Week ending 10th October 2025.

Markets ended the week in negative territory, as shown in the accompanying table, despite a strong start driven by optimism around artificial intelligence and robust performance from technology stocks. Investors initially shrugged off concerns surrounding the ongoing U.S. government shutdown, with sentiment buoyed by a sharp rally in Advanced Micro Devices (AMD). The chipmaker surged more than 20% on Monday following news of a strategic partnership with OpenAI, helping lift broader market confidence.

However, gains were swiftly erased late Friday, after President Donald Trump announced a sweeping escalation in trade tensions with China. The U.S. will impose an additional 100% tariff on Chinese imports beginning 1 November, citing what Trump described as an “extraordinarily aggressive position” by Beijing. He also unveiled plans to restrict exports of all critical software to China, in response to Chinese controls on rare earth materials. U.S. markets closed sharply lower, though the announcement came late in the session for UK and European markets, limiting its immediate impact abroad. In an apparent attempt to cool tensions over the weekend, President Donald Trump said Xi Jinping “had a bad moment” when announcing new export controls on rare earths and critical minerals.

Uncertainty remains over whether Trump and Xi will meet at the South Korea summit later this month.

While such headlines often rattle investors, tariff-related noise is far from new. Similar flare-ups earlier this year most notably in April triggered brief volatility but were quickly followed by market rebounds. These episodes rarely shift long-term fundamentals. For investors, this underscores the importance of maintaining a diversified portfolio and resisting the urge to react impulsively to short-term headlines. Historically, pullbacks like these have often presented valuable buying opportunities for long term investors.

Elsewhere, the Federal Reserve’s September meeting minutes offered a balanced view of the economic landscape. Policymakers noted persistent inflation pressures alongside signs of a softer labour market, describing risks as increasingly two-sided. While most members supported the case for further rate cuts later this year, some preferred a cautious approach, emphasising uncertainty about how restrictive current policy remains. The minutes reinforced the view that the Fed remains data-dependent and committed to a measured path forward.

European markets also slipped, after touching record highs earlier in the month, as investors locked in profits amidst ongoing political uncertainty in France. Weak industrial data from Germany also weighed on sentiment.

German industrial production fell 4.3% in August well below expectations largely due to a sharp decline in auto manufacturing. Exports dropped 0.5% from the prior month, with particularly steep falls in shipments to the U.S. and the UK. In response, the German government announced a package of measures to support the economy, including incentives for purchasing German-made electric vehicles and cost-cutting initiatives across the budget.

Asian markets were mixed. Markets in Japan rallied after Sanae Takaichi won the Liberal Democratic Party leadership race, a result markets viewed as supportive of ongoing fiscal stimulus and loose monetary policy. However, political uncertainty resurfaced late in the week when the Komeito Party withdrew from its coalition with the LDP, raising the prospect of a snap election.

In China, markets reopened after the Golden Week holiday to muted performance. Consumption data from the holiday period came in below expectations, with retail and restaurant sales rising just 3.3% roughly half the pace recorded during the May holiday. Investors are now watching China’s upcoming Fourth Plenum meeting commencing on the 20th October for guidance on the country’s next five-year plan and its broader economic strategy.

Looking ahead, Chinese trade data is expected early next week, alongside the UK’s August unemployment and GDP figures. In the U.S., investors will be watching for producer price index (PPI) and retail sales data. However, with the government shutdown dragging on delaying the release of some key economic indicators and trade tensions with China resurfacing, markets will turn their attention to a fresh catalyst: the start of the third-quarter earnings season.

Kate Mimnagh, Portfolio Economist