By Jamie McGeever
ORLANDO, Florida (Reuters) – A burst of optimism and relief over U.S.-China trade talks provided the fuel to lift global stocks to new highs on Monday, while Argentine markets rose after a resounding midterm election victory for President Javier Milei’s ruling party.
In my column today I warn that when it comes to trade between the United States and China, we have been through this before. US President Donald Trump triumphantly claimed in June that a trade deal with China had been struck, but that was not the case. Of course, it might be different this time, right?
If you have more time to read, here are some articles I recommend to help you understand what happened in the markets today.
1. Amazon Aims for Cuts of Up to 30,000 Corporate Jobs, Sources Say 2. Big Tech to Report Profits Under Specter of AI Bubble 3. Countdown to Fed Cut: Bond Investors Reduce Longer-Term Treasuries 4. Still in a ‘Good Place’? Five questions for the ECB 5. Bringing it all back home: a withdrawal of global capital?: Dolan
The key movements of the current market
* STOCKS: New highs around the world: Japan (Nikkei above 50,000), Brazil, Europe, United States, 10-year high in China, Argentina soars more than 20%. * STOCKS/SECTORS: Qualcomm Stock +11%, Super Micro Computer +7%, Tesla +4%, Nvidia +3%. Technology sector +2%, consumer discretionary -0.6%. * Exchange rate: Argentine peso jumps more than 10% before stabilizing at 4%. Dollar index falls a little; The Australian dollar is the one that advances the most in the G10, +0.6%. * BONDS: US yields rise 2 bps. The 2-year Treasury auction attracts the highest proportion of direct bids since 2012, the 5-year auction is doing well. The MOVE Volatility Index closed at its lowest level in 4 years on Friday, below 69.00. * RAW MATERIALS/METALS: Gold -3% again below $4,000/oz, silver -4%. Oil falls as OPEC plans another production increase.
Today’s Talking Points
* Optimism around the United States and China…
So it looks like a trade deal could be imminent. Even if this is essentially an interim deal that leaves behind really thorny issues like US tariffs on Chinese goods and China’s controls on rare earth exports, it buys time.
For investors, it’s more time to maintain a pro-risk stance supported by earnings, dovish central banks and the AI ​​optimism that has existed since April. Until fatigue really hits or there is a catalyst to reverse it, perhaps the risk rally will continue.
*…and Argentina
Argentine markets soared on Monday following the convincing – and surprising – victory of President Javier Milei’s ruling party in the midterm elections. The peso jumped 10%, bonds 15% and stocks 20%.
It is a clear victory for Milei, and also for Washington, given the magnitude of the financial support that the Trump administration has provided to Buenos Aires in recent weeks. As always, the question once this surge in relief fades is whether Argentina will be on a more stable financial footing in the long term.
* Central bank bonanza
Investors are gearing up for a series of major central bank meetings this week, with the Federal Reserve taking center stage on Wednesday and ably supported by the Bank of Canada, the Bank of Japan and the European Central Bank.
The Federal Reserve is only expected to reduce rates, and by 25 basis points, which is already fully priced in in financial markets. But the overall tone is likely to be subdued, further supporting the rally sweeping global stock markets.
Beware of US-China trade ‘deal’ déjà vu
The United States and China appear to have drawn up the framework for a trade deal ahead of Presidents Donald Trump and Xi Jinping’s meeting this week, removing the threat of an imminent collapse in trade between the world’s two largest economies. Global markets have welcomed the news, but far from being a game-changer, this simply looks like déjà vu.
Do you remember this?
“OUR DEAL WITH CHINA IS DONE, SUBJECT TO FINAL APPROVAL WITH PRESIDENT XI AND I,” Trump wrote on Truth Social on June 11, adding, “THE RELATIONSHIP IS GREAT!”
As it turned out, the deal didn’t close and the relationship wasn’t great.
So much so that an emboldened Beijing earlier this month imposed additional controls on rare earth exports, and Washington responded with threats to impose 100% tariffs on shipments of goods from China bound for the United States. US Treasury Secretary Scott Bessent also publicly criticized China’s top trade negotiator Li Chenggang, calling him “unhinged.”
However, the two men appear to have put these differences aside following talks in Malaysia over the weekend, agreeing on the basis of a preliminary deal in which China will delay its expanded licensing regime for rare earths and the United States will sharply reduce threatened tariffs on Chinese goods.
Comments from the White House are optimistic, while the Chinese side is taking a more cautious line.
But how should investors view the news?
‘NEW DANGEROUS CHAPTER’
On the one hand, any deal that eliminates the worst-case scenario of a collapse in US-China trade is good news. And all the evidence from the depths of the ‘Liberation Day’ turmoil in April suggests that if this apocalyptic threat is set aside, the global economy will continue to thrive and markets will ‘melt’ on political stimulus, AI optimism and strong corporate profits.
Cassandras says that’s a dangerously complacent view. Whatever deal Trump and Xi agree to save face, it will be nothing more than a kick in the road.
Grace Fan at TS Lombard warned Friday that a “dangerous new chapter in geopolitics and global trade” has opened, regardless of how the Trump-Xi meeting goes. The stakes are high, neither side wants to back down and both will feel like they have the ace cards.
Trump leads the world’s largest economic, financial and military superpower, and all the trade deals he has signed so far this year have been in favor of the United States.
Meanwhile, Xi has enormous influence on something the United States needs: rare earths, the elements used in everything from lithium-ion batteries and semiconductors to cell phones, aircraft engines, LED televisions, electric vehicles and military radars.
SMALL BUT POWERFUL
The issue of rare earths is complicated.
China mines about 60% of the world’s rare earths and manufactures 90% of rare earth magnets. At first glance, the dollar value of the global rare earths market seems minuscule: just $12 billion, according to management consulting firm IMARC. That figure, which is at the high end of estimates, is a fraction of last year’s $670 billion bilateral trade between the United States and China.
But these elements are tied to trillions of dollars of global economic output, making the relatively small market a critical part of U.S.-China relations.
Therefore, it would be naïve to think that a temporary lifting of China’s export controls, if that is part of any agreement, will be the end of the matter.
Instead, both sides tend to use the “deal” as an opportunity to shore up their own weaknesses and ensure they are in a better position once tensions flare again, whether Beijing further diversifies its export markets or Washington diversifies its sources of critical minerals.
SOMETHING MORE ‘MONUMENTAL’
One of the big takeaways from the annual meetings of the International Monetary Fund and World Bank in Washington this month was that China’s decision to use its rare earth leverage over the United States signals a new, more dangerous stage in this geopolitical struggle.
Daniel Yergin, vice president of S&P Global, said in a discussion that trust between the United States and China “is gone.” Goldman Sachs Chairman John Waldron told another panel that “something more monumental” is brewing between the two countries.
Privately, many delegates were even more pessimistic.
But pessimism is not something that has characterized financial markets much in the last six months: stocks in Japan, Australia, South Korea, Britain, France and the United States hit record highs last week.
Many markets rose further on Monday ahead of the Trump-Xi meeting, scheduled for Thursday, with investors calculating that a “fallback” trade deal is better than no deal.
What could move the markets tomorrow?
* South Korea GDP (3rd quarter, preview) * Germany GfK consumer confidence (November) * US consumer confidence (October) * US Treasury auctions $44 billion in 7-year notes * US earnings including Visa, Sysco, UPS and UnitedHealth
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The opinions expressed are those of the author. They do not reflect the views of Reuters News, which, in accordance with the Trust Principles, is committed to integrity, independence and freedom from bias.
(By Jamie McGeever; Editing by Bill Berkrot)
