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Cautious optimism after U.S.-China trade talks

This week’s main story for markets was the meeting between U.S. President Donald Trump and Chinese President Xi Jinping. Following the talks, both sides announced a modest set of agreements aimed at improving trade relations.

The U.S. agreed to lower tariffs on Chinese imports by 10%, while China committed to purchasing more U.S. agricultural goods—particularly soybeans—and delaying certain export controls on rare earth minerals. Both nations also postponed new port fees and trade restrictions on each other. While these measures fell short of a comprehensive trade deal, they represent a constructive step toward de-escalation in U.S.-China relations.

Equity markets responded to the news with restraint, with U.S. stocks even pulling back during the day on Thursday, as some investors may have been hoping for a broader deal. Still, the developments signal a cooling of tensions that could pave the way for more substantive negotiations between the two countries in the months ahead.

Next week, the U.S. Supreme Court will hear a case regarding the legality of certain reciprocal tariffs. Even if the Court were to strike down portions of them, there are still other ways for the U.S. to impose tariffs on key trading partners. From a macro perspective, we think the current tariff environment will only have a modest hit to U.S. growth. Our central scenario is still for the U.S. economy to achieve a soft landing.

Fed, BoC lower rates while BoJ stands pat

Central bank announcements also made headlines this week, with both the Bank of Canada (BoC) and the U.S. Federal Reserve (Fed) lowering interest rates by 0.25%, while the Bank of Japan (BoJ) opted to stay on hold.

The BoC’s decision brought its policy rate down to 2.25%, which is the lower end of its estimated neutral rate—the rate that neither speeds up nor slows down the economy. With rates at this level, there will likely be a higher threshold for additional cuts, though the central bank still reiterated its data-dependent stance. If the Canadian economy weakens further—a plausible scenario given its relative vulnerability compared to the U.S.—further easing in December or early 2026 can’t be ruled out.

Meanwhile, the Fed’s rate cut was also widely anticipated. Chair Jerome Powell noted that while the recent U.S. government shutdown has disrupted access to some official data, the central bank can use private-sector indicators to gauge the state of the economy. These numbers suggest the labor market has softened but is still resilient, which should allow the Fed to gradually lower rates.

By contrast, the BoJ left borrowing rates unchanged. However, officials signaled rate hikes may be on the horizon as Japan attempts to normalize its monetary policy. 

U.S. earnings remain a bright spot

Earnings reports this week underscored the continued strength of corporate America. S&P 500 earnings are tracking above 12% year-over-year, while revenue growth stands near 8%—one of the strongest revenue growth readings in recent years.

This robust earnings performance supports the view that corporate profitability remains healthy, helping keep layoffs low and bolstering the case for a soft landing. 

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