Stocks surged on renewed U.S.-China trade talks and softer inflation data, driving major indexes to fresh highs and lifting Asian markets. The immediate effect is higher risk appetite and falling safe-haven assets. Near term this boosts equities, pressures gold and nudges Treasury yields higher as heavy debt issuance looms. Longer term the pick-up in talks and signals of easier policy keep markets focused on growth and earnings, while persistent geopolitical fractures suggest investors must weigh repatriation and policy risks in global capital flows. The timing is critical with five megacap earnings and several central bank meetings due this week.
What moved markets before the open
Top U.S. and Chinese officials reached a framework on trade that would pause steeper U.S. tariffs and Chinese rare earth export controls. That news was enough to lift risk assets. U.S. stock indexes closed at record highs last Friday and futures were up another 1 percent ahead of Monday’s bell.
Asian equities rallied. Japan and South Korea rose more than 2 percent. Chinese indexes climbed to multi-year highs while the offshore yuan strengthened to a six week high. Gold retreated almost 2 percent as investors rotated back into equities. Oil commentary remained mixed, with discussion that Western sanctions on Russian crude will test policy aims rather than stop flows.
Heavy corporate calendar and the megacap test
This week brings reports from five of the so-called Magnificent Seven megacaps. Meta (NASDAQ:META), Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOGL), Amazon (NASDAQ:AMZN) and Apple (NASDAQ:AAPL) together represent roughly a quarter of the S&P 500 market cap. Their results will highlight AI related capital expenditure, cloud growth and consumer demand in services.
Beyond the megacaps there is a long list of companies reporting today. Universal Health (NYSE:UHS), Cincinnati Financial (NASDAQ:CINF), Cadence Design (NASDAQ:CDNS), NXP (NASDAQ:NXPI), Welltower (NYSE:WELL), Principal Financial (NYSE:PFG), Keurig Dr Pepper (NASDAQ:KDP), Brown & Brown (NYSE:BRO), Nucor (NYSE:NUE), F5 (NASDAQ:FFIV), Revvity (NYSE:RVTY), Hartford (NYSE:HIG), Arch Capital (NASDAQ:ACGL), Waste Management (NYSE:WM) and Alexandria Real Estate (NYSE:ARE) all have releases on the calendar that will feed sector rotation and short term volatility.
Rates, issuance and central bank focus
Treasury supply and central bank decisions set the macro backdrop. The Treasury is selling $69 billion of 2 year notes and $70 billion of 5 year notes. Heavy issuance added to the backdrop of a stock market rally and slightly higher inflation expectations measured by surveys, nudging yields upward.
The Federal Reserve meets this week and markets are pricing in a path consistent with potential easing later in the cycle after softer September inflation prints. The Bank of Canada is widely expected to cut by a quarter point, a move that is now getting greater attention after the U.S. decision to apply a 10 percent additional tariff on some Canadian imports. The European Central Bank and Bank of Japan are expected to hold rates steady, with ECB hesitation supported by firmer business expectations in Germany and the BoJ assessing the new Japanese prime minister’s fiscal plans.
Trade, geopolitics and the possibility of repatriation
The renewed trade dialogue is timely because policy fragmentation has pushed repatriation of capital onto more investor agendas. Trade wars, security minded industrial policy and investment curbs are now routine considerations for cross border investors. The political impulse to bring investment closer to home has been building since the global financial crisis and accelerated through the pandemic. With the return of an explicit America First agenda, the question of whether foreign investors will continue to pile into expensive U.S. assets is back on the table.
If capital flows respond by shifting back to domestic markets, there will be distributional effects across equities, fixed income and currencies. For now the market reaction to news that pauses tariffs and export curbs has been positive. That response highlights the market’s sensitivity to policy steps that affect trade openness and supply chains.
Events and market implications for the session
Key data include the Dallas Federal Reserve manufacturing survey. The Federal Reserve’s policy meeting this week will be the dominant macro event for markets. Earnings from the megacaps will determine near term sentiment in technology and the wider market given their outsized index weight. The heavy Treasury calendar creates potential for yield volatility, especially if investor appetite for risk accelerates or if inflation signals reassert.
Meanwhile, political developments are on the agenda. U.S. President Donald Trump is visiting Japan this week as part of a wider Asia tour. Negotiations at multilateral gatherings have real time market impact today because they can remove the threat of escalatory tariffs. Currency moves will be watched closely after the yuan’s rise and signs of firming in the Canadian dollar ahead of the Bank of Canada decision.
Markets opened the week with a clear preference for risk. That preference will be tested by central bank commentary, massive corporate supply of new data and the flow of political developments. Traders and investors will watch earnings and policy statements for confirmation that the recent relief on trade and inflation is durable. For now the dominant theme is that a pause in tariff escalation and softer inflation prints have combined to lift equities and reprice near term policy expectations.
