Futures Rebound From Overnight Plunge After Trump Eases Trade Fears
US equity futures initially tumbled for much of the overnight session on mounting market liquidity and regional bank concerns, but erased almost all losses just after 7am ET when US President Trump spoke to Fox and calmed fears of a trade war with China, lifting sentiment following yesterday's steep declines in banking stocks.S&P 500 futures fell as much as 1.5% before paring the loss to 0.2% as of 8:00am ET. Here is a snapshot of Trump's comments on Fox News this morning which helped reverse the selloff:
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TRUMP SAYS HE'S MEETING WITH CHINA'S XI IN TWO WEEKS
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TRUMP, ASKED IF HIGH CHINA TARIFFS WILL STAND: NO
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TRUMP ON CHINA TRADE: WE'LL SEE WHAT HAPPENS
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TRUMP: CHINA IS ALWAYS LOOKING FOR AN EDGE
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TRUMP ON CHINA TRADE: I DON'T KNOW WHAT'S GOING TO HAPPEN
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TRUMP ON CHINA TARIFFS: IT'S NOT SUSTAINABLE
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TRUMP: 100 PERCENT TARIFF IS NOT SUSTAINABLE
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TRUMP ON CHINA TARIFFS: WE'RE GOING TO DO FINE WITH CHINA
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TRUMP ON CHINA TARIFFS: WE HAVE TO HAVE A FAIR DEAL -FBN
Friday’s crop of earnings helped bolster regional banks, with Truist Financial Corp., Regions Financial Corp. and Fifth Third Bancorp all rising in early trading after they reported lower provisions for credit losses than expected. Overnight, there were not much incremental positive headlines. ORCL updated its revenue and EPS guidance and beat expectations; however, this positive update has been widely expected with a high bar entering this earnings season. Bond yields are 1-4bp lower; USD is lower. Commodities are mixed: oil lower; base metals mostly higher. The US economic calendar includes August TIC flows at 4pm. Housing starts and import/export price indexes will be delayed due to government shutdown. Fed speaker slate includes Musalem at 12:15pm, and Fed’s external communications blackout ahead of the Oct. 29 Fed policy decision begins Saturday

All the majors still remain down from Trump's initial tweet last Friday

In premarket trading, Magnificent Seven stocks are lower (Microsoft -0.4%, Alphabet -0.4%, Apple -0.1%, Amazon -.1%, Meta -0.6%, Nvidia -1.2%, Tesla -0.8%).
- Cryptocurrency-linked stocks fall as Bitcoin liquidations continue and broader global equities markets selloff amid trade tensions between the US and China and worries over US regional banks.
- AST SpaceMobile (ASTS) falls 4% after Barclays downgrades the wireless telecommunications stock to underweight from overweight, citing expensive valuations.
- CSX (CSX) rises 2.8% after the freight transportation company reported third-quarter revenue above analysts’ estimates.
- Eli Lilly & Co. (LLY) declines 3% after President Donald Trump said the price of the blockbuster diabetes drug Ozempic could come down to just $150 a month.
- Fifth Third (FITB) rises 2.6% after the company reported earnings per share for the third quarter that beat the average analyst estimate. Net interest income FTE also also came in just above expectations.
- Huntington Bancshares (HBAN) rises 1.6% after posting third-quarter results.
- Micron (MU) falls 1.3% as Reuters reports that the chipmaker plans to stop supplying server chips to data centers in China after the business failed to recover from a 2023 government ban on its products in critical Chinese infrastructure.
- Truist Financial (TFC) rises 1.1% after the financial services company reported adjusted earnings per share and non-interest income that came in above the average analyst estimates
After a week when fears about escalating trade tensions between Washington and Beijing fueled sharp swings in stocks, Trump told reporters that current tariffs on China were “not sustainable” and confirmed he would meet with Xi Jinping in South Korea in the coming weeks, helping ease nerves.
The volatility has seen the VIX rise to its highest level since April. Meanwhile, havens such as Treasuries and gold erased gains following Trump’s remark and lender results.
“This very much looks like end-of-cycle symptoms, where we can see hints of complacency in lending standards,” said Raphael Thuin, head of capital markets strategies at Tikehau Capital. “With this year’s rally and costly valuations, the temptation to take profits and secure year-to-date gains is high.”
