Morning in New York: focus on escalating trade standoff between the US and China

Daily review and forecast of events on the U.S. stock market from Mikhail Denislamov, Deputy Director of Freedom Capital Markets Research.

Market focus remains on escalating tensions between the US and China after China's Ministry of Commerce said the country is "not afraid of a trade war" and defended its new export restrictions on rare earth metals as a "legitimate" measure under international law. Beijing accused Washington of "double standards" after Trump announced Friday that he would impose additional tariffs of 100 percent on Chinese imports starting Nov. 1. This was a US response to restrictions on rare earth element exports. Trump also announced plans to impose export controls on "any critical software." China controls about 70% of the world's supply of rare earth metals and has repeatedly used the critical minerals as a bargaining chip in trade negotiations. U.S. Trade Representative Jamison Greer called China's actions a "power grab," noting that the U.S. was not notified of the new export restrictions in advance. Any additional signals of escalation or, conversely, readiness for dialog will influence sentiment in technology and industrial markets.

This week, investors will focus on the start of the third quarter corporate reporting season, which will be kicked off by the major banks. We expect earnings per share (EPS) growth of 10.5% through 2025. Technology companies should lead earnings growth, followed by the utilities and materials sectors.

The congressional standoff has entered its thirteenth day, with the debate ignoring a key fiscal issue - a $38 trillion national debt with interest payments of more than $1 trillion a year. Maya McGinnis, chair of the Committee for a Responsible Federal Budget, noted that "the country is stuck in a perpetual war of messaging between the parties instead of trying to solve fiscal problems." Senator Ron Johnson called the shutdown "a way to grab attention" that distracts from the real debt problem. The lack of progress creates uncertainty for the market.

On the corporate calendar, the Fastenal (FAST) report, which will be released before the open of trading, may be of interest.

Futures on US indices are showing significant growth. We assess the balance of risks as positive with moderate volatility. We focus on S&P 500 fluctuations in the range of 6530-6650 points (from -0.3% to +1.5% to the previous session's closing level).

- Alphabet (GOOGL) has criticized Australia's law banning social media for under-16s, calling it "extremely difficult" to enforce and challenging YouTube's inclusion on the list of regulated platforms.

- Qualcomm (QCOM) admitted that it failed to notify Chinese authorities of the completion of its acquisition of Israel's Autotalks in June following an antitrust investigation by regulator SAMR.

-Caterpillar (CAT) has inked a deal to acquire Australia's RPMGlobal for $728 million, strengthening the US manufacturer's presence in the mining software segment.

-Warner Bros. Discovery (WBD) has rejected a takeover offer from Paramount Skydance (PSKY) at around $20 per share as too low, with Paramount considering raising the offer and bringing in a financial partner like Apollo Global Management to support the deal.

- Trump has threatened to impose export controls on parts for Boeing (BA) airplanes in response to Chinese restrictions on rare earth metals, a move that could affect negotiations to sell up to 500 planes to China amid the share of Chinese orders falling from 25 percent to less than 5 percent of Boeing's portfolio.

U.S. indexes ended Friday's session sharply lower amid escalating trade tensions between the U.S. and China, with the S&P 500 posting its worst session since April's Liberation Day collapse. The Dow Jones lost 1.90%, the S&P 500 declined 2.71%, the Nasdaq 100 fell 3.49% and the Russell 2000 slipped 3.01%, with 10 of 11 broad market sectors closing in the negative. The technology sector (XLK: -4.07%) was the main outsider, pressured by escalating Sino-US relations and risks to the semiconductor industry, while the only sector to rise was non-cyclical consumer staples (XLP: +0.08%). All representatives of the "Magnificent Seven" stocks closed in the negative, with Tesla (TSLA: -5.06%) remaining under the greatest pressure.

The market's sharp drop was triggered by President Trump's posting in Truth Social, where he called China's actions "sinister and hostile" over its control of rare earth metals and announced he was considering a massive increase in tariffs on Chinese goods along with other countermeasures. Trump also said he may see no reason to meet with President Xi Jinping on the sidelines of the APEC conference in South Korea later this month, contrasting with Treasury Secretary Bessent's recent expectations of constructive talks. The escalation follows a series of Chinese actions, including an antitrust investigation against Qualcomm (QCOM), customs inspectors blocking imports of Nvidia (NVDA) chips, tightening controls on rare earth element exports and imposing port fees on U.S. ships.

The University of Michigan's October preliminary index of consumer sentiment came in at 55.0 versus the consensus of 54.0 and was virtually unchanged from September's level of 55.1. Annual inflation expectations fell 0.1 percentage point to 4.6% from 4.7%, while longer-term five-year expectations remained at 3.7%, indicating some improvement in inflationary sentiment after peaking on "Easing Day."

Fed Board of Governors member Christopher Waller reiterated his intention to keep cutting rates. He noted weakness in the labor market, including a "soft" ADP private employment report, but urged caution due to the divergence between a weak labor market and strong GDP, adding that the Fed may adjust the pace depending on incoming data. Waller also remains one of five Fed chair candidates being considered by the White House, with his interviews so far focused on economic issues.

-Elastic (ESTC: +6.1%) raised its fiscal 2026 revenue guidance at its Investor Day and announced a $500 million share repurchase program.

-Lennar (LEN: +1.2%) announced an offer to exchange its 20% stake in Millrose (MRP: -3.6%) for its own Class A shares at a 6% discount.

-IonQ (IONQ: -8.8%) announced a $2 billion offering to Heights Capital Management at a 20% premium to the closing price and an additional 43 million share warrant, raising fears of significant capital dilution.

- Humana (HUM: -3.6%) shares declined following the release of CMS 2026 STARS data on Medicare Advantage plans, which on detailed examination was less favorable than analysts had expected.

This article was AI-translated and verified by a human editor