Regional Worries

Regional Worries

In the last week, we have seen US equities taking a breather as renewed worries from increased credit provisions in US regional banks, clouded the risk on mood.

US bank stocks extended their slide on Thursday after a sharp drop in regional lenders came through. Investors are offloading exposure as they identify potential risks in regional bank loan books, nevertheless analysts insist that any selloff will be short lived as the banks in question remain well reserved for potential losses. In contrast, Q3 earnings from mainstream wall street banks were quite encouraging beating expectations across the board with an optimistic forward guidance. All in all, so far earnings from both sides of the pond have come better than what analysts expected, reinforcing the bullish narrative towards year end.

In other news, President Trump has confirmed that he will be meeting with President Xi in 2 weeks’ time. He also told reporters that current tariffs on China were not sustainable and affirmed that he won’t be imposing them essentially, providing some relief with regards to trade war worries. A few participants within the Trump administration, have supported the idea of being able to deescalate with China and work towards a more long-term trade deal. In addition to this positive development, President Trump has re engaged President Putin, and they have decided in a high staff level meeting next week and a meeting between them in 2 weeks’ time. It will be a very interesting start to November as it coincides with a lot of MAG 7 earnings. On the data side, there is a standstill as the US government shutdown persists. According to news reports, the shutdown costs $15bn per week and there is a high probable risk that the administration will need to fire government employees as they are not within budget. Discussions within the Congress continue with both political parties sticking to their red lines. The more this deadlock applies, the more uncertainty should build up about the validity and delivery of key data for growth and inflation figures. The market as of now is completely ignoring this tail risk.

Across the pond, French stocks extend gains as Prime Minister Lecornu survived a vote of no confidence in Parliament. To gain support, the prime minister announced the suspension of the controversial reform, which aimed to raise the legal retirement age from 62 to 64, until the next presidential election. This concession was intended to appease the Socialists, whose votes ended up saving the government. In terms of price action this week, we are seeing under performance of European equities (down 1-2.5%) excluding the French index which is up 2.5%. In the US equity market, we are in stale mode with Russell 2000 trading around 1.5% higher on the week. The winner of this week’s performance again is Gold. It has had an amazing performance this year, adding 12.5% this month and has proven to be a great additional input for diversification purposes. On the rates side, the US 10yr Treasury has crossed the 4% mark with additional inflows going into fixed income this week. In Europe, peripheral countries are outperforming with the 0AT – Bund spread trading wrapped around 77bps post the approval of the French parliament.

Looking ahead…

Going forward, we are going into black out period with a significant number of companies coming out with Q3 earnings. It is also important to say that the FED will reconvene its policy meeting on the 29^{th of} October 2025, with another 25bps rate cut expected. In the next 2 weeks, there are a lot of events that will take place both on the geopolitical side and fundamental side. If we come out on the correct side of the road, it will re-ignite animal spirits with Bulls taking control of the market price action.

Written by: Michael Konstantinou, Senior Portfolio Manager