Geopolitical Tensions and US Economic Headwinds.
This article highlights two major unresolved impasses: the US-China trade conflict and the US political gridlock (specifically the federal government shutdown), both acting as significant headwinds for the global and US economies.
US-China Trade and Tech Tensions
Despite President Trump downplaying a “trade war,” a basis for a deal with China remains elusive ahead of a potential meeting with President Xi. Key points of contention include:
Technology “Chokehold”: The US is unlikely to ease restrictions on advanced semiconductor technology or allow loopholes for sanctioned Chinese companies. Chinese Export Controls: Beijing appears unwilling to drop export licensing for rare earths, processing technology, and EV battery technology.Trade Barriers: Neither side seems prepared to backtrack on existing port fees levied on the other.
The collapse of the “fragile and tentative trade truce” is anticipated to increase the average effective US tariff by 8-13 percentage points, which the market views as a clear headwind for the US economy.
Renewed Credit Fears and CRE Exposure Recent events have brought late-cycle credit fears back to the forefront, with the Commercial Real Estate (CRE) market identified as the epicenter of risk. Banking Shocks: Write-downs at two regional US banks, following the collapse of Tricolor and First Brands, served as a “shot across the bow.”
CRE Delinquencies: Office loan delinquencies have reached 10.4%, a level approaching that seen in 2008.
Refinancing Wall: An estimated $1 trillion of CRE loans must be refinanced before year-end, which presents a major challenge in a tighter credit environment. Regional Bank Exposure: Regional banks are particularly vulnerable, with CRE loans accounting for an estimated 44% of their portfolios, compared to about 13% for large banks. The KBW Regional Bank Index has been under pressure, logging its longest losing streak of the year with four consecutive weekly declines.
Market Expectations and Data Ahead Fed Rate OutlookThe futures market has fully priced in a Fed interest rate cut for later this month and December and is beginning to consider the possibility of a 50 basis point (bp) cut at one of the last two meetings of the year, likely in response to economic headwinds and credit fears.
Key Data Releases : Despite the ongoing US federal government shutdown, several crucial data points are scheduled:
US CPI: The Bureau of Labor Statistics (BLS) is making an exception to report the September Consumer Price Index (CPI) due to its importance for government programs like social security. Headline CPI is rising at a 2.4% annualized pace.
Other US Data: Regional Fed surveys, preliminary October PMI, and existing home sales are also expected.
Global Highlights: The week ahead features China’s Q3 GDP report, its 4th plenary session to frame the next five-year plan, and Japan’s Diet selecting a new prime minister.
Dollar Movement : The Dollar Index (DXY) pulled back significantly last week, selling off from a high near 99.50 to test the 97.90 level (the 50% retracement) before settling around 98.55 before the weekend. Daily momentum indicators are showing signs of turning down from over-bought territory.
Published on 24/10/2025
By Nicholas.