Next week, U.S. President Donald Trump will sit down with Chinese President Xi Jinping at the Asia-Pacific Economic Cooperation (APEC) Summit in South Korea. This meeting will be an inflection point for international diplomacy and the economic resilience of our global community. This meeting takes place at a time of escalating conflict between the two countries, fueling widespread market instability and strife. Both leaders are getting ready to meet to discuss some serious trade challenges. At the same time, the Federal Reserve’s next monetary policy meeting raises further questions about the economic outlook.
While the summit is happening, continuing confusion from the U.S. government. Lawmakers are still exhibiting a stunning lack of urgency in all reaching agreement on their respective bills. Market observers are keenly alert to all these changes. President Trump is no fool, he knows that rising and falling stock markets directly affect people’s mood and perception of the economy.
Economic Indicators and Market Sensitivity
Our overall economic strain here in the U.S. is the highest it’s ever been. Analysts predict a 3.1% year-over-year increase in the core Consumer Price Index (CPI). Inflation numbers like these would have serious ramifications on monetary policy stances and consumer spending habits. So the next CPI release is going to be bonkers. It would upend orderly domestic markets and have negative implications for global economic stability.
Further, the Services PMI came in at 54.2 for September, a sign of healthy growth in the services industry. In contrast, the Markit Manufacturing PMI pulled back a bit to 52. That means that while manufacturing activity is still expanding, it’s just expanding at a slower rate. When not handled carefully, mixed signals can lead to a discordant vibe. That uncertainty would be compounded by external factors, such as ongoing trade negotiations with China.
We’ve seen how the market overreacts in either direction to every economic indicator. This responsiveness is underscored by the approach of the next critical meeting of the U.S. central bank. Any decisions taken in relation to interest rates may have immediate consequences for the market’s performance and investor sentiment. During a time of growing concern with inflation, the Federal Reserve’s position and posture around monetary policy may have an outsized impact on market dynamics.
Sino-American Relations and Trade Tensions
Against this backdrop of frayed U.S.-China relations, both countries have been in talks to diffuse tensions. China’s control over approximately 70% of the world’s rare earth minerals adds another layer of complexity to these discussions. Rare earths are a mandatory ingredient for many technological applications and industries, giving them a key seat at any negotiation table.
Meanwhile, Trump and Xi prepare for their historic meeting. Simply announcing an agreement or even progress in trade discussions would likely send the stock market soaring. Better diplomatic relations would send a strong signal to investors, boosting confidence and excitement. This follows a period of extreme market turbulence spurred on by increasing hostility between the two countries.
Even as these conversations continue on the Hill, a sense of fear and anxiety hangs deeply in the air of Washington. Lawmakers appear in no hurry to reach a compromise and sheet-anchor plans to reopen the government—adding to already weakened economic conditions. Congress’s lack of urgency at this critical juncture risks undermining investor confidence. U.S. investors are particularly on edge as they await news from both the home front and overseas.
Implications for Global Markets
The implications of these developments are more than bilateral, though – what do they mean for the US and China globally? Likewise, CPI ex energy in the UK is expected to jump in Sept. This shift could represent a major change on the Sterling Pound (GBP) value. The GBP stands to gain from a higher inflation surprise. On the other hand, if it were to ease price inflation, its value would likely decline. Market participants are likely to be keeping a beady eye on these figures as they calculate their likely effect on the global currency free-for-all.
As nations continue to face inflationary pressures and recession-like conditions—characterized by slowed growth, rising unemployment, and pervasive uncertainty—investors are understandably skittish. How domestic policies play into the game of America’s foreign relations will be key to defining market trajectories in the coming weeks. The convergence of these factors underscores the importance of upcoming meetings and announcements from both the U.S. Federal Reserve and political leaders.