Signal over Noise with Ulrike Hoffmann-Burchardi
The desk interprets the latest commentary from Ulrike Hoffmann-Burchardi of UBS as highlighting the increasing tension in U.S.-China trade negotiations amidst a government shutdown and no new macro data. Per the full note, trade policy remains a critical determinant for U.S. markets as the U.S. plans to impose new tariffs on China this November, contributing to a recent 2.7% sell-off in the S&P 500. This reflects the broader narrative of structural vs. situational leverage, which is essential for traders navigating potential currency impacts. With prevailing cross-firm targets not aligning closely with our desk's view, it's essential to remain attentive to upcoming negotiations and market reactions.
What the desk is arguing
The desk frames this as a critical moment for U.S.-China relations that could deepen market volatility. The potential imposition of 100% tariffs on Chinese imports by November 1st is a substantial impending risk, especially as trade policy has emerged as a significant driver for U.S. financial markets this year, particularly following detrimental market movements linked to trade fears.
In light of recent performance, the S&P 500's 2.7% decline highlights the market's sensitivity to such geopolitical tensions. With China leveraging its position through rare earth metals in technology and energy manufacturing, and the U.S. holding sway over semiconductor technology, traders must prepare for possible escalations in this tit-for-tat dynamic that could affect exchange rates heavily.
Where it sits in our coverage
Our current consensus target stands at 1.075 with a range between 1.04 and 1.12 from various firms. Specific targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This perspective from the desk aligns with jpmorgan, reinforcing a moderately bullish outlook as contrasted with bofa, which expresses caution at the lower bound of the range.
How other firms see it
The sentiment among aligned firms indicates a cautious optimism toward a potential resolution from trade discussions, with jpmorgan and others advocating for a strategic long position. Conversely, bofa holds a contrary stance, reflecting fears of prolonged retaliation and its economic impacts.
Moreover, watching the USD/CNY dynamics will be indispensable, particularly as trade tensions remain in focus. Traders should also keep an eye on potential shifts from the Federal Reserve regarding rate decisions that could influence market flows and sentiment substantially.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Rising tensions in U.S.-China trade negotiations could enhance market volatility.
- 02The S&P 500's recent sell-off underscores market reactions to geopolitical events.
- 03U.S. structural leverage in technology contrasts with China's resource-based strengths.
- 04Upcoming tariff decisions will be critical for forex traders to watch.
Market implications
Traders should focus on price levels surrounding the 1.075 target, watching for reactions as the tariff deadline approaches. Continued negative sentiment could reinforce bearish positions against the backdrop of escalating trade tensions leading into November.
Risks to this view
A significant reversal could occur if negotiators strike a cooperative tone that mitigates tariff threats or if macro data releases provide unexpectedly strong evidence of economic resilience. Such developments would likely lead to a rally in equities and a stronger USD.
Hello and welcome to Signal Over Noise. I'm Ulrike Hofmann-Borchardt, CIO for the Americas and Head of Global Equities for UBS Wealth Management. With the government still shut down and no official macro data, the main signal last week came from trade re-escalation.
Outside of artificial intelligence, trade policy has been the key driver for U.S. financial markets this year. To seal the most important trade deal since Liberation Day, Presidents Trump and Xi are supposed to meet at the APEC Summit in South Korea on October 31st. Yet, the negotiation tension is on the rise with both parties ascertaining their power positions.
President Trump threatened to impose 100% tariffs on Chinese imports starting November 1st. He also announced export controls on critical software. This comes in response to China's restrictions on rare earth elements and its reluctance to purchase U.S. soybeans.
The S&P 500 sold off 2.7% on Friday in response. This keeps with the tradition of impactful Friday afternoons. Since Inauguration Day this year, Fridays have on average seen negative returns with more down days than up for the S&P 500.
So how does U.S. and China's negotiation power stack up? China has strong situational leverage, the U.S. strong structural leverage. China can use its rare earth minerals in manufacturing dominance.
Rare earth metals play vital roles in tech energy and defense from batteries to permanent magnets. Rare is somewhat of a misnomer. These minerals are not in fact rare.
The U.S. has meaningful deposits too. It's rather that China decided to take a dominant position in their supply chains despite its toxic waste and its high environmental costs. The U.S. on the other hand has structural leverage with semiconductors and AI chips.
China still lacks the semi-know-how and access to critical semi-cap equipment to produce cutting edge AI chips. For China to catch up, it will take up a buildup of knowledge and capital. For the U.S. to become independent in rare earth elements, it will take capital, time, and political will.
It would likely take more than the remainder of this presidency for the U.S. to reestablish its own resilient supply chains. With the positions now hardened on both sides, we expect increased equity market volatility into the end of the month. But ultimately, rare earth minerals against ships could seal a deal.
The history of negotiations between Presidents Trump and Xi has been one of transactional diplomacy where escalation is followed by tactical choices. Turning to transformational innovation. Lots of noises circulated last week on the circularity of deals along the AI value chain.
Last Monday, AMD announced a deal with OpenAI where AMD supplies six gigawatts of GPUs to OpenAI over multiple years, starting in the second half of 2026. As part of the deal, OpenAI was granted the option to buy 10% of AMD. In this twist, Nvidia will now own a piece of its competitor AMD while at stake in OpenAI.
Strategic investments in customers and vendor financing are nothing new. In fact, they've been around since the 19th century. Neither those nor the bubbling bubble talk historically burst a bubble.
When Behrens printed Amazon.bomb on its cover page on May 31st, 1999, along with headlines about an impending stock market plunge, the NASDAQ did not crash. It rallied another 100% before reaching its peak in March the following year. Turning to this week, microdata will stay in focus when the US earnings season kicks off with financials.
JP Morgan, Goldman Sachs, Wells Fargo all report on Tuesday, followed by Bank of America and Morgan Stanley on Wednesday, all before the market open. We expect bank earnings to be strong based on a trio of tailwinds, better trading activity, strong capital markets, and deregulation. Amid stable net interest margins.
And TSMC's earnings report on Thursday will provide another look into the state of AI. After the strong sales report from September, we expect the potential hint at higher capex for 2026. An important data point to keep the AI momentum on track.
To sum it up, we see this trade policy-driven equity sell-off as a buying opportunity. In particular for our three trios, artificial intelligence, power and resources, and longevity, as well as for US financials. We see positive micro-catalysts next week and a path for a pragmatic compromise between the US and China over the next weeks.
With this, stay well and stay ahead. UBS Chief Investment Office's investment views are prepared and published by the Global Wealth Management Business of UBS AG or its affiliate, UBS. This material has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient and is published for informational purposes only.
As a firm providing wealth management services to clients globally, UBS AG and its subsidiaries offer both investment advisory services and brokerage services. Investment advisory services and brokerage services are separate and distinct, differ in material ways and are governed by different laws and separate arrangements. In the USA, UBS Financial Services Inc. is a subsidiary of UBS AG and a member of FINRA SIPC.
For information, please visit our website at ubs.com forward slash working with us. For a full legal disclaimer applicable to the independent investment views produced by UBS, please visit our website at ubs.com forward slash CIO dash disclaimer.
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