Stock Markets Rebound After Trump China Trade Threats. This Could End the Rally.

(Chip Somodevilla/Getty Images)

Here we go again. The threat of a U.S.-China trade war is back, but this time it comes with some fresh complications.

President Donald Trump jolted the market out of its complacency Friday by threatening a 100% additional tariff on imported Chinese goods in apparent retaliation to Beijing’s restrictions on rare-earth exports. The reaction gave insight about which areas of the market look overextended —technology stocks and companies exposed to cryptocurrencies were hit hard.

But the tone was softened as soon as Sunday, when Trump wrote “it will all be fine” in a Truth Social post. That suggests a last-minute scramble for leverage ahead of the president’s potential meeting with China’s leader Xi Jinping at a summit in South Korea at the end of the month. If the past is any guide, expect at least a temporary trade truce to still be in reach.

However, that doesn’t mean investors can relax completely. Last time trade tensions were running high, stock valuations weren’t so extended and there wasn’t an ongoing government shutdown. The stock rally is still underpinned by expectations the Federal Reserve will keep cutting interest rates, but the central bank still has to keep in mind the possibility of tariff-driven inflation while dealing with a lack of official data as the impasse in Congress drags on.

There should be more clarity coming in the next couple of weeks, though—the White House has confirmed the U.S. Bureau of Labor Statistics will publish the inflation report for September this month. A rate cut later in October is likely already locked in but the data could have a big bearing on expectations for December.

Trump’s tariff threat showed traders were ready to rush for the exits at the first sign of trouble. If the Fed shows any signs of wavering on rate cuts, expect that to become a stampede.

—Adam Clark

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Trump’s Latest on China Could Cause Stock Market Whiplash

After causing investors whiplash with big new tariffs on goods from China, President Donald Trump seemed to extend an olive branch to China’s Xi Jinping on Sunday, saying in a social media post that everything would “be fine” and don’t worry about China. Stock futures jumped after Friday’s selloff.

• Trump said Sunday that the U.S. wants to help China, not hurt it. But just three days ago he announced plans to slap 100% tariffs on goods from China, which would go on top of existing tariffs. This is after China announced export controls on rare earths.
• The higher tariffs would kick in on Nov. 1, Trump said Friday, “depending on any further actions or changes taken by China.” Vice President JD Vance said Sunday that Beijing should choose the path of reason and that the U.S. holds “more cards” than China if it responds aggressively.
• China defended its export controls on rare earth minerals as “legitimate” on Sunday. Its Ministry of Commerce said the controls aren’t bans and that licenses will be granted for eligible applications, according to a translated text of the statement.
• China’s statement on Sunday also accused the U.S. of applying a double standard, and said willful threats of high tariffs aren’t the right way to get along with China. It added it doesn’t want a trade war but isn’t afraid of one.

What’s Next: Wedbush analyst Dan Ives sees Trump’s latest comments as de-escalating China tensions, which weighed on the tech sector on Friday. “We believe the bark will be way worse than bite here and Trump and Xi should be meeting in the next few weeks,” he said in a note Sunday.

—Liz Moyer

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Bitcoin, Other Cryptos Rebound After China Tariff Shock

Cryptocurrencies were rallying first thing Monday, paring back some of their losses after crashing following President Trump’s renewed tariff threats against China.

• Bitcoin was trading around the $115,000 mark, about 9% off the record high it hit earlier this month.
• Tokens including Bitcoin , Ether, and XRP plummeted on Friday, with Bitcoin racking up double-digit percentage losses and falling below $110,000 at one point. The selloff came after Trump threatened to hike tariffs on China, which likely sapped investors’ appetite for risk assets.
• “Cryptocurrencies did little to stake their claim as a store of wealth last week,” Hargreaves Lansdown Head of Equity Research Derren Nathan said. “At one point, Bitcoin bottomed out more than 13% lower than the record highs it hit last week, as traders scrambled to close positions.”
• Monday’s rebound came after Trump softened his tone on his trade war with Beijing. “Don’t worry about China, it will all be fine!” he wrote in a Truth Social post on Sunday.

What’s Next: The recent volatility of cryptos highlights the risk of investing in assets with little intrinsic value and a lighter regulatory touch, according to Hargreaves Lansdown’s Nathan. Future price catalysts also include developments in the U.S. government shutdown, now entering its 13th day, where voting is set to resume Tuesday.

—George Glover and Elsa Ohlen

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Shutdown Impasse Continues for 12th Day As Fingerpointing Continues

Democrat and Republican lawmakers on the Sunday talk shows continued blaming each other for the federal government shutdown and refusal to negotiate. Speaker Mike Johnson said the House won’t convene this week, while House Minority Leader Hakeem Jeffries announced an in-person Democratic Caucus on Tuesday.

