Launch Pad

Xi Jinping arrived in Washington for a high-profile visit, with Trump even taking the step of personally greeting him when he touched down. A nice gesture, given how few of us enjoy an airport pickup. The meeting follows an agreement between the U.S. and China to extend their trade truce until early next year, providing short-term relief to trade tensions, although sticking points over rare earths, technology restrictions, and Taiwan remain unresolved. Rare earths appear to be the key source of tension and leverage for China. The U.S. has accused Beijing of falling short on supply commitments while China seems confident that U.S. dependence on its critical-mineral supply chain will discourage a return to higher tariffs. Agricultural purchases are another unresolved issue, with China only halfway through its commitment of buying 25 million tons of U.S. soybeans this year and lagging on a separate  commitment to purchase additional U.S. agricultural goods. 

Business activity in the U.S. picked up in September, pointing to signs that the economy remains strong despite higher interest rates, energy costs, and supply-chain disruptions. Demand was strong across both manufacturing and services, with new orders reaching their highest level since March 2022 and work backlogs climbing to a more than four-year high, prompting businesses to increase hiring. The S&P Global flash composite PMI rose to 58.4, its highest level since July 2021, with services reaching 58.7, and manufacturing climbing to 57 as new orders and hiring improved across both sectors. On the jobs side, employment increased at the fastest pace in more than four years, helped by solid consumer spending, AI-related business investment, and defense spending. We find ourselves in a good-news is bad-news situation though, with the strength increasing inflationary pressures and input costs rising at the fastest pace since 2022, making the Fed’s inflation fight that much harder and supporting the case for maintaining a restrictive policy stance. 

Euro-area business activity also improved last month, with the composite PMI rising to 53.1 from 52, its highest level in more than three years and above expectations. Growth broadened across the economy as both services and manufacturing improved, helped by strong activity in Germany and an unexpected expansion in France.  AI and defense spending also provided a boost to industrial demand, with the data suggesting that the region is more resilient than expected despite the Iran war, higher energy costs, and rising interest rate. Just like the Fed, the combination of firmer growth and persistent inflation has strengthened the case for additional ECB tightening after two recent rate increases, with another hike potentially coming as soon as December. 

Canada’s population growth slowed to 0.5% last year, the weakest rate since 1916. Tighter immigration policies have reversed much of the post-pandemic population rise. The population increased by 189,000 to 41.8 mln, while the number of non-permanent residents fell 155,000 to 2.8 mln, marking a major shift from recent years. Weaker population growth is now contributing to softer economic activity, with housing activity taking a notable hit. The longer-term economic question is whether Canada can offset slower labour-force and consumer growth with stronger productivity and capital investment, an area the federal government is targeting through investment incentives and efforts to attract more domestic and foreign capital. 

Up to the challenge? European equities face a tough setup for a year-end rally as strong earnings expectations clash with rising interest rates, high energy costs, and hawkish central banks. Analysts have been raising European profit forecasts since May, the longest upgrade streak in more than four years, with Stoxx Europe 600 earnings now expected to grow about 15% in 2026 as strong economic activity, domestic demand, and a weaker euro support revenues. With the Stoxx 600 already up 8.1% this year, however, a lot of optimism may already be priced in, leaving markets vulnerable if Q4 results or guidance disappoint. Higher borrowing costs may be the biggest headwind, with markets pricing in three additional hikes for the ECB by next April, even after raising rates earlier this month. On the bright side, valuations have become more reasonable, with forward multiples falling while earnings estimates rise, and historically strong Q4 seasonality may provide another level of support. 

Whoops, this fat-finger mistake could rival one made on a trading desk. Morgan Stanley is dealing with the fallout after a banker inadvertently emailed clients an internal deal-tracking document containing over 100 current and prospective investment banking mandates across Asia. The list reportedly included IPO candidates, private equity and pension fund backers, and transactions that had yet to be publicly disclosed. The leak effectively gave recipients a look inside Morgan Stanley’s future deal pipeline, including deals still under wraps or on hold. Morgan Stanley moved quickly to retract the email, although recall requests tend to work better in theory than in practice. If you’ve ever been on the wrong end of an inadvertent email send, you can cringe alongside the banker behind this one. Not the first, and likely not the last, email mishap. 

Gold is falling as rebounding oil prices helped reinforce expectations that the Fed will need to continue raising interest rates in order to tame inflation. For the past several weeks, gold’s path has been dictated by the Fed’s rate outlook as investors gauge whether elevated energy prices will keep inflationary pressures strong enough to prompt further increases. Losses in the U.S. Treasuries market has been intensifying on stronger-than-forecast economic data and a weak debt auction, reflecting the view that inflation is likely to remain sticky. On the other side of the trade, bullion has been supported by strong inflows to ETFs and Chinese buying.