Still, while some analysts said the situation resembled the 2023 US regional banking crisis that led to the collapse of Silicon Valley Bank and UBS Group AG’s takeover of Credit Suisse, they expect the market reaction to be short-lived. Indeed, a rout in regional banks, sparked Thursday by news that Zions Bancorp and Western Alliance Bancorp were victims of fraud on loans to funds that invest in distressed commercial mortgages, appeared primed to reverse.
“In the end, the crisis was contained, but that was not immediately clear,” said Leonard Cohen, chief executive officer of Ginjer Asset Management in Paris. “The third quarter results of US banks were good so investors are taken by surprise and wondering if they didn’t miss the forest for the trees.”
Concern about credit quality in the US economy is adding to disquiet among investors already uneasy about renewed trade tension between the US and China, the US government shutdown and a potential AI bubble. From the return of headline risk to jitters around a regional banking crisis, the market is getting the reaction in volatility that was broadly expected by derivatives strategists — albeit about a month later than the seasonal window suggested historically. Confidence that stocks can quickly reclaim record highs has been shaken.
Meanwhile, BofA said that stocks saw a fifth week of inflows, at $12.4 billion for the week ended Oct. 15. S&P 500 capital expenditures will likely grow 17% in 2025, boosted by AI hyperscalers’ investments, spending that’s constraining outlays on buybacks, according to Goldman Sachs strategists. Strategist Ryan Hammond cut his 2026 buyback growth forecast to 9% from 12% to “reflect the continued rotation from buybacks to capex among AI-exposed stocks”.
As for earnings season, with the occasional exception, it remains very strong: of the 51 S&P 500 companies that have reported so far this earnings season, more than 82% have beaten analysts’ forecasts, nearly 16% have missed, and 2% were as expected.
In Europe, Deutsche Bank AG and Barclays Plc stayed more than 5% lower, with a gauge of lenders leading regional declines. The Stoxx 600 was off by 1.5%, amid broad declines in banking stocks on both sides of the Atlantic, and for tech stocks in US premarket trading. Here are the biggest movers Friday:
- EssilorLuxottica jump as much as 12% and to a record high after the eyewear group reported third-quarter revenue that soared past estimates, lifted by a new batch of AI glasses with partner Meta Platforms
- Vitrolife rises as much as 8%, one of the few gainers in the European health-care sector after US President Donald Trump advanced his campaign promise of making IVF less expensive and more widely available in the U
- European defense stocks slump after President Donald Trump said he would meet Vladimir Putin for a second time “within two weeks or so” to discuss ending the war in Ukraine
- Novo Nordisk shares fall as much as 7%, the most since July 29, after US President Donald Trump said the White House will negotiate to lower prices for weight-loss drugs such as Novo Nordisk’s Ozempic
- Volvo shares fall as much as 8%, after the Swedish truckmaker said it expects a slowdown to extend into next year as uncertainties linked to President Donald Trump’s tariffs weigh on demand in North America
- Tomra falls as much as 15%, the most since June, after the Norwegian recycling equipment company reported earnings. DNB Carnegie says company is showing weakness in all regions
- Norion Bank falls as much as 12%, the most since March, after the Swedish niche lender reported earnings that fell short of estimates
- QT Group shares fall as much as 22%, the most in two monthst, after the Finnish technology group cut its operating margin forecast for the full year
Earlier in the session, Asian stocks slumped, hurt by lingering worry over US-China frictions and as loan problems at two American regional banks heightened concerns about the credit market. The MSCI Asia Pacific Index fell as much as 1.2%, snapping a two-day gain, with financials and tech hardware the biggest drags. TSMC dropped, with investors seen taking profits after the chipmaker raised its revenue outlook on strong AI demand. Hong Kong and mainland China benchmarks were among the worst performers amid the ongoing trade spat with the US. Investors also are positioning after the strong recent rally, with eyes on next week’s Fourth Plenum policy meetings. Japanese stocks fell as investors eye continued uncertainty over the local political situation. Key gauges also slid in Indonesia, Taiwan and Australia.
In Fx, the dollar reverses an earlier decline. The Bloomberg Dollar Spot Index is up to 1208; the Swiss franc and yen were the biggest gainers but have since reversed much of their gains.
