Trade negotiations advance as framework set for Xi-Trump meeting

In focus today

Starting off a busy week in the euro area, today sees the release of September credit data and October's German Ifo indicator. Credit growth has been strong in 2025 with recent growth rates of around 2.5% y/y, though the slowing credit impulse signals weaker GDP growth in the second half of the year. In Germany, the Ifo index has been trending lower amid softer growth momentum and dimming expectations for next year. Today's data will reveal whether this downward trend continued in October.

The week also features key central bank meetings, including the Fed's rate decision on Wednesday and the ECB and BoJ decisions on Thursday. Additionally, the highly anticipated Xi-Trump meeting is set to take place against the backdrop of increasing tensions. With US-China trade talks in Malaysia now concluded, market attention will turn to comments from both sides for signs of progress towards a broader trade deal.

Economic and market news

What happened during the weekend

US-China trade negotiations concluded on Sunday with both sides describing the talks as constructive, setting the stage for a potential mini deal at the upcoming Xi-Trump meeting. The framework deal, which still requires confirmation by the two leaders, includes commitments such as China purchasing soybeans, delaying export controls on rare-earth minerals by a year, and addressing issues like the Fentanyl crisis, shipping fees, and a 90-day trade truce extension. In return, China is likely to seek assurances that the US will hold off on imposing further tech sanctions. The agreement is expected to de-escalate tensions and move the trade war into the background for markets once again.

What happened Friday

In the US, headline inflation rose to 3.0% y/y in September from 2.9% in August, while core inflation declined to 3.0% y/y, below expectations. Monthly CPI gains were also softer than expected, with headline inflation up 0.3% m/m (cons: 0.4%). Tariff effects remained evident, with apparel prices rising 0.7% and goods overall up 0.5%. However, the data leans dovish and is unlikely to shift market expectations for upcoming Fed meetings.

In the euro area, October PMIs exceeded expectations, with the composite rising to 52.2, its highest level since May 2023, as services PMI strengthened to 52.6. Manufacturing PMI surprised marginally to 50.0 from 49.8. The data suggests positive momentum, particularly in Southern Europe, while France's weakness appears idiosyncratic. Despite the improvement, euro area growth is expected to remain modest at approximately 0.2% q/q in Q4. The stronger PMIs are unlikely to alter the ECB's "good place" assessment from its September meeting.

In Sweden, the September PPI decreased to 0.7% m/m but increased 0.5% y/y. While import and export prices declined, domestic prices saw an uptick. The rise was primarily driven by higher prices for food products, basic metals, and trade services for electricity. Prices for non-durable consumer goods, often a key indicator of food price trends, recorded a modest but not alarming increase.

Equities: Equities really liked the long-awaited US inflation print on Friday. If there was doubt in markets, the better-than-expected inflation report solidified the Fed cut that is widely expected on Wednesday night this week. In a classic risk-on with cyclicals beating defensives move, we saw S&P500 ending 0.8% higher, and both Nasdaq and Russell 2000 ended 1.2% higher. Stoxx 600 ended only 0.2% higher on Friday after a rollercoaster ride after being subject to a sharp sell-off in European rates that hit equities following the European PMIs. That said, had equity markets put more weight on the reason for higher rates (and not the higher rate itself), we should not have seen the knee-jerk lower reaction in equities in our view. Overall, last week's narrative can mostly be characterised as goldilocks at the beginning and risk-on towards the back end.

Asian markets are strongly higher across the board this morning, led once again by tech. Futures in both Europe and the US are also pointing to a solid opening. Much can be attributed to the US and Chinese negotiation teams as they both reported a looming trade deal to be agreed on Thursday at the Trump - Xi meeting. 

FI and FX: Risk sentiment continues to be positive following the constructive US-China trade negotiations over the weekend, setting the scene for the expected meeting between Trump and Xi Jinping later this week. 10y UST is trading around 3bp higher compared to the close on Friday and the 2y UST, which initially fell below the 3.44% mark on Friday just after the US inflation release, has moved back to the 3.51% level. EURUSD trades around the 1.1625 level, but printed as high as 1.1648 overnight, a level which also marked the intraday high on Friday. The Fed is widely expected to cut on Wednesday, and the ECB is expected to stay on hold on Thursday.