• The Pentagon said it has identified “approximately $8 billion” from unused research funds from the previous fiscal year, which ended in September, that it can use to pay military workers if the funding lapse continues past Wednesday. That’s when service members get their next paychecks.
• Prediction markets see the shutdown extending past this week. On Polymarket 95% are betting it lasts beyond Oct. 15, while just 5% see it ending by Oct. 14. On Kalshi, 61% see the shutdown lasting more than 30 days, and 46% see it lasting more than 35 days.
• President Trump named Dan Scavino, a deputy chief of staff, to also head the Presidential Personnel Office. This comes as the Office of Management and Budget has directed thousands of layoffs by federal agencies, though the Centers for Disease Control and Prevention recalled some scientists.
• Lawmakers are still arguing about Democrats’ demand to add extending of subsidies for healthcare plans to the stopgap funding measure. Speaker Mike Johnson accused Democrats of “eating up the clock” on the issue, while Jeffries said it is an urgent issue because open enrollment begins Nov. 1.

What’s Next: Senate Majority Leader John Thune gave senators a four-day weekend and said the Senate will return on Tuesday, when the next vote on a stopgap funding measure could be scheduled. The Senate has failed to pass the resolution seven times, unable to reach the 60 vote threshold.

— Liz Moyer and Janet H. Cho

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Airlines See Thousands of Flight Delays Amid Shutdown, Storms

Travel chaos is spreading and it isn’t all because of the government shutdown. Thousands of flights were delayed on Sunday as a storm roared up the East Coast, and the disruptions threatened to carry into a second day. U.S. airports have already been navigating shortages of air-traffic controllers.

• American Airlines and United Airlines were waiving ticket change fees, and Delta Air Lines posted a travel advisory, as airports from Norfolk, Va., to Portland, Maine, braced for the storm. More than 48,000 flights have been delayed since Oct. 3, according to FlightAware.
• A shortage of about 3,800 air-traffic controllers has also been under scrutiny amid the shutdown. Air-traffic controllers have to work but won’t be paid for those days until the government reopens. National Air Traffic Controllers Association union president Nick Daniels told MSNBC it’s adding pressure and stress.
• Airlines for America, a group representing the major airlines, said “It is safe to fly,” but that air-traffic controller staffing shortages are causing flights to be spaced out. The group is urging air travelers to “pack their patience.”
• The air-traffic controllers union posted videos of workers showing up to their jobs amid the widespread perception that sick-outs by its members were causing the travel disruptions. The union said the shutdown is “an unnecessary distraction from performing their important duties.”

What’s Next: Air traffic controllers started receiving partial paychecks this weekend, and some union members have told Daniels they are supplementing their incomes by driving for Uber or DoorDash. If the shutdown continues much longer, workers might get little to no pay in their next check.

—Janet H. Cho

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The Fed’s Hawks Are Starting to Waver on Direction

Federal Reserve officials are sharply divided about how much more to cut interest rates this year. The difference isn’t only about where they expect rates to end up but about how to get there. Ten Fed officials see two more cuts, two favor one cut, and seven want to hold steady.

• Investors are expecting another quarter-point cut in October, after September’s cut. Those pushing for more easing, including New York Fed President John Williams, governor Michelle Bowman, and governor Stephen Miran, are more confident that inflation is contained and that a weakening job market is a bigger risk.
• The officials arguing to pause are less certain. In speeches and interviews over the past week, they hedged and added caveats to their stance, indicating some reluctance to plant a flag. Vice Chair Michael Barr said Thursday elevated inflation above the Fed’s target argues for caution.
• The St. Louis Fed’s Alberto Musalem also warned this past week that the Fed should “tread with caution” on rate cuts but he is open to more cuts if data says they’re needed. Minneapolis Fed President Neel Kashkari also seemed unsure of what comes next.
• Williams told the New York Times he supports additional easing as “risk management,” arguing that labor-market weakness poses the bigger threat. Trump appointees Bowman and Miran say current policy is already restrictive enough and that keeping rates too high for too long risks damaging employment.

What’s Next: The consumer price index was supposed to be released on Wednesday and was supposed to be this week’s main focus. But now its release has been pushed back to Oct. 24. The Social Security Administration needs inflation data to set its annual cost-of-living adjustment.

— Nicole Goodkind and Dan Lam

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—Newsletter edited by Liz Moyer, Patrick O’Donnell, Rupert Steiner