down the road. Speaking of tariffs and trade, it's also important to note that next week the Supreme Court will have a hearing on whether or not the administration can can continue to uphold those large reciprocal tariffs. Ultimately though, even if the Supreme Court were to strike down some of those tariffs, the administration does have other avenues of implementing tariffs on key trading partners. The main thing to keep in mind though is that based on the current tariffs that are in place ultimately at the end of the day that would represent only a moderate to modest drag onto US economic growth rather than be something a little bit more significant in nature. So our base case continues to be that the US should be able to achieve a soft landing outcome. Next I want to talk about the key central bank actions we saw this week. Starting with the Bank of Canada. As expected, they lowered their overnight interest rate by 25 basis points. The benchmark rate in Canada is now 2 and a/4%. This number is significant because the Bank of Canada believes that the neutral rate of interest, which is the rate of interest that neither helps nor hurts economic activity, is somewhere between 2 and a/4 and 3 and a/4%. So interest rates are now at the lower end of that neutral range. And that means in theory of Canada would have a much much higher bar for more rate cuts from here on in. and the Bank of Canada said as much in their statement. Nevertheless, we would not rule out the possibility of even more rate cuts by the Bank of Canada in the months to come and into 2026 because ultimately the Bank of Canada will be data dependent. If the Canadian economy were to stabilize at current levels, then we think the Bank of Canada might maintain interest rates steady. But if the Canadian economy were to slow further, and once again, we do think that the Canadian economy is a little bit more at risk of a slowdown compared to the US economy, if we were to see a deeper slowing, then that could necessitate the Bank of Canada cutting rates again in December and perhaps even doing more rate cuts into 2026. From the perspective of the Federal Reserve, they also cut interest rates by 25 basis points at this meeting this week, and that was once again widely in line with consensus expectations. We did have a bit of a disscent both in terms of one voter who voted for a 50 basis point cut and one voter who preferred to hold rates steady at the Fed instead of cutting rates at all. Ultimately, Cher Powell expressed that the Fed has to continue to be data dependent. While the US government shutdown does mean that they have less data that they have access to, there are other sources of private sector alternative data that the Fed can use to get a grasp on the state of economy and the state of the economic environment. Ultimately, our assessment continues to be that although the US labor market has cooled somewhat, the US labor market still hasn't broken just yet. And that's why we think that the Federal Reserve can be relatively measured in terms of the rate cutting cycle and bring rates to a more normal level gradually over time. Finally, the Bank of Japan opted to maintain interest rates at the current level. We do expect that over time into 2026, they might need to continue their rate hiking cycle in order to be able to normalize interest rates. Finally, a quick word on earnings. We obviously had earnings reports from several large tech companies this week, but we also had earnings reports out of many companies in the US in general. And broadly speaking, when you look across the landscape of US companies, you're seeing once again another quarter of pretty strong earnings growth. S&P 500 earnings as a whole are tracking above 12% year-over-year. And when you look at revenue growth, revenue growth is actually tracking at around close to 8% year-over-year, which is one of the highest paces of revenue growth we've seen in some time now. And so ultimately that supports this idea that as long as we continue to see good earnings growth from US companies, that should ultimately help to keep layoffs low and ultimately help to preserve the soft landing in the US. That's all from us. Thank you for tuning in and we'll see you next time on Market Weekend Review. >> Hi, I'm Sophie Antalg, 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

U.S., China reach trade truce
Fed, Bank of Canada cut rates
U.S. earnings remain strong

Cautious optimism after U.S.-China trade talks

This week’s main story for markets was the meeting between U.S. President Donald Trump and Chinese President Xi Jinping. Following the talks, both sides announced a modest set of agreements aimed at improving trade relations.

The U.S. agreed to lower tariffs on Chinese imports by 10%, while China committed to purchasing more U.S. agricultural goods—particularly soybeans—and delaying certain export controls on rare earth minerals. Both nations also postponed new port fees and trade restrictions on each other. While these measures fell short of a comprehensive trade deal, they represent a constructive step toward de-escalation in U.S.-China relations.

Equity markets responded to the news with restraint, with U.S. stocks even pulling back during the day on Thursday, as some investors may have been hoping for a broader deal. Still, the developments signal a cooling of tensions that could pave the way for more substantive negotiations between the two countries in the months ahead.

Next week, the U.S. Supreme Court will hear a case regarding the legality of certain reciprocal tariffs. Even if the Court were to strike down portions of them, there are still other ways for the U.S. to impose tariffs on key trading partners. From a macro perspective, we think the current tariff environment will only have a modest hit to U.S. growth. Our central scenario is still for the U.S. economy to achieve a soft landing.

Fed, BoC lower rates while BoJ stands pat

Central bank announcements also made headlines this week, with both the Bank of Canada (BoC) and the U.S. Federal Reserve (Fed) lowering interest rates by 0.25%, while the Bank of Japan (BoJ) opted to stay on hold.

The BoC’s decision brought its policy rate down to 2.25%, which is the lower end of its estimated neutral rate—the rate that neither speeds up nor slows down the economy. With rates at this level, there will likely be a higher threshold for additional cuts, though the central bank still reiterated its data-dependent stance. If the Canadian economy weakens further—a plausible scenario given its relative vulnerability compared to the U.S.—further easing in December or early 2026 can’t be ruled out.

Meanwhile, the Fed’s rate cut was also widely anticipated. Chair Jerome Powell noted that while the recent U.S. government shutdown has disrupted access to some official data, the central bank can use private-sector indicators to gauge the state of the economy. These numbers suggest the labor market has softened but is still resilient, which should allow the Fed to gradually lower rates.

By contrast, the BoJ left borrowing rates unchanged. However, officials signaled rate hikes may be on the horizon as Japan attempts to normalize its monetary policy.

U.S. earnings remain a bright spot

Earnings reports this week underscored the continued strength of corporate America. S&P 500 earnings are tracking above 12% year-over-year, while revenue growth stands near 8%—one of the strongest revenue growth readings in recent years.

This robust earnings performance supports the view that corporate profitability remains healthy, helping keep layoffs low and bolstering the case for a soft landing.

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