President Trump's threat to impose a 100% duty on Chinese imports 'over and above' existing tariffs from November 1 has renewed the trade war going into a long weekend in the US. Equities tanked in the US on Friday following Trump's announcement, which comes in retaliation to China tightening controls on exports of rare earths, inputs used to manufacture electronic goods. Meanwhile, the US government shutdown continues, leaving key data on hold; however, reports indicate that the BLS will publish the September CPI report on October 24. In addition to political uncertainty in Japan and France, risk aversion continues to see gold surge while the US dollar strengthened sharply (1.2%) this week, despite bond yields falling across the curve. Closer to home, the RBNZ cut rates by 50bps in a dovish surprise to expectations for a 25bps reduction.
Attention in the US remains firmly on the outlook for Fed policy. Having recommenced their easing cycle with a 25bps cut last month, the meeting minutes reaffirmed that the FOMC is on track to keep taking rates lower. Increasing concerns around the labour market have prompted this shift, though the minutes noted that upside risks to inflation 'remained elevated' on the expectation that tariff-driven price rises had yet to fully come to fruition. The degree of easing that is appropriate in the circumstances comes down to a judgement call, with FOMC members in public commentary, including Miran and Williams this week, outlining their varying views on the matter. Market pricing implies 2 (possibly 3) rate cuts will be forthcoming by year-end.
The account of the ECB's September meeting reaffirmed that the Governing Council views policy is well calibrated and unlikely to change in the near term. Amid the ongoing uncertainty around trade and geopolitics, the ECB sees keeping a steady hand as the appropriate way forward. The ECB projects economic growth of 1.2% this year, 1% in 2026 and 1.3% in 2027; however, downside risks to that baseline outlook are prominent, and the strength of the euro is also a factor that could weigh on the bloc.
In Australia, RBA Governor Bullock told a Senate committee that the central bank was well placed with inflation inside the 2-3% target band and the labour market still in solid shape. The RBA is taking more of a reactionary approach having already cut rates by 75bps this year. Governor Bullock once again stressed the importance of upcoming data to the rates outlook. Next week sees the September labour force data come to hand, while the quarterly inflation report due at the end of the month remains key. Since the RBA last cut in August, pricing for the next cut has pushed back progressively from November to February 2026. This tempering of expectations appears to be weighing on consumer sentiment, which the Westpac-MI index had falling 3.5% in October on the back of a 3.1% decline in September.
