Market Recap | October 2025: Trade Truce Lifts Sentiment, Fed Turns More Measured

October was a mixed month for global markets, with developed market equities up 2.8% and the Bloomberg Global Aggregate Bond Index down 0.25%.

Sentiment improved as easing US–China trade tensions and another strong US earnings season supported risk assets, while weakness in credit and securitised assets weighed on fixed income.

• Late-month discussions between the US and China boosted confidence. Both sides reached a tentative one-year deal to pause steeper tariffs and limit Chinese export controls on rare earth minerals, a key input for AI manufacturing. Although not a formal agreement, the shift marked a welcome move toward stability.

• In the US, inflation continued to moderate, allowing the Federal Reserve to cut rates by 25 bps to 3.75 - 4.00%. Chair Powell’s comments suggested the Fed may pause to assess policy effects, prompting markets to scale back expectations for further easing.

• Growth stocks outperformed (+4.2%), fuelled by renewed AI optimism, while small caps and listed real estate lagged amid rate sensitivity.

• Japan’s Nikkei led performance, supported by optimism over Prime Minister Sanae Takaichi’s pro-growth policies and a weaker yen.

• MSCI Asia ex-Japan gained 4.5%, with Korea and Taiwan outperforming as semiconductor sectors benefited from improved trade sentiment.

• FTSE 100 advanced 3.9%, supported by falling gilt yields, stronger commodities, and a softer sterling. Continental Europe rose 2.1%, lagging peers due to political uncertainty in France and limited exposure to AI-linked sectors.

• Fixed income performance was mixed: UK Gilts led gains as yields fell 30 bps, while Euro area bonds rose modestly and Japanese government bonds weakened on expectations of further BoJ policy normalisation.

• Commodities climbed 2.9%, driven by industrial (+4.8%) and precious metals (+3.5%), with gold and silver continuing their strong year-to-date run.

Overall, October was constructive for risk assets. Easing trade frictions and moderating inflation supported optimism, yet stretched valuations, in particular in the US, leave limited margin for error. Diversification beyond concentrated US exposures and maintaining portfolio resilience remain key as inflation and policy risks evolve.