Market Overview
Global markets are kicking off the week in an optimistic mood as traders digest encouraging signals from US-China trade negotiations. The prospect of a breakthrough deal between the world’s two largest economies has injected fresh momentum into equities while weighing on traditional safe-haven assets. This positive sentiment is underpinning a broad-based rally across major indices, with both US and European futures pointing to a stronger open on Monday.
The MSCI global stocks index climbed to an all-time high, advancing 0.3% as Asian markets led the charge with record-breaking performances in Japan and South Korea. This follows a stellar week for US equities, where the S&P 500 gained 1.9% and both the Nasdaq 100 and Dow Jones surged 2.2%, all closing at fresh record highs on Friday. The risk-on environment has also lifted commodities, with copper—a key barometer of global economic health—surging alongside oil prices on improved demand expectations.
US Stock Market Outlook
US stock futures are trading higher this morning, building on last week’s momentum. Futures for the S&P 500 and Nasdaq 100 have advanced in pre-market trading, suggesting investors remain confident despite a packed week of potential market-moving events ahead. The positive tone reflects growing optimism that progress in US-China trade discussions could alleviate one of the major headwinds that has weighed on global growth prospects.
This week brings a critical confluence of events that will test the market’s resilience. The Federal Reserve is widely expected to deliver another interest rate cut at its two-day policy meeting concluding on Wednesday. Markets have priced in approximately two more rate cuts for the remainder of 2025, reflecting expectations that the Fed will continue its accommodative stance to support economic growth. The dovish trajectory has helped underpin equity valuations, though any surprise in the Fed’s forward guidance could trigger volatility.
Adding to the week’s significance is a barrage of earnings reports from technology heavyweights including Microsoft, Apple, and Meta. These Big Tech names have been instrumental in driving the market’s recent rally, and their results will provide crucial insights into corporate health and spending trends. Strong earnings could propel indices to even loftier heights, while disappointments might prompt profit-taking after the recent run-up.
The backdrop of easing US-China trade tensions has been particularly supportive for cyclical sectors and growth stocks. If negotiations continue to progress positively, we could see further rotation into economically sensitive areas of the market. However, traders should remain mindful that concerns about a potential US government shutdown continue to simmer in the background, which could introduce an element of uncertainty.
UK Market Perspective
The FTSE 100 is positioned for a positive start to the week, with futures indicating a gain of around 0.2%. The blue-chip index closed last week at approximately 9,645 points, up 0.7% on the day and posting a weekly gain of 1.4%—its second consecutive week of advances and the strongest performance in six weeks. The index is trading near the upper end of its 52-week range, reflecting the improved sentiment permeating global markets.
UK equities are benefiting from the same tailwinds supporting global markets, particularly the optimism surrounding US-China trade developments. Energy stocks have provided notable support to the FTSE 100, rising in tandem with oil prices. The technology sector has also attracted increased investor interest, with several FTSE 100 tech names seeing renewed buying activity.
However, domestic factors present a more mixed picture for UK markets. The approach of November’s Autumn budget has introduced an element of caution, with fiscal concerns weighing on sentiment. Investors are closely monitoring government spending plans and potential tax changes that could impact corporate profitability. Additionally, recent data showing reduced investment by British manufacturers has raised questions about the strength of the UK’s economic recovery.
The Bank of England’s monetary policy trajectory remains another key consideration for UK assets. Markets are currently pricing in a 40% probability of a 25 basis point rate cut at the November meeting, with 65 basis points of cuts expected by year-end. This dovish pricing reflects unexpectedly steady inflation data and signs of cooling in the UK labour market. While lower rates could provide support for equities by reducing borrowing costs, they also signal concerns about economic momentum.
Forex Market Analysis
Currency markets are reflecting the shifting dynamics of global risk sentiment and central bank expectations. The US Dollar has adopted a softer tone as traders position for further Federal Reserve rate cuts, with two additional reductions widely anticipated before year-end. Concerns about a potential US government shutdown have added to the Dollar’s headwinds, undermining its safe-haven appeal at a time when risk appetite is improving.
EUR/USD is trading around 1.1620 in early European trading, having weakened slightly from recent highs. The pair maintains a constructive technical outlook as it holds above the key 100-day Exponential Moving Average at 1.1575, though the Relative Strength Index below the midline at 45.75 suggests potential near-term downside. Immediate resistance emerges at 1.1694 (the October 16 high), with further upside targets at 1.1755 and 1.1820. On the downside, a break below the 100-day EMA could open the door to 1.1545 and potentially 1.1403.