In rates, Treasury yields reversed losses with outperformance at the short-end, and the 10Y rising 2bps to 4.00% after sliding as low as 3.93%.
In commodities, gold reversed its overnight surge, and after touching another record high of $4,380 it has since dropped below $4,300. Oil prices in the red, with WTI futures slipping below $57/barrel and Brent holding above $60/barrel. Crypto tumbling too, with Bitcoin touching the lowest since June.
Looking at the US economic calendar calendar includes August TIC flows at 4pm. Housing starts and import/export price indexes face delays due to government shutdown. Fed speaker slate includes Musalem at 12:15pm, and Fed’s external communications blackout ahead of the Oct. 29 Fed policy decision begins Saturday
Market Snapshot
- S&P 500 mini -0.1%,
- Nasdaq 100 mini -0.4%,
- Stoxx Europe 600 -1.0%,
- DAX -2%,
- CAC 40 -0.6%
- 10-year Treasury yield +2 basis point at 3.99%
- VIX -1.7 points at 24.5
- Bloomberg Dollar Index up to 1208.23
- euro +0.1% at $1.1702
- WTI crude -1% at $56.87/barrel
Top Overnight News
- The White House is poised to ease tariffs on the US auto industry, a move that would deliver a major win for carmakers that have aggressively lobbied to stem the fallout from record-level import duties. The Commerce Department is slated to announce a five-year extension for an arrangement that allows automakers to reduce what they pay in tariffs on imported car parts. BBG
- US Senator Majority Leader Thune said the Senate is expected to vote next week on a bill to pay federal workers who have been forced to work without pay which would include the military, according to Punchbowl.
- Donald Trump will host Volodymyr Zelenskiy at the White House today. The Ukrainian President will also meet representatives from defense companies including Raytheon during his US visit. BBG
- Shares in US regional banks fell on Thursday after two lenders disclosed that they were exposed to alleged fraud by borrowers, raising concerns about the health of bank loan portfolios. The disclosures by Western Alliance Bank and Zions Bank follow the recent failures by car parts maker First Brands and auto lender Tricolor, which have left credit investors nursing losses and are under scrutiny from the US DOJ. FT
- The Trump administration's slashing of the federal workforce amid the government shutdown is threatening AI work at the Commerce Department: Axios
- Tech companies aggressively shift their supply chains out of China – Microsoft aims to produce the majority of its new products outside of China as early as next year, while AWS is expanding its supply chain shift down to the component level. Nikkei
- Micron plans to stop supplying server chips to data centers in China after the business failed to recover from a 2023 government ban on its products in critical Chinese infrastructure, two people briefed on the decision said. Micron was the first U.S. chipmaker to be targeted by Beijing - a move that was seen as retaliatory for a series of curbs by Washington aimed at impeding tech progress by China's semiconductor industry. RTRS
- The US asked South Korea to increase soybean imports during trade negotiations, DongA Ilbo reported. American supplies account for half of the country’s purchases. BBG
- ORCL AI World proving to be another sell-the-news event after yesterday's TSM print as it trades lower in the pre this morning. ORCL closed +3% yesterday after projecting better margins than expected at its Analyst Day, but moved lower after the company announced further long-term revenue and profit forecasts after the close (ORCL -3.6% premkt). H/T GS TMT Trading
- Novo Nordisk shares dropped (NVO -450bps premkt) and Eli Lilly fell premarket (LLY -420bps) after Trump said the price of Ozempic may come down to just $150 a month — compared to about $1,000 currently. BBG
- The Trump administration is sharply increasing U.S. military pressure on the government of Nicolás Maduro, Venezuela’s authoritarian president, with a dramatic show of aerial threats in recent days as the Pentagon mounts a major troop buildup in the region. NYT
- On US Obamacare credit extension, Punchbowl writes "it's true" that there are House Republicans who want to extend the credits; however, House Republican leadership does not want to, and their view is "hardening as the shutdown drags on"
- Fed Governor Miran said the downside of tariffs has been nowhere near what people predicted and that tariffs have had no material signs of growth drag or inflation spike, while he doesn't think the cost of tariffs will be passed onto consumers.
