By Ahmad Assiri, Research Strategist at Pepperstone
Markets kicked off the week on a distinctly optimistic note, as investors weighed a likely thaw in US China tensions against lingering trade uncertainty.
The geopolitical spotlight was firmly on Washington, where headlines indicate that Trump will meet President Xi in South Korea later this month, a development many see as a potential icebreaker between the world’s two largest economies after months of trade tensions that had rippled through markets. This anticipated meeting could pave the way for understandings on tariffs and related trade imbalance issues, particularly given China’s leverage through its near dominance of rare earth metals, a critical input for semiconductors, clean energy, batteries and others, making them a choke point for both the US and the global economy.
In a related move, Australia signed a $8.5 billion deal with the US to invest in rare earth minerals in Western Australia, a strategic step toward diversifying and reducing global dependence on China. The deal reinforced global interest in minerals as the hot topic on the global stage and is expected to boost capital inflows into Australia which is fast emerging as a key player in this increasingly politicized sector.
In precious metals, gold appeared to pause for breath following the headline gripping rally yet maintained firm support near $4,200 per ounce as clear buying interest emerged on last week’s dip. From a technical standpoint, this consolidation is healthy, it allows new positioning before the next potential leg higher. Early trading today suggests momentum is reaccelerating, with the metal poised to test levels higher underpinned by wide and persistent demand from long-term diversifiers and short-term tactical traders seeking exposure to gold’s rally.
Stateside, the worries of reginal banks and bad credit that gripped markets last week are fading. Concerns around US regional banks have eased after convincing indications that these issues are isolated and remain contained rather than systemic. SOFR also calmed alleviating fears of a broader financial system issue in a sentiment that helped bank shares recover some lost ground, while overall market volatility settled back to more balanced levels.
Oil prices, however, remained under pressure, with Brent hovering around $61 per barrel, weighed by a combination of slowing demand expectations and increased production from producers. Still, OPEC+ continues to be optimistic about medium-term market stability, maintaining that demand should remain resilient despite macro headwinds.
In equities, US earnings season directs attention to key firms reporting this week. Netflix results are in focus for insights on subscription and advertising dynamics, while Intel’s report will be interesting to watch for signs of how US government ownership is potentially benefiting the company. Tesla’s results later this week are expected to bring sharp volatility potentially exceeding 7% in implied volatility as investors view margins in an increasingly competitive landscape taking into China manufacturers.
More broadly, markets appear to be entering a rebalancing phase, gravitating higher as the path of least resistance. The easing of US banking worries has restored comfort yet investors remain cautious toward elevated growth-stock valuations and persistent trade uncertainty stretching from Washington to Beijing. Gold continues to solidify its position as the trade of the year, oil is defending its ground amid dual pressures of supply and growth and the dollar is treading water.
Ultimately, markets are moving to a more balanced rhythm. The upcoming Trump Xi meeting in Korea may mark a new moment of detente between the two powers yet the deeper rivalry over resources and technology is unlikely to fade. In the background, gold holds its place as the enduring barometer of investor sentiment.