Trump Revives Trade War With New Tariffs on China

In focus today

Today will be light on the data front, with no immediate market movers scheduled.

This week will be light in terms of data releases as the US government shutdown most likely means that the US CPI will not be released on Wednesday and as the other major economies have no tier-1 data scheduled. During the week we will get Chinese credit growth data, which has been strong into the summer but faded somewhat in recent months. We will also look out for the final September inflation print in the euro area and German ZEW, as well as both September CPI and PPI in China. In the UK, we receive the monthly labour market report and August GDP data. In Japan, focus turns to the parliamentary vote on a new PM on Wednesday.

Economic and market news

What happened since Friday

In global trade, US President Donald Trump caught markets (and us) by surprise on Friday as he posted on Truth Social he would impose 100% tariffs on all Chinese goods on top of existing tariffs, see US-China trade – New trade escalation turns focus to Xi-Trump meeting, 13 October. In addition, he threatened to put new export controls “virtually every product they make” and on “all critical software products”. The measures were a response to China announcing new export controls on rare earth minerals on Thursday last week. The tariffs would not come into effect until 1 November, though, which leaves time for talks and a possible deal with China when Trump and Chinese president Xi Jinping meet at end of this month at the sidelines of APEC Summit.

Things already seem to have calmed down over the weekend as Trump on Sunday made a new post on Truth Social saying “Don’t worry about China, it will all be fine” adding that “Highly respected President Xi just had a bad moment. He doesn’t want Depression for his country and neither do I”. The USA wants to help China, not hurt it!!”. The change in tone suggest that there has been backchannel communication between the US and Chinese side over the weekend that points to a deal being possible at the end of the month and that the tariffs will not come into effect. China’s Ministry of Commerce on Sunday released a Q&A on China’s recent measures highlighting that “China’s export controls are not export bans”. While uncertainty has increased, we see a more than 50% chance that a deal will be made between Xi and Trump before the tariffs come into effect.

In the US, the University of Michigan’s flash October consumer sentiment survey showed only small changes in consumer sentiment and inflation expectations from last release. September 1-year inflation expectations fell marginally to 4.7% (prior: 4.8%), while the preliminary October 1-year inflation expectations landed at 4.6%.

US President Donald Trump will address the Israeli Knesset on Monday as a fragile Gaza ceasefire enters its fourth day, allowing for the exchange of hostages and prisoners. Trump also leads a peace summit in Egypt, though lingering tensions and unresolved governance issues in Gaza underscore the challenges ahead for lasting stability.

In France, President Emmanuel Macron reappointed Sébastien Lecornu as French prime minister on Friday, only four days after Lecornu resigned from the post. Lecornu has already appointed a government and must now present a 2026 budget today and then likely face a vote of no confidence during the week. His survival depends on at least the tacit support from the Socialists and Republicans. To get the socialist support he will likely present a watered-down version of the previous budget proposals with less strict spending cuts and a possible change to the pension reform. If the parliament fails to pass a budget an emergency bill must be passed. If Lecornu is ousted in a vote of no confidence Macron must appoint a new PM or call for a snap election, which still is a significant risk.

In China, exports surprised to the upside in September, rising by 8.3% y/y (cons: 6.0%, prior: 4.4) to a seven-month high. In the same period, imports jumped 7.4% y/y (cons: 1.5%, prior: 1.3%). China’s trade surplus came in at USD 90.5bn, below expectations of 99.0bn, but higher than the 81.7bn in September the year before.

In Sweden, activity improved in August with GDP rising by 2.4% y/y and 1.1% m/m. Consumption increased as expected, while production in manufacturing and construction also improved. Overall, the data aligns well with our expectations and forecast, albeit slightly exceeding them, which is encouraging for growth in H2.

In Norway, headline inflation came in at 3.6% y/y in September (cons: 3.7%). Core inflation was 3.0% y/y (cons: 3.1%, prior: 3.1%), marking a small downside surprise. The print aligns with the ongoing disinflationary trend, supporting our view that markets may be underestimating the potential for Norges Bank easing in 2026.

Norges Bank announced an important change to their liquidity steering system Friday evening: the introduction of central bank certificates for banks and the public in order to strengthen the attainment of its liquidity policy objectives. Last week, we wrote how we think markets heavily underappreciate the risk of such a radical change to the liquidity set-up.

In Denmark, CPI inflation increased to 2.3% in September from 2.0% in August, in line with our expectations. The move higher is particularly driven by a base effect on energy as a large gasoline price decline in September 2024 exits the inflation measure. Food prices declined only 0.1% mom following the price surge over the summer, which is less than usual for September.

Equities: Risky assets sold off heavily on Friday evening as Trump threatened ‘massive’ tariffs on China and potentially cancelling the planned meeting with Xi. Equities finished sharply lower (S&P 500 -2.7%, Nasdaq -3.6%, Stoxx 600 -1.3%). Investors sold the most liquid stocks, meaning big tech a sharp -4% lower. This was a ‘classic’ risk-off session, with falling equities accompanied by falling yields. The US 10y dropped -9bp, gold prices rose (now back above USD 4k again) and oil prices -4% (below USD 60/barrel and lowest since May). Dollar was however not in a ‘classic’ risk-off, but weakened instead of the typical ‘flight to safety’ behaviour, as has been the case before in Trump-induced volatility. Rebound appears to start already, with US futures 1-2% higher this morning.

FI and FX: Bond yields rallied on Friday as Trump threatened with new tariffs on China. US Treasuries rallied some 9 to 11bp across the curve from 2Y to 30Y maturities. German yields also rallied some 4-6bp across curve. There was only a modest movement in the USD from 115.7 to 116.1 versus the euro.