- Fed's Kashkari (2026 voter) said it is too soon to know the effect of tariffs on inflation and the impact of tariffs is taking longer to be felt than had guessed, while he expects services inflation to trend down and it is possible that goods inflation could spill over. Furthermore, he said the job market is slowing down and it is challenging to read signals without core government data because of the shutdown, as well as noted that most folks say they are still concerned about inflation.
Trade/Tariffs
- US State Department said Secretary of State Rubio and USTR Greer met with Brazil's Foreign Affairs Minister Vieira and had very positive talks regarding trade and ongoing bilateral issues, while they agreed to work together to schedule a meeting between President Trump and President Lula at the earliest possible occasion.
- US State Department said China's sanctions against Hanwha Ocean's (042660 KS) US-linked units are attempts to undermine US-South Korea cooperation and coerce South Korea.
- South Korean Finance Minister said it's 'uncertain' whether US President Trump will accept Korea's position against an 'upfront' USD 350bln payment related to their tariff/trade agreement, according to Yonhap.
A more detailed look at global markets courtesy of Newsquawk
APAC stocks were predominantly lower as the region followed suit to the losses on Wall Street, where risk sentiment took a hit as regional bank concerns were reignited following loan fraud disclosures by Western Alliance and Zions Bancorp. ASX 200 was led lower by underperformance in financials, energy and tech, while gold miners were boosted by the record highs in the precious metal. Nikkei 225 retreated amid a firmer currency and as banking stocks suffered in sympathy with US counterparts, while uncertainty lingered ahead of next Tuesday's PM vote with the Japanese Innovation Party noting a 50-50 chance of a coalition with the LDP. Hang Seng and Shanghai Comp conformed to the downbeat mood amid US-China frictions, with both sides blaming each other for the tensions.
Top Asian News
- Japan's LDP and CDP agreed to hold a vote to decide Japan's next PM on October 21st, while it was also reported that Japan Innovation Party co-leader Yoshimura said the chance of a coalition with the LDP is 50-50.
- Japan's Ishin Party (Innovation Party) Co-head Fujita announces big progress with the LDP following talks; will enter the stage of finalising details, final discussions are very delicate.
- Japan's Komeito party is reportedly arranging not to vote for the opposition PM candidate, according to Kyodo.
- BoJ's Uchida says Japan's economy is recovering moderately, although there are some weak signs. The BoJ will continue to raise interest rate if prices move in line with our forecast.
European equities (STOXX 600 -1.8%) opened entirely in the red and dipped soon after the cash open, before finding a base where indices currently reside. The ongoing US regional banking fears remain at the forefront of traders' minds. European sectors are all negative. Banks/Financial Services unsurprisingly underperform, given the aforementioned banking fears. Elsewhere, Defence names across Europe have been pressured after the White House suggested that the latest Trump-Putin conversation was good and constructive. US equity futures (ES -1% NQ -1.2% RTY -1.6%) continue to extend the losses seen in the prior session, in-fitting with the risk tone. It is worth highlighting that the Regional Banking ETF (KRE) is lower by roughly 2% in the US pre-market.
Top European News
- BoE's Mann said the UK labour market is loosening but not falling off a cliff, while she added that the UK yield curve now provides a more appropriate financial condition for the UK economy.
- ECB's Scicluna said the ECB must not rush further interest rate action, because the effects of higher US tariffs on prices aren't yet clear, according to Bloomberg.
FX
- DXY is net lower with the USD showing a divergent performance vs. peers on account of the risk-averse moves triggered by the recent selling in regional US banks. As such, the USD is weaker vs. havens (CHF, JPY) and bid vs. risk-sensitive currencies (AUD, NZD). The question for markets is whether the selling pressure in Zions and Western Alliance Bancorp (on account of exposure to fraudulent loans) is a deep systemic issue or something that will have limited contagion, as per the SVB debacle in 2023. DXY hit a new low for the week at 98.02 (coincides with the 50DMA), before bouncing off the lows.
