Central banks stay the course

However, investors were surprised by the statement that a December rate cut is not a foregone conclusion, which is a classic central banker phrase that made yields jump across the yield curve. Investors no longer feel 100% sure the Fed will cut rates again in December.

The Bank of Japan did not surprise investors and kept rates steady. The Bank of Canada delivered an expected 25 basis points cut; and the European Central Bank also did what was expected and left rates unchanged.

Geopolitically, the meeting between President Donald Trump and Chinese President Xi Jinping brought a wave of optimism. Both leaders agreed to pause mutual tariffs and ease export controls. The US will halve fentanyl-related tariffs, while China resumes purchases of agricultural goods, such as soybeans and sorghum. China will also suspend restrictions on rare earth exports, and the US will partially lift curbs on Chinese tech firms, improving access to strategic resources and technologies.

The two nations also committed to deeper cooperation in trade, energy and artificial intelligence, aiming to stabilize economic ties and jointly address global challenges. Reciprocal state visits are planned to further strengthen relations and tackle broader issues such as energy policy and the war in Ukraine.

Although tensions can easily flare up again, this more constructive turn in US-China relations can further support emerging markets bonds, where spreads have been coming down since the early summer. From a broader bond market perspective, corporate spreads, both investment grade and high yield, are also showing less stress compared to equities. While stocks have reacted nervously to recent events, credit markets remain relatively calm. High-yield spreads also continue to tighten, suggesting investors may want to pay closer attention to credit signals. Historically and from a mid-term perspective, corporate spreads have been a more reliable indicator of market panic than equity volatility.