Market Mondays: Trade developments, FOMC meeting and Earnings

A cluster of macro drivers is lining up to extend risk appetite this week—provided the headlines cooperate. The big swing factor is a tentative de-escalation in US–China tensions, layered on top of friendlier inflation dynamics, a highly anticipated Fed decision, and a jam-packed earnings slate.

1) US–China: From Tit-for-Tat to Tentative Thaw

Talks in Malaysia surprised markets not just because both sides holstered recent threats—China’s curbs on rare-earth exports and the US’s retaliatory tariff plans—but because a broader package now appears on the table. Discussion points include lowering some tariffs in exchange for commitments on fentanyl interdiction, reduced shipping levies, and agricultural purchases.

It’s not a done deal, and relations between the world’s two largest economies can turn quickly. But as of the week’s open, US futures pointed higher and Europe looked set to ride the momentum, framing the trade headlines as a clean, risk-positive catalyst.

2) Inflation: CPI Lets the Fed Ease Without Flinching

Last week’s CPI was the palette-cleanser markets wanted coming out of the data blackout. Headline inflation ticked up to 3.0% from 2.9% but crucially undershot the 3.1% consensus. Given prior Fed guidance—that it can tolerate above-target inflation while the labour market cools—the print bolstered the easing narrative.

Markets now price a near-certain rate cut at this week’s FOMC and maintain strong odds of another move before year-end. Forward guidance is the variable: with inflation likely hovering closer to 3% than 2% through much of next year, the risk is that traders have run a little ahead of the Fed’s ultimate path.

Powell’s balancing act: Expect an attempt to preserve optionality—discouraging exuberant pricing of a deep cutting cycle into 2026 without sounding hawkish enough to spark a tantrum. With no SEP until December, the press conference is the volatility valve.

3) Earnings: 44% of the S&P 500, MAG7 in Focus

Nearly half of the S&P reports this week, including five of the “MAG7” in the space of 24 hours. The season has been broadly constructive, if less forgiving of stumbles. Expectations are high after repeated upside surprises in Big Tech so delivery risk is real.

Consensus blended growth has drifted up (FactSet’s latest aggregate sits near 9.2%), keeping earnings as a tailwind even as valuations matter more. These results will intersect with the Fed narrative—either reinforcing the “soft-landing-with-cuts” trade or challenging it.

4) FX & Global Macro: Dollar Base, Nikkei Breakout, BOJ Wildcard

• US dollar: Price action hints at a basing pattern after a 10% peak-to-trough slide this year. A push through the 100 area on DXY (former support, now resistance) would strengthen the case for a cyclical rebound, especially if US growth re-asserts its “exceptionalism” versus peers.
• Japan: The Nikkei ripped to fresh records (50,000) into a BOJ meeting that could surprise on tone. Domestic dynamics—proposed large-scale deficit spending under the incoming government and core CPI around 2.9%—are colliding with a still-reticent BOJ. While a hike this meeting looks unlikely, guidance or an upgraded outlook could pull forward hike odds into early 2026, with USD/JPY perched near pivotal technical levels.
• ECB (Thursday): Likely a non-event. With PMIs and sentiment only modestly improved and French political risk cooled for now, the euro remains more a dollar story this week than a policy one.

5) Commodities Check: Gold Cools, Oil Pops

Gold: After a parabolic run that left daily momentum stretched (RSI pinned in overbought), the metal finally cracked lower. The ostensible trigger—US–China cooperation—was likely just the excuse a frothy market needed. Structurally, the long-term pillars remain (central bank buying, debasement/de-dollarization hedges, easier policy), but near-term positioning needs to wash out.

• Levels to watch: the $4,000 region as a psychological pivot; prior breakout near $3,500 as a deeper line in the sand. A sideways consolidation wouldn’t surprise while the market digests Fed, earnings, and trade news.

Oil: Washington’s direct sanctions on two major Russian producers tightened the physical market, forcing some refiners to seek alternative barrels and sparking a 4% jump in Brent late last week. Still, the medium-term setup wrestles with oversupply.

• Levels to watch (WTI): resistance in the $62–63 zone drew fresh sellers; $56 on the downside.

What Could Go Wrong?

• A trade-talk stumble or conflicting US–China headlines.
• Powell pushback that trims the market’s aggressive cut path.
• Earnings that miss not just on results but on guidance and AI-capex durability.
• A BOJ hawkish tilt that jolts USD/JPY and spills over into global risk.

Bottom Line

The path of least resistance is still higher: trade thaw headlines, friendlier CPI, and an earnings bulge argue for risk-on. But with positioning leaning bullish and two-way event risk stacked, the week may hinge on nuance—Powell’s wording, the tone of US–China communiqués, and whether Big Tech can keep clearing an ever-rising bar.