- EUR is up against the USD for a fourth session in a row on account of an aversion by the market to bid up the USD amid regional banking concerns and markets continuing to find solace in the developments in French politics this week. On the latter, with Lecornu having survived two no-confidence motions and odds of legislative elections by year-end receding to just 27% (vs. 50%+ earlier in the week), attention now turns to the subsequent debate and potential passage of the budget, as well as Moody's rating on France next Friday. Elsewhere, headline EZ HICP Finals were unrevised, and had limited impact on the Single-Currency. EUR/USD has eclipsed its 50DMA at 1.1692.
- JPY outperforms major peers on account of a haven bid alongside the selling in global equity markets. Subsequently, USD/JPY has slipped below the 150 mark for the first time since October 6th. From a domestic viewpoint, focus remains on the political landscape with the JIP co-head announcing "big progress" in discussions with the LDP party and stating that they will be entering the stage of finalising details. On the BoJ, comments from Governor Ueda over the past 24 hours have reiterated the Bank's view of raising rates if its economic forecasts are realised, whilst Assistant Governor Shimzu has noted that the Bank must tread carefully. USD/JPY has delved as low as 149.39 with the next downside target ahead of the 149 mark coming via the 6th October low at 149.04.
- The recovery in the pound vs. the dollar has faltered today on account of the broader risk tone. From a macro perspective, this week in the UK has been characterised by soft labour market metrics and sluggish growth with the former increasingly acknowledged by several BoE speakers this week. Next week also sees flash PMI and retail sales metrics, which are likely to be hampered by ongoing budget-related angst. Today's speaker slate includes BoE’s Pill, Greene & Breeden.
- Antipodeans are both lower vs. the USD on account of the risk-averse tone in the market with AUD continuing to lag its antipodean peer following yesterday's soft jobs metrics from Australia.
- PBoC set USD/CNY mid-point at 7.0949 vs exp. 7.1154 (Prev. 7.0968)
Fixed Income
- USTs are firmer, as the US regional banking backdrop remains at the forefront of market focus for today. USTs peaked at 114-02 early doors, sending the US 10yr yield below the 4% mark for the first time since April; for reference, the April low was 3.86%. Since, the benchmark has pulled back to just below the 114-00 mark but holds onto gains of c. 5 ticks on the session and around 25 on the week, as things stand.
- Bunds are bid, given the general risk tone and FTQ seen after the US regional banking flareup on Thursday. Bunds peaked at 130.59 early doors before seeing a relatively sharp pullback as the European morning got underway, to a 130.22 low; but, still firmer on the session. European specific newsflow of note for fixed income a little light, aside from largely unrevised headline HICP metrics. The docket ahead features ECB’s Nagel and Rehn.
- Gilts gapped higher by 46 ticks, acknowledging the upside seen in peers on Thursday after the Gilt close as the US regional banking situation reverberated to the broader risk tone. Opened at 93.10 and extended to a 93.17 peak, notching a new high for the week and taking the benchmark to its highest since July when Gilts briefly traded above 93.50. Amidst this, the UK 10yr yield found itself under pressure and to a 4.45% low; the lowest since July when 4.41% printed. Ahead, we have a handful of BoE speakers due. On the hawkish side, Pill and Greene feature and are followed by the usually more neutral Breeden.
Commodities
- WTI and Brent are pressured today amidst the ongoing risk-off sentiment, and as traders digest the latest constructive commentary surrounding the latest Trump-Putin call. The White House described that call as "good and productive" and have agreed to convene a meeting of high-level staff next week. WTI and Brent are currently trading towards the lower end of their respective USD 56.73-57.56/bbl and USD 60.30-61.11/bbl range.
- Spot gold continues to advance and remains at top end of the day's range (USD 4,279.10-4,380.79/oz). Price action this morning fairly rangebound, but ultimately at elevated levels given the risk-off environment.
- Base metals are lower across the board, pressured by the risk tone; 3M LME Copper currently off by around 1.6% in a USD 10,461.6-10,637.5/t range.
Geopolitics
- Hamas said the return of Israeli hostages' bodies may take time as some were buried in tunnels destroyed by Israel and others remain under rubble, while the retrieval requires equipment to remove rubble, which is currently unavailable due to Israel's entry ban on such tools. Furthermore, it stated that it remains committed to the Gaza agreement and is keen to hand over all remaining hostages' bodies.
