Stocks zoom on trade and inflation relief

The seemingly endless "on-off" U.S.-China trade negotiations are back on once more. 

Top Chinese and U.S. officials on Sunday hashed out a framework for a trade deal for President Donald Trump and Chinese President Xi Jinping to decide on later this week,  one aimed at pausing steeper U.S. tariffs and Chinese rare earths export controls. 

Treasury Secretary Scott Bessent said talks at the ASEAN Summit in Kuala Lumpur had eliminated the threat of Trump's 100% tariffs on Chinese imports from November 1, and he noted that he expected China to delay rare earth export curbs too.

U.S. stock indexes clocked record closing highs on Friday, with the biggest weekly gains since August after a slightly softer-than-feared September U.S. inflation readout  baked in expectations for another Federal Reserve interest rate cut on Wednesday.

Wall Street index futures surged another 1% ahead of Monday's bell, with Japan and South Korea's equity benchmarks up more than 2% each and Chinese stock indexes up more than 1% to more than 10-year highs. China's offshore yuan also jumped to a six-week high, guided by a People's Bank of China reference rate that was at its strongest since October last year.

Gold prices fell back nearly 2% as hopes of easing U.S.-China trade tensions lifted risk appetite for equities. 

This week's earnings diary sees five of the so-called "Magnificent Seven" megacaps - Meta, Microsoft, Alphabet, Amazon and Apple - due to report. They collectively make up about a quarter of the entire S&P 500 value. 

Facing a heavy schedule of new debt sales this week, including $139 billion in 2- and 5-year notes later today, U.S. Treasury yields have nudged higher, helped along by the stock market surge and creeping inflation expectations in surveys.   

The Bank of Canada is expected to cut by a quarter point on Wednesday, too, with Trump's decision to add a 10% additional tariff on Canadian imports likely to reinforce the easing argument. Meanwhile, the Canadian dollar remains firm.

The European Central Bank and Bank of Japan are expected to hold the line, with rising business expectations in Germany encouraging the ECB to stand pat and the BoJ assessing the new Japanese Prime Minister's fiscal policies. The yen and the euro were firmer.

And now onto today's deep dive on global capital repatriation

If world trade and politics are being balkanized, investment flows may not be far behind. The implications of a mass repatriation of global capital are squarely on the radar for many investors.

For investors, contemplating a reversal of globalization is no longer unthinkable but the norm in markets. Trade wars, hot wars, polarized blocs, national security priorities, industrial policies and investment curbs are all daily considerations for investors in the biggest economies, never mind the traditionally more volatile emerging ones.

Donald Trump's return to the White House with an explicit "America First" agenda has catalyzed this retreat from globalization, but it's one that's been underway since his first term almost nine years ago and, arguably, since the banking crash in 2008. The pandemic upped the stakes.

One major question during the tariff disputes this spring was whether America's exceptional outperformance as the home of choice for cross-border investment was tarnished. The concern was foreign investors loaded up with expensive U.S. assets may cut and run and diversify elsewhere. 

Graphics are produced by Reuters.

Five of the so-called "Magnificent Seven" megacaps report earnings this week, including Meta, Microsoft, Alphabet, Amazon and Apple. AI-related capex and cloud computing growth will be watched very closely.  

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