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Risk Assets Sprint Further as Confidence Grows of a US-China Trade Deal This Week: Oct. 27, 2025
Interactive Brokers
Stocks this morning hit all-time highs for the second-consecutive trading day on growing confidence that Washington and Beijing can reach a deal this Thursday in Gyeongju, South Korea. Negotiators met in Malaysia this weekend and declared that agreements concerning contentious topics, such as tariffs, shipping charges, fentanyl, soybeans, rare earths and export controls had been reached, but terms won’t be finalized until presidents Trump and Xi-Jinping meet at the APEC summit later this week.
Other important discussions are expected to address the Russia-Ukraine war, Taiwan’s independence and a global peace plan. Investors are enthusiastic that leaders from both sides are setting the stage for a treaty, which is sparking risk-on sentiments in markets as all non-defensive equity sectors are advancing. Additionally, an elevated share of firms beating earnings estimates this season has traders excited along with expectations that upcoming results from five of the magnificent seven are likely to exceed projections and that the companies will provide buoyant outlooks for critical artificial intelligence investments and returns.
Meanwhile, prospects for a US-China settlement are bolstering economic growth expectations, which is lifting the yield curve in bear-flattening fashion, led by the monetary policy sensitive shorter tenors, as fixed-income watchers begin to wonder if the Fed will need to cut in January, considering the exuberance on Wall Street, which coincides with a 3-handle on the Consumer Price Index.
Still, the central bank is projected to reduce its benchmark this Wednesday and in December and asset prices are poised to benefit as a result of a rising international tolerance for above-target inflation. Cyclical commodities are appreciating on greater optimism of a robust cycle while participants dump safe-haven gold and silver as well as volatility protection instruments against the backdrop of weakening hedging demand. Offensive stances are leading to bitcoins and forecast contracts catching bids; the dollar is flat, however.
Outstanding October
Markets are poised to produce an “Outstanding October” this Friday as optimism builds regarding robust corporate earnings calls featuring positive outlooks, a potential US-China trade deal and a coinciding Fed rate cut this week. The trio of events support advancing stock prices and fast economic growth while alleviating valuation concerns by reducing costs of short-term capital.
The setup into year-end is particularly significant, as the months of November and December are historically amongst two of the top-performing periods. But Treasurys have been stuck in narrow trading ranges recently as the extended government shutdown has blinded fixed-income investors who traditionally rely on official data to choose the directions of their trades. Still, the rally in credit doesn’t have much further to go, in my view, because GDP projections are too strong and inflation too elevated for 2s and 10s to fall well below 3.50% and 4.00%.
International Roundup
China FDI Paints Mixed Picture
Foreign direct investment (FDI) in China jumped 11.2% year over year (y/y) in September, but longer-term trend data show the country, which suffers from manufacturing over capacity, is still struggling to attract capital. For the first nine months of 2025, FDI totaled $80.9 billion, a 10.4% drop following the 12.7% decline for the first eight months of the year, according to the Ministry of Commerce. While the year-to-date (YTD) results have been negative, investors have increased their allocation to high-growth categories with FDI for e-commerce, aerospace and equipment manufacturing up 155%, 39% and 17%. Countries with the largest increases in FDI into China include Japan, the UAE, the UK, and Switzerland.
But Profits Jump
Industrial profits in China climbed 3.2% on a year-to-date basis during the first nine months of this year following a 0.9% y/y gain in the YTD period ended in August, according to the National Bureau of Statistics of China. On a y/y basis, September profits were up 21.6%, which exceeded the economist consensus estimate of 3.9%. The Chinese government has been curtailing overcapacity and aggressive price cutting while foreign demand for the country’s products has been growing.
Japan Inflation Gauge Higher than Expected
Japan’s Corporate Services Price Index (CSPI) accelerated from 2.7% y/y in August to 3% last month, surpassing the economist consensus estimate of 2.8%. The gauge was also 0.1% higher m/m, depicting modestly easing price pressures from August’s 0.2% increase. The index measures how much business pay for services. Among broad categories, advertising led price gains with a m/m hike of 5.8%, with television and radio up 7.9% and the internet, newspaper and magazine category moving 4.5% in the same direction. International travel prices also stiffened, gaining 2.2%. The other services category was the largest decliner with prices slipping 0.2%, a result, in large part, of hotel rates falling 4.2%.
Hong Kong Trade Deficit Nearly Doubles
Hong Kong’s trade deficit jumped from $25.4 billion in August to $50.2 billion last month despite the y/y growth of exports accelerating from 14.5% to 16.1%. Imports also picked up, increasing 13.6% in September after expanding 11.5% in August.
Demand from mainland China and other Asian countries expanded 18.3% y/y, but shipments to the US and the European union advanced modestly. The stronger cross border demand was particularly noteworthy for electrical equipment, machinery and mechanical appliances.
Private Loan Demand Up Modestly in Europe
Demand for loans from households was 2.6% higher in September than in the year ago period, strengthening modestly from the 2.5% y/y jump in August.