By Jamie McGeever
ORLANDO, Fla. (Reuters) – A surge of optimism and relief over U.S.-China trade talks provided the fuel to propel global stocks to new highs on Monday, while Argentine markets surged after a landslide midterm election victory for President Javier Milei’s ruling party.
In my column today, I warn that when it comes to U.S.-China trade, we have faced this problem before. US President Donald Trump triumphantly claimed in June that a trade deal with China had been reached, but that ultimately did not happen. Of course, it might be different this time, right?
If you have more time to read, here are some articles I recommend to help you understand what’s happening in the markets today.
1. Amazon Targets Up to 30,000 Corporate Job Cuts, Sources Say 2. Big Tech Firms to Report Results Under Specter of AI Bubble 3. Countdown to Fed Cut: Bond Investors Reduce Longer-Term Treasuries 4. Still in a ‘Good Position’? Five questions for the ECB 5. Bringing it all home – a global capital withdrawal?:Dolan
The main developments in the market today
* SHARES: New world highs – Japan (Nikkei above 50,000), Brazil, Europe, US, 10-year high in China, Argentina up over 20%. * SHARES/SECTORS: Qualcomm shares +11%, Super Micro Computer +7%, Tesla +4%, Nvidia +3%. Technology sector +2%, discretionary consumption -0.6%. * Foreign exchange: the Argentine peso jumped by more than 10% before settling at 4%. The dollar index retreats a bit, with the Aussie being the biggest mover in the G10, +0.6%. * BONDS: US yields up 2 bps. 2-year Treasury auction attracts highest share of direct bids since 2012, 5-year auction is going well. The MOVE Volatility Index closed Friday at a 4-year low below 69.00. * COMMODITIES/METALS: Gold -3% below $4,000/oz, silver -4%. Oil falls as OPEC plans another increase in production.
Today’s talking points
* Optimism around US-China relations…
So it appears a trade deal could be imminent. Although it is essentially a stopgap deal that eventually resolves truly thorny issues such as U.S. tariffs on Chinese goods and Chinese controls on rare earth exports, it buys time.
For investors, it’s more time to maintain a pro-risk stance supported by earnings, dovish central banks and the optimism in place since April. Until fatigue really sets in or there is a catalyst to reverse it, perhaps the risk-on rally will continue.
* … and Argentina
Argentine markets soared on Monday after the convincing – and surprising – victory of President Javier Milei’s ruling party in the mid-term elections. The peso jumped 10%, bonds 15% and stocks 20%.
This is a clear victory for Milei, and for Washington too, given the extent of financial support that the Trump administration has provided to Buenos Aires in recent weeks. As always, the question once this recovery of relief passes is whether Argentina will benefit from a more stable financial footing in the long term.
* The windfall of central banks
Investors are bracing for a series of major central bank meetings this week, with the Fed taking center stage on Wednesday, with able support from the Bank of Canada, the Bank of Japan and the European Central Bank.
Only the Fed should reduce its rates, and by 25 basis points, which is fully integrated into the financial markets. But the overall tone is likely to be dovish, further supporting the recovery sweeping through global stock markets.
Beware of U.S.-China trade deal déjà vu
The United States and China appear to have worked out the framework for a trade deal before Presidents Donald Trump and Xi Jinping meet this week, removing the threat of an imminent collapse in trade between the world’s two largest economies. Global markets have welcomed this news, but far from being a game-changer, it simply feels like déjà vu.
Do you remember that?
“OUR AGREEMENT WITH CHINA IS DONE, SUBJECT TO FINAL APPROVAL WITH PRESIDENT XI AND I,” Trump wrote on Truth Social on June 11, adding, “THE RELATIONSHIP IS GREAT!”
It turned out that the deal didn’t go through and relations weren’t great.
So much so that an emboldened Beijing imposed additional controls on rare earth exports earlier this month, and Washington responded by threatening 100% tax on shipments of goods from China to the United States. US Treasury Secretary Scott Bessent also publicly criticized China’s top trade negotiator, Li Chenggang, calling him “deranged.”
However, the two appeared to have put those differences aside following talks in Malaysia over the weekend, agreeing on the basis of a preliminary deal in which China would delay its expanded licensing regime for rare earths and the United States would significantly reduce its threatened tariffs on Chinese goods.
Statements from the White House are optimistic, while the Chinese side takes a more cautious stance.
But how should investors view the news?
“NEW PERILOUS CHAPTER”
On the one hand, any agreement that averts the worst-case scenario of collapsing U.S.-China trade is good news. And all the evidence since the depths of the “Liberation Day” unrest in April suggests that, if this apocalyptic threat is averted, the global economy will continue to muddle through and markets will “melt” on stimulus, AI optimism and strong corporate profits.
Cassandras says this is a dangerously complacent view. Whatever face-saving deal Trump and Xi ultimately reach will only end the situation.
TS Lombard’s Grace Fan warned Friday that a “perilous new chapter in geopolitics and global trade” has been opened, regardless of how the Trump-Xi meeting plays out. The stakes are high, neither side wants to back down and both will feel like they hold the trump cards.
Trump is the head of the world’s largest economic, financial and military superpower, and every trade deal he has signed so far this year has been in favor of the United States.
Meanwhile, Xi has enormous leverage with something the United States needs: rare earths, the elements used in everything from lithium-ion batteries and semiconductors to cell phones, aircraft engines, LED TVs, electric vehicles and military radars.
SMALL BUT POWERFUL
The question of rare earths is delicate.
China mines around 60% of the world’s rare earths and manufactures 90% of rare earth magnets. At first glance, the monetary value of the global rare earths market appears tiny, at just $12 billion, according to management consulting firm IMARC. This figure, which is at the high end of estimates, represents only a fraction of the $670 billion in bilateral trade between the United States and China last year.
But these elements are linked to trillions of dollars of global economic output, making this relatively small market a critical part of the U.S.-China relationship.
It would therefore be naive to think that a temporary lifting of China’s export controls, if part of a deal, would end the matter.
Instead, both sides tend to use “the deal” as an opportunity to shore up their own weaknesses to ensure they are in a better position once tensions flare again, whether it’s Beijing further diversifying its export markets or Washington diversifying its sources of critical minerals.
SOMETHING MORE “MONUMENTAL”
One of the key lessons learned from the annual meetings of the International Monetary Fund and the World Bank in Washington this month is that China’s decision to use its influence over rare earths against the United States marks a new, more dangerous stage in this geopolitical struggle.
Daniel Yergin, vice chairman of S&P Global, said in a discussion that trust between the United States and China was “disappeared.” Goldman Sachs Chairman John Waldron told another panel that “something more monumental” was playing out between the two countries.
Privately, many delegates were even more pessimistic.
But pessimism has not characterized financial markets much over the past six months, with stocks in Japan, Australia, South Korea, Britain, France and the United States hitting all-time highs last week.
Many markets rose again on Monday ahead of the Trump-Xi meeting, expected on Thursday, with investors believing that an “interim” trade deal is better than no deal at all.
What could move the markets tomorrow?
* South Korean GDP (Q3, advance) * German consumer confidence (November) * US consumer confidence (October) * US Treasury auctions $44 billion in 7-year notes * US profits, including Visa, Sysco, UPS, UnitedHealth
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The opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence and freedom from bias.
(By Jamie McGeever; editing by Bill Berkrot)