- "Israeli Foreign Minister: Israel is committed to Trump's plan, but Hamas is violating the agreement by holding the remains of 19 of our dead hostages", according to Sky News Arabia
- US President Trump said regarding Russian President Putin and Ukrainian President Zelensky, that they might do separate meetings, while he will probably meet Putin over the next two weeks. Trump commented that Tomahawks are also needed for the US, and he responded that he will speak to Senate Majority Leader Thune after House Speaker Johnson, about the Putin call and make the right determination, when asked about Russian sanctions.
US Event Calendar
- 8:30 am: Sep Housing Starts, est. 1320k, prior 1307k
- 8:30 am: Sep P Building Permits, est. 1343k, prior 1330k
- 8:30 am: Sep Housing Starts MoM, est. 0.99%, prior -8.5%
- 8:30 am: Sep Import Price Index MoM, est. 0.1%, prior 0.3%
- 8:30 am: Sep Import Price Index YoY, est. 0.35%, prior 0%
- 4:00 pm: Aug Net Long-term TIC Flows, prior 49.2b
- 4:00 pm: Aug Total Net TIC Flows, prior 2.1b
DB's Jim Reid concludes the overnight wrap
Market sentiment saw a sharp deterioration over the past 24 hours as news of bad loans at two US regional lenders triggered broader concerns about credit quality, leading US bank stocks to their worst day since early April while the S&P 500 sank -0.63%. Other risk assets also struggled, with US HY credit spreads +10bps wider. Treasuries rallied with the 2yr yield dropping -7.3bps to a 3-year low of 3.42%, also helped by oil prices falling to a new 5-month low. Earlier yesterday, French Prime Minister Lecornu survived his two no-confidence votes, which led to another sizable advance for the CAC 40 (+1.38%), with the STOXX 600 (+0.69%) outperforming its US counterparts.
An initially positive risk mood turned during the US session yesterday after news that Zions Bancorp (-13.14%) made a $50m charge-off while Western Alliance (-10.81%) alleged it also suffered from fraud on loans to the same borrowers linked to distressed commercial mortgages. While this was an ostensibly isolated story at two banks each less than $10bn market cap, the event drew inevitable comparisons to the regional bank stress that followed the collapse of SVB in March 2023 and raised broader questions over potential credit quality issues after a lengthy period of elevated rates and expansion in private credit, following also the bankruptcy of subprime auto lender Tricolor last month.
US bank stocks struggled in response, as the KBW regional bank index plunged by -6.31% while the S&P 500 banks sector group fell -2.98%, with both posting their worst days since the post-Liberation Day turmoil in early April. The volatility weighed on the broader S&P 500 (-0.63%), with the small cap Russell 2000 (-2.09%) underperforming and the VIX index rising to its highest since April (+4.67pts to 25.31). A cautious mood has continued overnight, with futures on the S&P 500 (-0.44%) and NASDAQ (-0.29%) both lower.
Treasuries rallied amid the risk-off sentiment, with 2yr yields falling -7.3bps to their lowest since September 2022 when the Fed was still midway through its hiking cycle. That came as fed funds futures priced in 54bps of rate cuts by year-end (+5.7bps on the day), the first time that two more 25bps Fed cuts have been fully priced. Meanwhile, 10yr yields fell -5.4bps to a 12-month low of 3.97% and are another -3.0bps lower overnight. The dollar index (-0.46%) lost ground yesterday amid lower rates, while gold saw its biggest daily rise since May (+2.83%) to reach a new high of $4,326/oz and is another +0.79% higher this morning.
That rally in Treasuries came despite measured Fedspeak earlier in yesterday’s session. Notably, Fed Governor Waller reiterated his support for a 25bps cut in October, but said that beyond then, he would be “looking for how the solid GDP data reconcile with the softening labor market”. That suggested Waller may see a December rate cut as not quite a done deal, even as he has been one of the more dovish voices within the FOMC and is one of the five candidates reported to be in the short-list for Fed Chair. By contrast, Governor Miran repeated his call for a larger 50bps rate cut, while Richmond Fed President Barkin said he was still “sanguine” on the employment and inflation outlook. Waller also appeared to echo Powell’s signal earlier in the week that reserves may soon approach ample levels. With the recent shift in tone, our US rates strategists now expect the Fed to announce the end of QT at the December meeting (see here).
