Sentiment stabilizes after Trump cools his rhetoric on trade with China and gold to record levels

While US President Donald Trump had threatened to impose 100% tariffs on China from November 1 and Beijing had threatened countermeasures, he was more conciliatory on Sunday, saying everything would be fine and that the US did not want to “hurt” China.

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In Europe, the focus has been on France, with reappointed Prime Minister Sebastien Lecornu facing pressure to reach a budget deal across the board.

And in a sign that global uncertainties remain high, gold hit new records above $4,000 an ounce, while Asian stocks fell sharply.

“The stabilization of markets is encouraging,” said Rory McPherson, chief investment officer at Wren Sterling in London.

“Given everything that’s going on with the (US government) shutdown and political unrest in France and Japan, markets have been strong. A pullback would be healthy.”

Jan Hatzius, chief economist at Goldman Sachs, said that while he still expected an extension of the current tariff pause, recent developments suggested a broader range of outcomes was now possible.

JAPANESE LEADERSHIP NOW IN DOUBT

Many world leaders, including Trump, are due to meet in Egypt on Monday to discuss ceasefire plans for Gaza.

U.S. stock futures pointed to a rebound as Wall Street reopened on Tuesday, with S&P 500 and Nasdaq stock futures up more than 1% each.

Overall, S&P 500 companies are expected to have increased third-quarter earnings by 8.8% from a year earlier, according to LSEG IBES, and strong results will be needed to justify the market’s lofty valuations.

“We think you could have, at least in the very short term, a more volatile and directionless environment for certain risky assets. Ultimately, whether or not you go against the market in this environment depends on your conviction,” said Homin Lee, senior macro strategist at Lombard Odier.

turbulence in France

Lecornu must now manage a 2026 budget in a deeply divided parliament and faces the threat of a vote of no confidence in Parliament.

The yield on French 10-year bonds rose just 1.2 basis points to 3.48% and French stocks rose 0.5%, a sign that investors held out hope for some political stability in the near term.

“Even if, and this is very important if, Lecornu stays in power longer than in his first attempt, he will face an uphill struggle to pass a budget for 2026 through a divided Parliament by the end of the year,” said Holger Schmieding, Berenberg’s chief economist.

Foreign exchange markets also saw some stabilization after Friday’s rush into the traditional safe havens of the Japanese yen and Swiss franc. The dollar rose 0.7% to 152 yen, having slipped 1.2% on Friday from a peak of 153.29.

The euro was stable at $1.1605, while the dollar gained 0.3% against the Swiss franc to 0.80105. The dollar index remained stable, after losing 0.6% on Friday.

In bond markets, Treasuries were closed for a holiday, while government bond yields in Europe rose slightly.

U.S. and European bond yields hit multi-week lows following Trump’s tariff threat on Friday, while investors increased their bets on further rate cuts from the Federal Reserve.

“Interestingly, the bond market held up on Friday, which is encouraging given the recent sell-off in long-term bonds,” said Wren Sterling’s McPherson.

Futures imply a roughly 98% chance of a quarter-point cut from the Fed later this month, and a similar chance of another move in December.

Fed Chairman Jerome Powell has a chance to offer his advice when he speaks on the economic outlook at the NABE annual meeting on Tuesday.

Many other Fed members will appear this week, along with a who’s who of central bankers attending an IMF and World Bank meeting in Washington.

Oil prices also regained ground on hopes that the United States and China would find a trade compromise to avoid new tariffs.

Brent rebounded 1.6% to $63.74 a barrel, while U.S. crude rose 1.6% to $59.83 a barrel.

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