24 Oct 2025
Global markets are closely monitoring upcoming US-China diplomatic engagements, particularly a potential meeting between Trump and Xi Jinping, amidst expiring trade agreements and complex geopolitical stakes. Simultaneously, key economic indicators from the UK, Eurozone, and Japan show varied performance, while anticipation builds for the US CPI report and its implications for future Fed interest rate decisions.
Trump is actively working towards a productive meeting with Xi Jinping, aiming to reduce current tensions even if the resulting agreement is less comprehensive than a full resolution.
The discussions carry significant geopolitical implications, including ambiguous nuclear facility agreements, potential pressure on Putin regarding the Ukraine war, and the possibility of China halting Russian oil purchases to bolster Trump's peace mediator credentials following recent truces.
Trump's negotiation approach frequently prioritizes superficial appearances over the substantive depth of agreements, leading analysts to anticipate that any summit agreement in South Korea will likely offer only temporary tension relief, rather than resolving the core disputes.
Both nations seek stability in their relationship, but the terms of this stability are highly contested, with Beijing leveraging its rare earth element resources as a strong negotiating chip, while concerns exist over Trump's potential concessions on advanced semiconductors and Taiwan's status, despite associated national security risks.
The existing temporary tariff agreement between the US and China is set to expire in November, making the upcoming negotiations critical in determining whether another short-term deal or a more enduring arrangement will be established.
Trump typically favors short-term, transactional agreements and employs pressure tactics for quick wins, whereas Xi Jinping adopts a long-term strategic perspective, utilizing China's strengths in traditional manufacturing and natural resources.
Trump's imminent Asian tour includes visits to Malaysia, Tokyo (for a meeting with Japan's new Prime Minister), and South Korea (to meet its president), with a potential meeting with Xi Jinping anticipated during these engagements.
Market attention is predominantly centered on the prospective US-China meeting, although other important trade negotiations are concurrently underway with countries such as South Korea, India, and Brazil.
UK retail sales recorded an unexpected increase for the fourth consecutive month, signifying positive prospects for economic growth and reflecting the resilience of the labor market, with sales volumes rising 0.5% compared to the previous month.
Non-food sales expanded by 0.9%, household appliance stores experienced significant sales increases, online sales performed positively, and a notable surge in online jewelry and gold sales underscored a broader global demand for gold.
Consumers are accelerating gold purchases in response to rising prices; despite substantial household savings, there is potential for increased discretionary spending, particularly if consumer confidence improves further.
A comprehensive recovery of the retail sector remains a long-term objective requiring sustained growth, and there are currently no indications that the anticipated tax increase in November will negatively impact consumer confidence.
The UK's private sector saw faster-than-expected growth in October, bringing an end to a year-long recession in manufacturing and mitigating concerns about the impact of the Labour Party government's increased labor taxes.
Companies reported the lowest input cost pressures since November, an increase in new orders, and a reduction in job cuts, with employment stabilizing to levels last observed in May as businesses adapted to rising employment expenses.
The manufacturing sector demonstrated the most significant improvement, with factory activity registering growth for the first time since October of the previous year, suggesting that September marked the low point of the UK's economic performance.
UK PMI results indicate improved business conditions and confidence, a halt in the decline of employment, and inflationary pressures aligning more closely with the central bank's target, which is favorable for the UK Treasury.
These data suggest the UK economy has moved past its most challenging phase before the new Labour Party budget scheduled for November 26, with inflation having peaked and economic growth showing signs of improvement, particularly in the manufacturing sector.
Increased domestic demand and companies' efforts to replenish inventories were key contributors to the rapid growth in manufacturing, although certain industries, like automotive, continue to face challenges from issues such as a recent cyber-attack.
Businesses are increasingly optimistic about future prospects, with commercial expectations reaching their second-highest level since October of the previous year.
Eurozone business activity unexpectedly surged to its highest level since May 2024, with robust performance in Germany compensating for a decline in France's economic activity.
The unexpected growth was particularly pronounced in Germany's services sector, which recorded its highest activity level since May 2023, while France's index declined for the fourteenth consecutive month due to its ongoing political crisis.
