Sentiment steadies after Trump cools rhetoric on China trade, gold at record highs

Written by: Dhara Ranasinghe and Wayne Cole

LONDON (Reuters) – World markets found more stable ground on Monday following negative developments in the U.S.-China trade war, while gold reached new record highs in a sign that uncertainty remains high.

While US President Donald Trump has threatened to impose 100% tariffs on China starting November 1 and Beijing has threatened countermeasures, he struck a more conciliatory tone on Sunday, stating that everything will be fine and that the US does not want to “hurt” China.

While European stocks opened with gains, US stock futures also rose despite trading being sluggish due to holidays in Japan and the US.

In Europe, the focus is on France, where reappointed prime minister Sebastien Lecornu faces pressure to strike a budget deal.

Asian stocks fell sharply as gold hit new record highs above $4,000 per ounce in a sign that global uncertainties remain strong.

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

“Given the (U.S. government) shutdown and political turmoil in France and Japan, markets are strong. A pullback would be healthy.”

Beijing on Sunday defended restrictions on exports of rare earth elements and equipment in response to US aggression, but stopped short of imposing new duties on US products.

Jan Hatzius, chief economist at Goldman Sachs, said that while he expects the current tariff pause to be extended, recent developments show a wider range of outcomes are now possible.

JAPANESE LEADERSHIP IS NOW SUSPICIOUS

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

Japanese markets have faced their own problems surrounding the rise of new LDP leader Sanae Takaichi to the premiership, contributing to a sharp rebound in the yen and a 5% drop in Nikkei futures on Friday.

Japan’s Nikkei index was closed on Monday, while MSCI’s broadest index of Asia-Pacific shares outside Japan lost 1.5%.

Chinese blue chips fell 0.5%, although the rare earth and semiconductor sectors both strengthened. The data pointed to some resilience in trade, with exports rising by 8.3%, almost double forecast, and imports rising strongly.

US stock futures point to recovery as Wall Street reopens on Tuesday; S&P 500 and Nasdaq stock futures rose more than 1%.

Earnings season kicks off this week with reports from major banks including JPMorgan, Goldman Sachs, Wells Fargo and Citigroup.

S&P 500 companies are generally expected to grow earnings by 8.8% year-over-year in the third quarter, according to LSEG IBES, and strong results will be needed to justify the market’s lofty valuations.

“Our prediction is that you may face a more volatile and directionless environment for some risky assets, at least in the very near term. Ultimately, whether you go against the market in this environment depends on your belief,” said Homin Lee, senior macro strategist at Lombard Odier.

KARGINA OF FRANCE

Politics cast a shadow over Europe on Sunday, with the French presidency announcing Lecornu’s new cabinet line-up and reappointing Emmanuel Macron’s close ally Roland Lescure as finance minister.

Lecornu now has to shepherd the 2026 budget through a deeply divided parliament and faces the threat of a confidence vote in parliament.

France’s 10-year bond yield rose just 1.2 basis points to 3.48% and French stocks gained 0.5%. This indicates that investors maintain their hopes for political stability in the near term.

“Lecornu will face an uphill battle to get the 2026 budget through the divided parliament by the end of the year, even if it is huge and stays in office longer than his first try,” said Berenberg chief economist Holger Schmieding.

Currency markets also saw some stabilization on Friday following a rush into the traditional safe havens of the Japanese yen and Swiss franc. The dollar rose 0.7% to 152 yen, losing 1.2% from its peak of 153.29 on Friday.

While the euro remained stable at $1.1605, the dollar rose 0.3% against the Swiss franc to 0.80105. The dollar index remained flat after losing 0.6 percent on Friday.

While cash Treasury bonds in bond markets were closed for holidays, government bond yields rose in Europe.

U.S. and European bond yields hit multi-week lows after Trump’s tariff threat on Friday, while investors increased bets on further Fed rate cuts.

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

Futures contracts suggest there is a roughly 98% chance the Fed will cut interest rates by a quarter point later this month, with the possibility of another similar move in December.

Fed Chairman Jerome Powell will have a chance to offer guidance when speaking about the economic outlook at the NABE annual meeting on Tuesday.

This week, many other Fed members will be present as well as central bankers attending the IMF-World Bank meeting in Washington.

Oil prices also gained some ground on hopes that the US and China would find some compromise on trade to avoid new tariffs. [O/R]

Brent rose 1.6% to $63.74 per barrel, while US crude oil rose 1.6% to $59.83 per barrel.

(Reporting by Dhara Ranasinghe in London and Wayne Cole in Sydney; Editing by Ros Russell)