Asian stock markets experienced a turbulent start on Monday, following renewed concerns over the ongoing U.S.-China trade war, which has left investors on edge amid already stretched market valuations. Early trading was characterized by volatility, partly due to holidays in Japan and the United States that contributed to a disjointed trading environment.
U.S. President Donald Trump’s recent threats of imposing 100% tariffs on Chinese imports starting November 1 initially rattled markets, but over the weekend, his tone shifted towards a more conciliatory approach. Trump expressed optimism that “everything would be fine” and emphasized that the U.S. does not aim to “hurt” China. This statement comes as Beijing defended its restrictions on the export of rare earth elements and equipment, citing U.S. aggression, though it stopped short of announcing additional tariffs on American products.
Goldman Sachs’ chief economist Jan Hatzius provided an analysis of the evolving situation, suggesting that while an extension of the current tariff pause alongside limited concessions from both sides seems likely, recent developments indicate a wider range of potential outcomes than previously anticipated. This includes the possibility of both greater concessions and increased export restrictions or tariffs.
As the trade discussions continue, many world leaders, including Trump, gathered in Egypt to address ceasefire efforts concerning Gaza, adding another layer of geopolitical complexity to the market dynamics.
In Japan, political uncertainty weighed on markets with the potential ascension of the new Liberal Democratic Party leader, Sanae Takaichi, to prime minister seeming less certain. This uncertainty contributed to a rebound in the yen and drove Nikkei futures down by 5% on Friday. Currently, Nikkei futures are showing slight improvement, trading up 1.3% at 46,690, although still significantly below the cash close of 48,088.
Other Asian markets felt the ripple effects as well, with South Korean shares declining 2.1% and Australian shares down by 0.5%. The MSCI Asia-Pacific index (excluding Japan) fell by 0.6%, signaling a cautious sentiment across the region.
In contrast, Wall Street futures indicated a potential recovery, with S&P 500 futures up by 1.1% and Nasdaq futures gaining 1.6%. As the earnings season kicks off, major banks including JPMorgan, Goldman Sachs, Wells Fargo, and Citigroup are set to report their quarterly results, with analysts forecasting an overall increase in S&P 500 company earnings by 8.8% for the third quarter compared to last year. Strong earnings will be critical in justifying the market’s current high valuations.
The political landscape in Europe also appears tense, with the recent announcement by the French presidency regarding Prime Minister Sebastien Lecornu’s new cabinet, which reappointed finance minister Roland Lescure, a close ally of Emmanuel Macron. Lecornu’s previous cabinet lasted a mere 14 hours, and he faces the challenging task of navigating a budget for 2026 through a divided parliament.
Currency markets witnessed a period of stabilization following a flight to safe-haven assets like the Japanese yen and Swiss franc. The dollar rose by 0.5% against the yen to reach 151.98, recovering from a 1.2% drop on Friday. The euro remained stable at $1.1607, while the dollar also saw modest gains against the Swiss franc.
In bond markets, cash Treasuries were closed for a holiday, although futures dipped slightly as sentiment steadied. Investors had been reacting to the economic implications of Trump’s tariff threat, leading to multi-week low yields and rising bets on further rate cuts from the Federal Reserve. Futures now reflect about a 98% probability of a quarter-point cut from the Fed at its upcoming meeting.
In commodities, gold continued to attract investors as a hedge against fiscal and political instability, rising by 0.5% to $4,037 per ounce. It briefly surpassed last week’s record, reaching $4,059. Meanwhile, oil prices gained ground in light of hopes for a trade compromise. Brent crude increased by 1.0% to $63.36 per barrel, and U.S. crude rose by the same margin to $59.45 per barrel, fueled by optimism that U.S.-China negotiations may avert further tariff impositions.
