Thoughts from Themes: Room to Run

Markets have spent the past month oscillating between relief and restraint; eager for good news, but wary of false starts. With macro narratives shifting and liquidity tightening, investors seem less focused on headlines and more on conviction. Where can growth still surprise? How far will policymakers go to protect it? This week may not provide all the answers, but it could set the tone for the year’s final act.

Market Movers

The meeting between Donald Trump and Xi Jinping and the FOMC meeting will be the most important events of the week, both of which could set the tone for whether risk returns to the market or money continues to flow into safe haven assets. A positive outcome for a broad and fair deal with China will ease any lingering tariff tension and a consistent Fed that is committed to rate reductions of any kind should be the tinder that will ignite a risk-on rally into the end of the year. If both are realized by the end of the week, expect investors to be jubilant and ready to put their money to work. It’s also a big week for the Mega Cap tech companies that are driving the AI revolution. Continuation of massive capex spending into AI, and growing revenues from it, could be a third catalyst that really sets the bulls sprinting.

The Art of the “Fantastic” Deal

Trade negotiations between the United States and China have entered a pivotal phase this week, as high-level delegations from both nations convened in Malaysia from October 24th to 27th. The talks, led by U.S. Treasury Secretary Scott Bessent and U.S. Trade Representative Jamieson Greer on the American side, and Chinese Vice Premier He Lifeng on the Chinese side, aimed to de-escalate rising tensions and avert a looming tariff escalation.

The urgency of these discussions stems from recent developments, specifically China’s imposition of new export restrictions on rare earth elements, a critical input for high-tech manufacturing, that prompted the U.S. to threaten a 100% tariff on Chinese imports, set to take effect on November 1. In response, both sides have

signaled a willingness to re-engage diplomatically. A recent video call between Bessent and He was described as “constructive,” with both parties agreeing to continue in-person talks to seek common ground.

Bessent has emphasized the importance of finding a “balanced” trade framework, while also warning that the current trajectory of tit-for-tat measures is “unsustainable.” The discussions are expected to cover a broad range of issues, including market access, intellectual property protections, and the rare earths dispute.

But these talks are just the precursor to the main event: a high-stakes meeting between President Donald Trump and President Xi Jinping, scheduled to take place on the sidelines of the Asia-Pacific Economic Cooperation (APEC) summit in South Korea on October 30th. Trump has expressed optimism about reaching a “fantastic deal,” suggesting that the current talks could pave the way for a broader agreement.

Overall, while tensions remain high, the renewed dialogue and diplomatic overtures suggest a cautious but meaningful step toward stabilizing the world’s most consequential bilateral economic relationship and markets have recovered and are hitting new highs. If a positive outcome is announced post the meeting between Trump and Xi, coupled with a rate cut from the Fed, the risk market will be set for a rally into the end of the year and crypto could push through new all-time highs.

A Case for Fifty?

While some investors had priced in a small probability of a larger cut for the last meeting, 11 of the 12 Federal Open Market Committee (FOMC) members voted for the more modest reduction, with only Governor Stephen Miran advocating for a 50-basis-point move.

The Fed’s official statement cited “downside risks to employment” and a “shift in the balance of risks” as justification for the September cut. However, inflation remains above the 2% target, and the committee continues to weigh the trade-offs between supporting employment and maintaining price stability. Chair Jerome

Powell described the September cut as a “risk-management” decision, signaling caution rather than urgency.

Looking ahead, while another rate cut is widely anticipated, most analysts expect it to be another quarter-point move, potentially lowering the range to 3.75%–4.00%. A 50-basis-point cut would require a more dramatic deterioration in economic indicators or a significant external shock—neither of which has materialized to date.

The Fed is clearly in easing mode, but the likelihood of a 50-basis-point cut remains slim, barring unexpected developments. The committee appears committed to a gradual approach, balancing economic risks with inflationary pressures.

That said, if the Fed’s goal is to get to neutral, and they truly are worried about the impact of the prolonged government shutdown and its impact on the labor market and consumer spending, a 50-basis point cut not only should be considered but should be implemented as well. This year has certainly proven the Fed to be quite unpredictable in how it has dealt with easing monetary policy.  Powell, who has no shot of staying as chair when his term is up, has no pressure to do anything other than what he feels is prudent. Time and data will most certainly be revealed next week.

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This Week’s Major US Economic Reports & Speakers

Monday, October 27

8:30 AM *Durable-goods orders

8:30 AM *Durable-goods minus transportation

Tuesday, October 28

9:00 AM S7P Case-Shiller home price index (20 cities)

10:00 AM Consumer confidence

Wednesday, October 29

8:30 AM *Advanced US trade balance in goods

8:30 AM * Advanced retail inventories

8:30 AM * Advanced wholesale inventories

10:00 AM Pending home sales

2:00 PM FOMC interest rate decision

2:30 PM Fed Chair Powell press conference

Thursday, October 30

8:30 AM *Initial jobless claims

8:30 AM *GDP

9:55 AM Fed Vice Chair for Supervision Michelle Bowman speaks

Friday, October 31

8:30 AM * Personal income

8:30 AM * Consumer spending

8:30 AM * PCE index

8:30 AM * PCE (year-over-year)

8:30 AM * Core PCE index

8:30 AM * Core PCE (year-over-year)

8:30 AM * Employment cost index

9:30 AM Dallas Fed President Lorie Logan welcoming remarks

9:45 AM Chicago business barometer

12:00 PM Cleveland Fed President Hammack and Atlanta Fed President Bostic speak

* Data subject to delay if government shutdown continues

Disclosures:

All data sourced from Bloomberg as of October 24, 2025, unless otherwise cited.

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