Key Highlights

• U.S. Trade Representative Greer says Beijing rebuffed a U.S. effort to discuss rare earth export controls.
• French President Macron appointed a new cabinet, now facing a new no-confidence motion.
• India-U.S. trade talks in Washington spark optimism over a breakthrough, driving INR gains.

Chart of the Day

Cross-border USD flow, late-March to mid-April

^{Source: BNY}

The re-escalation in Sino-U.S. trade tensions has already had a significant market impact, and there are fears of a repeat of April. Setting aside underlying factors behind the changes, asset owners will likely dust off their April playbooks in anticipation of further pain and any potential recovery. To that end, we look at the changes in flow and holdings activity for key assets in the run-up to President Trump’s “Liberation Day” on April 2 and the two weeks that followed, as this was the peak of market activity. As is well understood, flow behavior after any event, particularly one on a magnitude of Liberation Day, has much to do with positioning and flow momentum beforehand. As of Friday, equity markets were still at the highs and the dollar was starting to recover against low yielders, though sentiment had turned cautious over valuations in equity and credit markets. As for the dollar, we note that in April, both flow momentum and risk appetite were stable to improving heading into Liberation Day. Our data indicates a surge in flows after tariffs were announced, with dollar buying reaching nearly five standard deviations above the rolling 12-month average and six standard deviations on a cross-border basis. However, this was largely due to hedges being unwound as asset values fell sharply. It took much of the next two weeks of trading before conditions stabilized.

What's Changed?

There was some market stability after President Trump’s comments Sunday suggesting everything would be fine and that the U.S. did not want to “hurt” China. However, the APAC session still saw significant risk-off sentiment, with equity selling. China’s trade surplus narrowed as both exports and imports rose more than expected, with trade to India standing out. European markets embraced the conciliatory talk and bought the dip in risk assets, while sending gold to new highs along with oil and copper. French Prime Minister Sébastien Lecornu’s new cabinet faces an immediate no-confidence test. Holidays in Japan, Canada and the U.S. today are keeping liquidity thin, with U.S. bond markets closed but stocks open. The USD stood out as a shock absorber last week, with stock selling triggering dollar hedge buying. Elsewhere in safe-haven stories, recent buying of stock dips coincided with JPY, CHF and gold outflows. As the U.S. session begins, gold is rebounding and the USD is holding, with focus on other currencies and any guidance on policy shifts from Fed speakers. Markets are setting up for Q3 2025 earnings, with solid expectations: 8–10% EPS growth supporting S&P 500 stability. How investors hedge and look for off-ramp signage this week will be key, as IMF meetings bring central bankers to Washington, D.C., likely fueling new policy tension.

What You Need to Know

China-U.S. relations faced renewed strain after U.S. Trade Representative Jamieson Greer said Beijing declined a request for talks following its expansion of export curbs on rare earth materials. The move, announced last week, caught Washington by surprise and was described by Greer as a “power grab.” China’s tighter controls on strategic minerals and magnets, vital for high-tech and defense industries, came just before Trump threatened to impose 100% tariffs on all Chinese goods starting Nov. 1. The escalating trade tensions sparked a $2T stock market sell-off on Friday, marking the largest market decline in months. S&P Mini +1.611% to 6701.5, DXY +0.034% to 99.011, 10y UST 0bp to 4.032%.

France’s Prime Minister Sébastien Lecornu announced his new cabinet on Sunday, two days after being reappointed and following the collapse of his previous lineup. The government includes centrist ministers Gérald Darmanin, Amélie de Montchalin, Jean-Noël Barrot and Roland Lescure, who retains the economy and finance portfolio and faces the challenge of reducing France’s fiscal deficit while preparing the 2026 budget. Conservative figures Catherine Vautrin, Annie Genevard and Rachida Dati also joined the cabinet, prompting their expulsion from Les Républicains. Laurent Nuñez was named interior minister, and Jean-Pierre Farandou became labor minister. Lecornu called it a “mission-based” government focused on passing a budget before year-end. The Socialist Party’s conditional support will determine its survival. CAC40 +0.862% to 7986.26, EURUSD -0.087% to 1.1609, 10y OAT +0.5bp to 3.484%.

China’s September exports rose 8.3% y/y, the fastest pace since March and above expectations of 6%, while imports grew 7.4% y/y, also beating forecasts and marking their strongest increase since April 2024. Outbound shipments benefited from stronger demand in Asia, Africa and Latin America as manufacturers diversified away from the U.S. market. Exports to India reached a record high in August, while shipments to Africa and Southeast Asia are on track for annual records. The trade surplus narrowed to $90.45B from $102.33B in August, reflecting stronger import growth, while domestic demand remained subdued. Beijing’s state planner announced ¥500M in policy-based financial tools to accelerate investment projects. CSI 300 -0.495% to 4593.98, USDCNY -0.048% to 7.1319, 10y CGB -1.8bp to 1.838%.