Europe has demonstrated resilience against external pressures, though its economic growth rate remains lower than that of the US; increased defense spending across the region and infrastructure rebuilding in Germany could bolster future growth, despite financial vulnerabilities in France.
Service sector prices remain moderate, the sales price inflation rate slightly decreased but maintains long-term stability, and input costs also declined, indicating no immediate inflationary risks for the Eurozone, with service inflation staying stable.
Japan's inflation rate decreased for the first time in four months, intensifying pressure on households and presenting a challenge for Prime Minister Takaiichi regarding the cost of living, as well as for the Bank of Japan (BOJ) concerning interest rate policy.
Energy prices fell by 2.3% year-on-year, a more significant drop than in August, while rice prices, a primary inflation driver, increased by 49% year-on-year, a slowdown from August's 70% rise, which contributed to a moderation in food price inflation.
Food price inflation remains one of three crucial factors guiding the BOJ's interest rate decisions, alongside the economic conditions in the US and the facilitation of US trade tariffs.
The forthcoming US CPI report is projected to show an annual headline and core inflation rate of 3.1%; however, traders are anticipated to exhibit a muted reaction due to the strong expectation of a 25 basis point interest rate cut at the upcoming Fed meeting.
Even if the CPI report reveals higher inflation signs, the market is unlikely to react strongly negatively because the prevailing sentiment anticipates rate cuts; the S&P 500 could potentially rise by approximately 0.65% after the report, despite economists' forecasts of persistent inflation.
The market expects lower-than-usual volatility around the CPI release, as the anticipation of rate cuts is counteracting inflationary concerns. If the data aligns with or is lower than expectations, the S&P 500 could increase by 1.5%; conversely, if core inflation rises more than 0.4% month-on-month, the index might see a 0.2-0.3% decline.
Despite being older data, this CPI report holds considerable importance due to a scarcity of other economic information resulting from the government shutdown, and its outcome could significantly influence expectations for further interest rate reductions.
Data exceeding expectations could introduce hesitation for the Fed at its December meeting. The central bank's current focus is on the labor market, but without Non-Farm Payrolls (NFP) data, the market's condition remains unclear. An October rate cut appears logical, but the path for December is uncertain, making decision-making particularly challenging.
The market's anticipation of interest rate reductions is effectively neutralizing inflationary concerns, leading to lower-than-usual volatility around economic data releases.
| Context | Event | Summary | Significance |
|---|---|---|---|
| US-China Relations | Potential Trump-Xi Meeting | Trump seeks a productive meeting to reduce tensions, likely resulting in a temporary rather than comprehensive agreement, prioritizing appearances over substance. | Key issues include Taiwan, advanced semiconductors, nuclear facilities, and pressuring Russia; Beijing leverages rare earth resources for negotiation. |
| US-China Relations | Tariff Agreement Expiration | The current temporary US-China tariff agreement is set to expire in November. | New negotiations are crucial to determine if another short-term deal or a longer-term agreement will be established. |
| UK Economy | Retail Sales & PMI Data | UK retail sales grew unexpectedly for the fourth month, and private sector activity (PMI) showed faster-than-expected growth, ending a year-long manufacturing recession. | Indicates economic recovery, improved business confidence, and declining input costs, with potential for further discretionary spending if consumer confidence rises. |
| Eurozone Economy | Business Activity (PMI) | Eurozone business activity unexpectedly surged to its highest level since May 2024, with strong German performance offsetting French decline. | Shows resilience against external pressures; moderate service inflation and falling input costs reduce immediate inflationary risks, though French political crisis remains a concern. |
| Japan Economy | Inflation Rate | Japan's inflation rate declined for the first time in four months, driven by lower energy and moderated food price growth. | Presents a challenge for the Bank of Japan's monetary policy and intensifies pressure on households regarding the cost of living. |
| US Economy | Upcoming CPI Report | The CPI report is expected to show 3.1% headline/core inflation, but market reaction is likely muted due to strong anticipation of Fed rate cuts. | Higher-than-expected data could cause the Fed to hesitate at its December meeting, especially given the current lack of clear labor market data (NFP). |
