China Deal Hopes Lift Markets as Trump, Xi Prepare for Talks

The final week of October began with a flurry of activity as markets looked forward to the highly anticipated APEC Summit.

Chief U.S. and Chinese trade negotiators thrashed out a trade agreement framework for President Trump and President Xi to finalize a deal. A meeting is scheduled for October 30, just 48 hours before tariffs on Chinese goods were set to rise to 155%.

Trade Negotiation Highlights

Key takeaways from the two days of trade talks in Malaysia included:

• Withdrawal of 100% US tariffs, effective November 1.
• A 1-year delay on the implementation of export controls on rare earths to the US.
• China to resume soybean imports.
• US-China trade truce to be extended beyond the November 10 deadline.
• Section 301 fees.
• Fentanyl-related measures and anti-drug cooperation.
• TikTok deal ironed out, with agreement for US investors to hold a majority stake and ByteDance retaining less than 20%.

US President Trump boosted hopes for a trade deal, stating:

“Think we’ll come away with a deal with China. I’ll be going to China in earlier part of next year.”

Market Reaction and Risk Sentiment

Notably, the Nikkei 225 broke through the 50,000 threshold for the first time in history on October 27.

While the news fueled demand for risk assets, Mainland China and Hong Kong-listed stocks trailed behind the broader Asian equity markets. The absence of a trade deal, the potential for stalled talks, and the likelihood of a trade war truce extension left Mainland investors wary.

Topics on the Table: Trump–Xi Meeting

President Trump’s meeting with President Xi is expected to cover stickier topics, including:

• Existing US tariffs and levies on transshipments.
• Plans for US duties under the source of origin rule.
• US export restrictions on global shipments to China that contain US software.
• Restrictions on US semiconductor exports to China.
• Russia.
• Taiwan.

With many talking points, the chances of an actual trade agreement by October 30 looked slim.

Mainland Markets Lag as Investors Await Trump–Xi Showdown

Notably, Mainland China and Hong Kong equity markets lagged their Asian market peers. The CSI 300 and the Shanghai Composite Index rose 1.19% and 1.18%, respectively, while the Hang Seng Index advanced 1.05%. The gains suggested a degree of investor caution ahead of the October 30 meeting.

Nevertheless, the weekend’s developments signaled a marked shift in US-China trade relations, potentially boosting global trade terms, a boon for export-dependent economies.

AUD/USD advanced 0.71% on October 27 to close at $0.65550, while gold plunged 3.16% to end the session below $4,000 for the first time since October 9.

Economic Backdrop: China’s Domestic Challenges

The latest US-China trade news comes at a pivotal time for China’s economy. Recent trade data and industrial profit numbers signaled a rebound in external demand, boosting profit margins. Exports soared 8.3% year-on-year in September, increasing from just 4.4% in August. Industrial profits surged 21.6% year-on-year, up from 20.4% in August.

Yet overcapacity and excess supply continue to fuel deflationary pressures plaguing the economy. Electric vehicle, lithium battery, and solar panel production have outstripped demand, leading to manufacturers cutting prices and flooding global markets.

A US-China trade deal including lower or even zero US tariffs on Chinese goods could rebalance the scales. Strong US demand could be crucial given the impact of squeezed profit margins on the Chinese labor market, wage growth, and ultimately, domestic consumption.

Expert Commentary: Overcapacity Risks

Alicia Garcia, Natixis Asia Pacific Chief Economist, commented on China’s overcapacity and excess supply woes, stating:

“As wages stagnate amid this supply surge, the very productivity gains meant to elevate living standards risk hollowing out the middle class, turning high-quality development into a phrase that rings hollow for the factory worker facing job insecurity or the small entrepreneur squeezed by behemoth competitors.”

Garcia Herrero also criticized the Communist Party Fourth Plenum’s unwillingness to address these imbalances, adding:

“Beijing’s response? More coordination, perhaps, but the plenum’s silence on recalibrating these forces suggests the gamble continues, better that sheer volume will eventually forge dominance – even if it means navigating a deflationary minefield in the interim.”

However, transitioning from an industrial to a consumption-led economy remains a key goal. Garcia Herrero labeled Beijing’s ambition to maintain its export dominance while shielding the economy from external forces, including tariffs, as dual circulation.

Considering domestic price pressures and oversupply, further targeted policy measures aimed at bolstering household income and consumer spending are likely.

Policy Signals: Stimulus Push

Former People’s Bank of China (PBoC) policymaker Yu Yongding reportedly called for a stimulus bazooka on October 27. According to CN Wire:

“Yu Yongding, former monetary policy committee member at the People’s Bank of China, urged China to boost investment to revive domestic demand, advocating a major infrastructure push in the next five-year plan starting 2026.”

CN Wire added:

“Yu argued, “In a situation of inadequate demand, infrastructure investment delivers immediate economic results. Measures to directly stimulate consumption have some effect. But even if intensified, they may not be enough to fill the gap in demand.”

Yu reportedly concluded:

“Trade’s role in China’s economy is fading, and domestic-focused initiatives, such as infrastructure projects, could raise household incomes and drive demand for building materials and construction, shifting growth toward internal demand rather than exports.”

Mainland Equities: Positioning Ahead of APEC

Mainland equity markets came under selling pressure in early trading on Tuesday, October 28. Investors took profit ahead of Trump’s highly anticipated meeting with President Xi on Thursday, October 30. The CSI 300 fell 0.17%, while the Shanghai Composite Index declined 0.15%. The Hang Seng Index mirrored the Mainland equity markets, dropping 0.24%.

However, the losses were modest amid rising optimism over a US-China trade deal, supporting a potential recovery.

A trade deal, including lower tariffs on Chinese shipments, could send the CSI 300 and the Shanghai Composite toward their previous all-time highs – set in 2021 for the CSI 300 and 2015 for the Shanghai Composite.

While markets await Trump’s meeting with President Xi, Beijing’s policy signals will also influence market sentiment.

Key Events Ahead: APEC Summit and PMI Data

The final few sessions in October could be a pivotal moment for Mainland and Hong Kong-listed stocks. A landmark US-China trade deal will likely fuel demand for risk assets. However, lower tariffs will be key, given that Chinese manufacturers continue facing margin pressures.

Chinese NBS Manufacturing PMI data on Friday, October 31, will also influence sentiment. Economists forecast the Manufacturing PMI to slip from 49.8 in September to 49.6 in October. A sharper drop could fuel speculation about policy support from Beijing, potentially sending Mainland equity markets higher.

Year-to-date, the CSI 300 and the Shanghai Composite Index are up 19.7% and 19.2%, respectively, while the Hang Seng Index has soared 31.3%. Fresh stimulus and a trade breakthrough could narrow performance gaps across markets.

Outlook

While uncertainty lingers over a comprehensive U.S.–China trade deal, the momentum of negotiations and market optimism highlight a potential inflection point for global trade dynamics. A tariff rollback would provide relief for Chinese manufacturers and lift broader risk sentiment across Asia.

Discover strategies to navigate this week’s market trends here.