Global Market Recap: Trade Tensions Return, Rate-Cut Expectations Finally Settle

Starting from last Friday, global markets have once again fallen under the shadow of a renewed U.S.–China trade war after former President Trump threatened to impose new tariffs on Chinese goods. Then last night, with U.S. equities opening sharply lower across the board, Fed Chair Jerome Powell delivered a pivotal speech—sending strong signals of upcoming rate cuts and the end of balance sheet reduction—helping reverse the market’s steep intraday losses.

The Escalation of U.S.–China Trade Tensions

The latest round of trade friction began last week when China’s Ministry of Commerce announced tighter export controls on five additional rare earth metals, expanding upon the seven already restricted since April. Earlier, Beijing had also moved to restrict the export of specialized equipment used in refining these metals.

This means that any foreign company looking to export rare-earth magnets or semiconductor materials containing at least 0.1% heavy rare earth elements will now need special approval from the Chinese government. The expanded rules cover products tied to electric motors, computer chips, and other high-tech devices, and will roll out in two phases—on November 18 and December 1.

Although these measures were not explicitly aimed at the U.S., Trump reacted furiously on social media. He first claimed there was “no reason” for the planned meeting between U.S. and Chinese leaders at the APEC summit in two weeks’ time, and later announced plans to slap 100% tariffs on Chinese imports starting November 1, while also restricting all exports of “critical software” to China.

Source: Truth Social

Trump’s posts sparked a broad market selloff—major U.S. indexes plunged over 2% $S&P 500(.SPX)$ $NASDAQ(.IXIC)$ $Dow Jones(.DJI)$ , with semiconductor $VanEck Semiconductor ETF(SMH)$ and software stocks leading the decline. Cryptocurrencies and crude oil prices also tumbled, while gold surged as investors rushed for safety.

However, Trump later softened his tone, saying at a press conference that the APEC meeting was still on schedule. Given his unpredictable “TACO” approach this year—Talk Aggressively, Compromise Opportunistically—markets largely saw this as a bargaining tactic ahead of negotiations rather than a full-scale escalation.

Meanwhile, China’s Ministry of Commerce condemned the U.S.’s unilateral tariff threats as provocative and lacking sincerity for dialogue. Regardless, after months of relative calm, U.S.–China trade tensions are once again at the forefront of global attention, casting a renewed cloud over global markets.

Powell’s Speech: Policy Easing on the Horizon

Against this tense backdrop, another major theme—monetary policy—brought a brief moment of relief to investors. In his speech last night, Jerome Powell delivered several key messages:

1. A Weakening Labor Market Powell underscored that the job market is clearly losing momentum. Both private-sector data and internal Fed research show that hiring activity is slowing, while the recent government shutdown has delayed official employment reports, making it harder to assess the full picture.

2. An Open Door for More Rate Cuts He reiterated that the Fed has “no preset path” for rate cuts but remains open to further easing if economic data warrant it.

3. An End to Quantitative Tightening Powell also signaled that the Fed will halt its runoff of Treasuries and mortgage-backed securities, effectively bringing a three-year-long balance sheet reduction cycle to an end.

Markets reacted swiftly—equities rebounded sharply, reversing earlier losses. Investors interpreted the message as a clear sign that the Fed is shifting into a more aggressive monetary easing cycle.

According to the CME FedWatch Tool, there’s now a 95% probability that the Fed will cut rates by 25 basis points at each of its remaining two meetings this year. This also suggests that unless inflation or jobs data deviate meaningfully from expectations, the marginal impact of rate cuts on asset prices will likely fade. From here, the main driver for markets will shift toward the U.S.–China relationship and broader concerns over economic slowdown—or even stagflation.

Source: CME FedWatch

Invesight Viewpoint

While Powell’s remarks calmed market nerves in the short term, several deeper structural issues are beginning to surface. The ongoing U.S.–China rivalry and the potential reconfiguration of global supply chains have become new sources of systemic risk.

At the same time, the Fed’s pivot toward a more accommodative stance implies that the U.S. economy has entered a defensive phase, with growth momentum clearly waning. This underlying economic fragility now hangs like a sword over capital markets.

Recent volatility—especially the sharp correction in semiconductor stocks—also highlights how fragile global asset pricing has become amid rising geopolitical uncertainty.

Over the next few weeks, markets will likely focus on three major themes:

• The outcome of the U.S.–China meeting at APEC, which will directly shape trade expectations;

• The alignment between the Fed’s rate path and November’s jobs and CPI data, which will determine how aggressive policy easing can be;

• The evolution of global risk appetite—whether capital rotates back into growth and tech names or shifts toward defensive assets.

In short, the market narrative has shifted from a simple “inflation debate” to a more complex duel between geopolitics and monetary cycles. Investors now need to distinguish between real and false macro turning points, and position carefully at the intersection of risk aversion and rebound opportunities.