Market Review 13th October 2025

Everything you need to know, Simplified!

Summary

• Global equities fell 2.1% over the week as trade tensions between the US and China reignited, ending a six-month truce and unsettling risk sentiment

• China tightened control of rare earth exports, prompting President Trump to threaten 100% tariffs on Chinese imports and new export controls on critical software

• The escalation came at a delicate moment, with the US labour market cooling and China grappling with weak demand and deflation - both sides have limited capacity to sustain a trade war

• Sector performance reflected the shift to caution: consumer discretionary, energy, real estate and industrials lagged, while staples, utilities and healthcare held up better

• US 10-year Treasury yields fell 10 basis points (bps) to 4.03% as safe-haven demand rose amid the trade tensions and a deepening US government shutdown, now in its eleventh day

• Gold broke above US$4,000/oz for the first time in history, closing at US$4,017.79 and extending its year-to-date gain to 54.1%.

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Market Review

Limping tiger, wounded dragon 

Over the past several weeks investors have managed to look through the US government shutdown, slowing labour markets, sticky inflation, rising geopolitical tensions and increasingly lofty valuations, with retail investors having thrown a further US$100bn into US equities in the past month alone. But on Friday, markets finally stumbled as trade tensions reignited between the US and China.

On Thursday, China moved to tighten control of the rare earths supply chain after a six-month détente, curbing access to critical inputs for US technology and artificial intelligence (AI) production. President Trump responded swiftly on Friday, threatening to pull out of a scheduled meeting with China’s leader President Xi at the end of October and to impose new tariffs of up to 100% on Chinese imports, alongside new export controls on critical software both due to take effect on 1 November. 

Since May, the US and China had been operating under a fragile truce. The springtime round of punitive tariffs and export curbs had shown both sides how much damage the other could inflict. Since then, each has stepped back while reinforcing domestic supply chains - the US by boosting domestic rare-earth capacity, investing in copper mining and critical minerals exploration in Alaska and reversing former US President Biden’s earlier rejection of the Ambler Road project (an infrastructure plan in Alaska) and China by accelerating efforts to build a domestic semiconductor ecosystem. 

The escalation comes at an awkward time for both economies: the US faces a cooling labour market and an administration keen to keep productivity high, while China continues to wrestle with weak domestic demand and deflation. Both sides have thresholds - politically, economically and fiscally - to how far they can push. For the US, tariffs that bite too hard risk backfiring and China can ill afford another hit to exports or sentiment. Although China may be on more fragile footing, they also likely have a higher pain threshold. It seems counterintuitive for either side to escalate further and recent history suggests a de-escalation of tensions is the more probable outcome. 

The flare-up sent a jolt through markets on Friday, concentrated in the sectors and regions most exposed. The US tech sector fell 4.0%, Chinese equities declined 2.3%. In Europe, equities followed Wall Street lower while the UK proved more resilient. 

Global equities dropped 2.1% over the week. Cyclical sectors - consumer discretionary, energy, real estate and industrials - underperformed, while defensive areas such as consumer staples, utilities and healthcare held up better. 

Bond yields fell on Friday, with the 10-year US Treasury yield down 10bps (a similar decline for the week) to close at 4.03%. The ongoing US government shutdown also appeared to contribute to safe-haven demand for Treasuries, as it entered a new phase with government layoffs beginning - a development not seen in previous shutdowns. 

The shutdown, now in its eleventh day, shows little sign of resolution with talks at an impasse and the senate closed until Tuesday. Next week marks the point where the shutdown becomes more painful: congressional staff, federal employees and the military will go unpaid and logistical pressures such as travel bottlenecks are likely to mount. 

Historically, that’s when compromise tends to accelerate - though this time with a wide divide either side of the aisle, this could be a dragged-out affair. For markets, the risk is that brinkmanship adds to volatility. 

Amid the volatility, gold continued to shine, breaking the US$4,000/oz barrier for the first time in history and closing at US$4,017.79 - just shy of all-time highs and up 54.1% year-to-date.

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The week ahead

Tuesday: UK labour market data 

Our thoughts: Economists expect a mild cooling in the UK labour market, with regular private sector pay growth slowing to around 4.5% in the three months to August, down from 4.7% previously. Broadly speaking, the rate of deterioration has eased, and with the labour market stable and inflation still sticky, the Bank of England has little reason to move further for now. With the next Monetary Policy Committee meeting a month away, policy looks set to remain on hold.

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Investment involves risk. The value of investments and the income from them can go down as well as up and you may not get back the amount originally invested. The information provided is not to be treated as specific advice. It has no regard for the specific investment objectives, financial situation or needs of any specific person or entity. Where investment is made in currencies other than the investor’s base currency, the value of those investments, and any income from the m, will be affected by movements in exchange rates. This effect may be unfavourable as well as favourable. Past performance and future forecasts figures are not a reliable indicator of future results.