South Korea’s Foreign Minister Cho Hyun said the U.S. has revised its proposal related to Seoul’s $350B investment plan, following discussions over establishing a currency swap line. Seoul proposed an unlimited swap arrangement to mitigate risks from converting the commitment entirely into direct investment, which it warned could strain the domestic economy and foreign exchange market. Cho confirmed that Washington presented a new alternative now under review. The swap line has become a key sticking point in broader trade and tariff negotiations ahead of President Lee Jae Myung’s meeting with Trump at the APEC summit later this month. In addition, South Korea’s finance ministry and central bank issued a rare joint statement on Monday warning they are “closely monitoring” the foreign exchange market for one-sided movements in the won. KOSPI -0.721% to 3584.55, USDKRW +0.218% to 1428.4, 10y KTB -0.2bp to 2.957%.

What We're Watching

Fedspeaker: New Philadelphia Fed President Anna Paulson delivers a keynote address on economic outlook at the NABE Annual Meeting. 

What iFlow is Showing Us

Mood: Currently in risk-neutral territory, yet to capture the moves from Friday

FX: iFlow Carry continues to move into strongly positive and statistically significant but show some signs of mean reversion as HUF, IDR and ZAR all sold.

FI: Some frontier interest in sovereigns such as Romania and Argentina underscores interest in real yields. G10 sovereign debt markets are also performing well on a cross-basis, led by Eurozone and Australian government bonds.

Equities: Majority of markets struggle. Cross-border outflows from developed Europe are especially notable, led by Dutch, Italian and Swiss equity sales. Canada is also performing poorly. Chinese equities see good recovery flow but clear signs that FX hedging of these positions is also strengthening.

Quotes of the Day

“The best things in life are often waiting for you at the exit ramp of your comfort zone.” – Karen Salmansohn

“On the road of life, you can’t get off the exit ramp without some bumps and roadblocks — and a few detours.” – Oprah Winfrey

Economic Details

Germany’s wholesale prices rose 1.2% y/y in September, accelerating from 0.7% in August and 0.5% in July, while prices increased 0.2% m/m, according to Destatis. The annual rise was mainly driven by higher costs for food, beverages and tobacco, up 4.2% y/y, with sharp increases in coffee, tea, cocoa and spices (+22.2%) as well as sugar, confectionery and baked goods (+14.6%). Prices for non-ferrous metals and related semi-finished products jumped 23.5% y/y and 4.1% m/m. In contrast, wholesale prices fell for waste materials (-9.2%), IT equipment (-4.6%) and agricultural goods including grain and feed (-5.2%). DAX +0.724% to 24416.87, EURUSD -0.087% to 1.1609, 10y Bund +0.8bp to 2.652%.

Sweden’s SEB Housing Price Indicator was unchanged m/m at 29 in October, remaining slightly below its historical average of 32 and signaling stable but cautious home price expectations. The index has shown a mild downward trend over the past six months, consistent with largely flat home prices this year despite modest gains in recent months. Although consumer confidence has improved, it remains weak, with high housing supply continuing to cap price growth even as market turnover normalizes. Recent Riksbank rate cuts and an expansionary 2026 budget are expected to gradually support sentiment, but uncertainty over the broader economy and labor market continues to restrain price momentum. OMX +0.447% to 2719.591, EURSEK -0.078% to 11.0383, 10y Swedish GB -1.6bp to 2.684%.

Türkiye’s August current account posted a $5.46B surplus, with the balance excluding gold and energy showing a $10.01B surplus. The goods deficit narrowed slightly to $2.81B, while services posted a $9.52B surplus, supported by travel receipts of $7.67B and transport earnings of $2.77B. On a 12-month basis, the current account deficit stood at $18.3B. The financial account showed a $3.84T net inflow, including $986M in direct investment and $5.75B in reserve asset accumulation. Loan inflows reached $27.3B on an annualized basis, while portfolio investments had a $0.4B net outflow. BI 100 -1.147% to 10597.36, USDTRY -0.015% to 41.8128, 10y TGB +7bp to 31.24%.

Romania’s September CPI rose 0.4% m/m and 9.9% y/y, with year-to-date inflation at 8.5%, according to the National Institute of Statistics. The 12-month average inflation rate was 6.1%. The Harmonised Index of Consumer Prices (HICP) increased 0.5% m/m and 8.6% y/y. Food prices declined 0.2% m/m, while non-food goods and services rose 0.5% and 0.9% respectively. The sharpest monthly increases were recorded in electricity (+0.6%) and rents (+0.3%), while fresh fruit (-7.8%) and potatoes (-6.4%) fell the most. The expiry of the electricity price-cap scheme in July continued to influence energy costs, while overall inflation remained slightly below double digits but well above the EU average. BET -0.303% to 21563.76, EURRON -0.089% to 5.088, 10y RGB -2bp to 7.288%.