Global markets experienced significant volatility over the past week as investors grappled with escalating US-China trade tensions, an extended U.S. government shutdown and diverging central bank policies across major economies.

The week's dominant theme was the sharp deterioration in U.S.-China relations after Beijing announced restrictions on rare earth mineral exports. President Trump responded with threats of 100% tariffs on Chinese goods by November 1st, triggering a sharp risk-off move on Friday that saw the NASDAQ plunge 3.6% and the S&P 500 fall 2.7%. However, markets partially recovered early this week as both sides appeared to soften their rhetoric, with Trump suggesting on social media that "it will all be fine" and confirming he still expects to meet President Xi at the APEC summit later this month.

The Australian dollar bore the brunt of risk aversion, falling over 1.25% on Friday to below 65 U.S. cents as investors fled growth-sensitive currencies. Despite Australia's potential role as an alternative rare earth supplier, the currency's traditional correlation with global growth expectations dominated. The Japanese yen strengthened as its safe-haven status reasserted itself, even as political uncertainty grew following the ruling party's loss of coalition support.

Gold emerged as the week's clear winner, breaking through the psychologically important $4,000 per ounce barrier for the first time and posting a remarkable 50% year-to-date gain. The precious metal's rally reflected both geopolitical tensions and structural demand from central banks seeking to diversify reserves away from the US dollar. Silver surged even more dramatically, up over 7% as investors sought alternatives to gold's elevated prices.

Central banks provided mixed signals on monetary policy direction. The Reserve Bank of New Zealand delivered a larger-than-expected 50 basis point rate cut, citing economic weakness and signalling further easing ahead. In contrast, Federal Reserve Chair Jerome Powell maintained a dovish stance despite persistent inflation concerns, suggesting the Fed remains on track for two more rate cuts this year despite lacking economic data due to the government shutdown.

The U.S. government shutdown entered its second week with no resolution in sight. Both Democrats and Republicans appeared to dig in, with President Trump threatening permanent layoffs for some furloughed workers while promising to maintain pay for military and law enforcement. The shutdown has left markets without crucial economic data, including employment figures, adding to uncertainty about the Fed's policy path.

European markets found some relief as French political tensions eased. Prime Minister Lecornu appeared to make concessions on pension reform to avoid another government collapse, helping French bonds outperform and narrowing spreads against German debt.

Looking ahead, markets still face a significant degree of uncertainty - which could go either way. The November 1st tariff deadline looms large, though prediction markets suggest only an 11% probability of implementation. The all-important U.S. The Federal Reserve also sees the same knife edge equilibrium that Hunt Economics has spoken to us about. Overnight Chair Powell also seemed to pivot from being more worried about sticky inflation to concerns over a slowing U.S. economy. A 10 basis point fall in expected rates in early 2026 sent markets up sharply. If those concerns were to materialise as an imminent recession, one suspects the momentum might go the other way. 

Corporate earnings season, now underway with major banks already reporting, might provide some indications to provide some timely insights into the impact of tariffs and how businesses are navigating trade tensions and higher interest rates.  Again overnight, Jamie Dimon (CEO of JPMorgan Chase) reported recorded profits but alluded to rising defaults and default probabilities in their likening book. With the U.S. government shutdown limiting economic data this reporting season could be more important than ever for jumpy markets. Expect some more colour on the real economy and financial liquidity from the banks in the next week or so and then some insight into AI infrastructure spend and maybe even prospective return on investment later in the month from the big U.S. tech companies.