US-China concerns remain as Trump weighs up software export restrictions

The FTSE 100 is on the rise despite a largely mixed start to trade in Europe, with sentiment boosted from this week’s weaker inflation figures. Crucially, the UK has seen a notable decline in borrowing costs, with the UK 10-year yield temporarily falling to the lowest level this year. Nonetheless, UK borrowing costs remain elevated in relation to their peers, with the 4.4% 10-year yield standing in stark contrast to the 2.57% seen in the euro area. Nonetheless, there is an optimism that the UK is turning a corner that could soon see the Bank of England start to drive rates down in a more meaningful manner. Rather predictably, today has seen the oil & gas majors gain traction, as Brent crude pushes to a two-week high of $65.50 on fresh Russian sanctions. Meanwhile, gold and silver miner Fresnillo has also gained ground, rising over $5 after precious metals stabilised in the wake of Tuesday’s sharp declines.

Market jitters seen in the US yesterday have calmed somewhat in today’s futures markets, with traders hoping that a meeting between Scott Bessant and his Chinese counterpart will lead to a softening in tone between the two nations. With the 1 November imposition of 100% tariffs looms large, the US are clearly ramping up the rhetoric amid threats that they are considering sweeping export restrictions on anything that is built with US software. That includes laptop, jet engines, and a lot more. Clearly there is a lot of positioning ahead of negotiations, with both sides seeking to highlight the cards they have to play. Scott Bessant’s warning that there is a risk we wont see a deal come to fruition serves a similar purpose. Nonetheless, with a week until the Trump-Xi meeting, the risk is also balance against significant rewards if we do ultimately see a breakthrough in trade discussions. What is worth noting is that while a deal would be seen as a positive for market sentiment, it is highly unlikely that any deal does much to help the US economy. Perhaps we get a commitment to restart soybean purchases from the Chinese, but any of the more grandiose request from the President at the start of this trade war seem to have gone out the window in a bid to simply resume the trade of agri and rare earth products that were in place under Biden.

Oil prices are moving sharply higher as Trump seemingly ran out of patience with Putin. The Ukrainians are unwilling to give up any land that they currently control, while the Russians want the rest of the crucial Donbas region which has huge strategic and economic significance. With the US going straight after Russia’s biggest oil producers, and Europe banning Russian LNG, there is a hope that we will see Putin come to the table in a bid to find some sort of resolution. Notably, the failure of previous sanctions have been related to the Russian ability to sell their oil to India and China, but there are claims that India finally looks ready to slash its Russian imports to zero. That move would be done in a bid to reduce US tariffs from 50% to 15%, although the speed at which their energy supply transition would take hold is currently uncertain.