The Euro faces headwinds from renewed political turmoil in France, where the Socialist party has threatened to bring down Prime Minister Sébastien Lecornu’s government if their budget demands—including higher taxes on billionaires—are not met. This political uncertainty adds a layer of risk to Euro positioning ahead of this week’s European Central Bank rate decision. The ECB is expected to continue its easing cycle, which could limit the Euro’s upside potential even as the Dollar softens.
GBP/USD has snapped a six-day losing streak and is trading with a slightly positive bias above 1.3300. The Pound is finding some support from the broader Dollar weakness, though fundamental factors suggest the path of least resistance remains to the downside. Bank of England rate cut expectations continue to weigh on Sterling, with markets pricing in substantial easing through year-end. The combination of dovish BoE expectations and UK fiscal concerns ahead of the November budget creates a challenging environment for the Pound.
Traders should remain cautious about establishing strong directional positions ahead of this week’s central bank meetings. The Federal Reserve decision on Wednesday will be closely watched for any shifts in forward guidance, while the outcomes from the Bank of Canada, European Central Bank, and Bank of Japan meetings will also influence currency dynamics. Additionally, Friday’s release of the US Personal Consumption Expenditure (PCE) Price Index—the Fed’s preferred inflation gauge—could trigger volatility across Dollar pairs.
Key Events to Watch
Several high-impact events will shape market direction in the coming days. The Federal Reserve’s two-day policy meeting concluding Wednesday stands as the week’s marquee event, with a rate cut widely expected but the accompanying statement and press conference likely to generate the most market reaction. Traders will parse Fed Chair Jerome Powell’s comments for clues about the pace of future easing and the central bank’s assessment of economic conditions.
The Trump-Xi meeting later this week represents another potential catalyst. While initial reports of progress in trade negotiations have buoyed sentiment, concrete details of any agreement will be crucial. A substantive deal could extend the current rally, particularly benefiting cyclical sectors and emerging market assets. Conversely, any setbacks could quickly reverse recent gains.
Big Tech earnings will provide critical insights into corporate health and the sustainability of elevated equity valuations. With the S&P 500 trading at approximately 31 times earnings—well above its long-term average of 15-16 times—strong results from technology leaders are essential to justify current price levels. Disappointing guidance could prompt a reassessment of lofty valuations.
Economic data releases, particularly inflation figures from both the US and Europe, will inform central bank policy expectations. The European CPI data is projected to show headline and core inflation dipping to 2.1% and 2.3% year-over-year respectively, broadly in line with ECB projections. Any significant deviation could alter rate cut expectations and drive currency volatility.
Trading Considerations
The current market environment presents both opportunities and risks for traders. The strong momentum in equities and the risk-on sentiment create a favorable backdrop for long positions in cyclical sectors and growth stocks. However, elevated valuations and the concentration of gains in a narrow group of mega-cap technology stocks warrant caution. Diversification across sectors and geographies remains prudent, particularly given the binary nature of upcoming events.
For equity traders, maintaining exposure to the technology sector appears justified given the sector’s earnings strength, but position sizing should account for valuation concerns. Energy stocks may offer continued support given the improved demand outlook from potential US-China trade progress. UK equities could benefit from their relative valuation discount compared to US counterparts, though domestic headwinds require careful stock selection.
In currency markets, the Dollar’s softness creates opportunities for long positions in major pairs, though traders should be prepared for volatility around central bank meetings. EUR/USD longs above 1.1575 offer a favorable risk-reward profile with defined support, though political risks in France require monitoring. GBP/USD presents a more challenging setup given the fundamental headwinds, suggesting a more cautious approach or waiting for clearer directional signals.
Risk management takes on heightened importance given this week’s event-heavy calendar. Using appropriate stop-losses and avoiding over-leverage will be essential to navigate potential volatility. Traders might consider reducing position sizes ahead of major announcements and being prepared to act quickly on any significant developments.
The improved US-China trade narrative provides a constructive backdrop for risk assets, but the sustainability of this rally will depend on concrete progress and positive surprises from corporate earnings and economic data. Maintaining flexibility and avoiding complacency will be key to successfully navigating the week ahead.
