The escalation of the trade conflict between the US and China brought the American dollar back down. Beijing has tightened export controls on rare earth minerals, restricted imports of soybeans from the United States, and effectively banned its companies from doing business with the American division of South Korean shipping giant Hanwha Ocean. Donald Trump threatened to raise tariffs by 100% and to stop buying vegetable oil from China.

The trade war increases the likelihood of a slowdown in the US economy and forces the Fed to continue its cycle of monetary expansion. In the futures market, there is a growing chance that the Fed's funds rate will be cut by 50 basis points in October or December. Jerome Powell believes that sooner or later, unemployment will rise. Christopher Waller predicts a decline in employment and said the labour market is weak.

The strengthening of its competitors is driving the fall of the US dollar. The end of the political drama in France is supporting the euro. Growing demand for safe-haven assets bolsters the yen, while the Bank of England's reluctance to cut rates is helping the pound.

The White House's desire to extinguish the trade war fire, expectations of continued Fed rate cuts, and an excellent start to the corporate reporting season allowed S&P 500 bulls to lick their wounds. The profits of the six largest US banks grew by 19% to $41 billion in the third quarter. BlackRock's assets under management exceeded $13 trillion for the first time, a new record. Lenders' management is optimistic about the prospects for the US economy. Consumers continue to spend money despite the weak job market and uncertainty around the White House policy.

Wall Street experts expect S&P 500 companies' profits to grow 8% in the third quarter. In fact, it could be +13%. History shows that in three out of four cases, actual results exceeded analysts' estimates. The belief that the same will happen now pushes the broad stock index higher. Moreover, FOMC's Stephen Miran argues that an aggressive Fed rate cut is needed against the US economic slowdown due to the trade war.

US Treasury Secretary Scott Bessent hints that if export controls on rare earth minerals are relaxed, China's 90-day tariff delay could be extended. The White House's desire to de-escalate the conflict supports the S&P 500.

The FxPro Analyst Team

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