A notable exception from the sour risk mood yesterday was the Philadelphia Semiconductor Index (+0.49%), which held onto gains driven by positive results from TSMC and upbeat margin guidance from Oracle (+3.09%).
European markets had closed before most of the US sell-off, with the STOXX 600 up +0.69%. Indices were higher across the continent, led by a +1.38% gain for France’s CAC after French PM Lecornu survived his two votes for no confidence. The government’s chances of survival had improved as the Socialist Party declared they would not vote to topple the government after Lecornu announced that he would suspend the 2023 pension reform until after the 2027 presidential election. The first round vote came fairly close (271 deputies voted no confidence vs the 289 needed), although only 144 deputies voted for no confidence in the second round. The result helped the 10yr Franco-German spread inch -0.6bps lower to 76bps, its lowest since late August. Attention will now turn to passing the 2026 budget, with our economists expecting the government to limit amendments as it seeks to keep the deficit below 5% of GDP. See their note yesterday on the budget process here.
European bond moves were muted overall, with the 2yr bund yield down -1.3bps while the 10yr was unchanged. The front-end rally came as the amount of ECB rate cuts priced by next June rose +3.4bps to 19bps, its highest since August, with investors focusing on the potential for lower oil prices to increase the size of the inflation undershoot expected over the next year. These moves came despite comments by Governing General Council members Nagel, Wunsch and Dolenc playing down the inflation undershoot, while Rehn noted “two sided” risks to the inflation outlook. Meanwhile in the UK, gilts outperformed, with the 10yr yield down -4.2bps after underwhelming August GDP data. While the UK economy grew +0.1% m/m as expected, July was revised down from 0.0% to -0.1% m/m and services activity was flat for a second month running in August (vs +0.1% expected).
Turning to the limited US data amid the shutdown, investors got a surprise when the Philadelphia Fed factory index for October came in much weaker (-12.8 vs +10.0 expected). However, the details of the survey were not quite as weak as the headline and the move ought to be judged together with Wednesday’s Fed Empire reading, which saw a near mirror opposite upside surprise.
Finally on geopolitics, Trump and Russia’s President Putin held a two-hour phone call yesterday. The main outcome was an agreement for the two to meet in Budapest, which Trump suggested could take place “within two weeks or so”, after US and Russia first hold high-level staff talks next week. The US President expressed optimism that the meeting could lead to a breakthrough towards peace in Ukraine, progress on which has stalled since the last Trump-Putin summit in Alaska in August. The Trump-Putin call came just ahead of Ukraine President Zelenskiy visiting Trump in Washington today. Prospects of a new Trump-Putin summit helped ease market fears of new restrictions against Russian oil, with Brent crude falling -1.37% to $61.06/bbl, its lowest since May.
Asian equity markets this morning are mostly following the losses on Wall Street. Across the region, Chinese equities are leading the decline, most of all the Hang Seng (-1.57%), followed by the CSI (-1.27%) and the Shanghai Composite (-1.00%). US-China trade tensions are negatively impacting sentiment with China’s Ministry of Commerce yesterday accusing the US of inciting “panic” over its rare earth controls, saying “the US interpretation seriously distorts and exaggerates China’s measures”. Elsewhere, the Nikkei (-0.98%) is also lower, with financial stocks underperforming after the sharp declines in US regional banks, after having seen substantial gains in the previous two sessions.
Conversely, the KOSPI (+0.23%) is defying the region's negative trend, though it’s given up most of its initial gains of up to +1.23% driven by battery and chemicals shares amid optimism for a potential trade agreement with the US.
In central bank news, BoJ Governor Ueda has indicated that the central bank will persist with tightening measures if confidence in achieving its economic outlook improves, thereby leaving the possibility open for a near-term interest rate hike. Ueda's remarks were the first since Sanae Takaichi's election as the leader of the ruling Liberal Democratic Party (LDP) earlier this month. Still, 10yr JGB yields are -4.5bps lower this morning, following the move in US Treasuries.
To the day ahead now, and we’ll get central bank speakers including Fed’s Musalem speaks, ECB’s Nagel and Rehn speak, BoE’s Pill, Greene and Breeden speak. Notable earnings include American Express and Volvo.
Tyler Durden
Fri, 10/17/2025 - 09:15
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