Monthly Market Report – October 2025

In the United States, Democrats and Republicans failed to reach an agreement on funding for the new fiscal year. This led to the operational shutdown of the U.S. government, resulting in the suspension of work and pay for non-essential employees. The situation persisted throughout the month, with an estimated weekly cost of -0.2% of GDP. Despite this, there was no direct impact on markets. The publication of economic data depends on public agencies, which meant an absence of official macroeconomic data in October.

The only labor market figure published came from private firm ADP, showing a loss of 35,000 jobs compared to expectations of a gain of 51,000. In addition, the previous month was revised down, also showing contraction. This was the worst figure since the pandemic.

Volatility increased significantly from October 10, when Donald Trump reactivated the threat of new tariffs against China. The Asian giant tightened controls on rare earth exports, prompting Trump to propose a 100% tariff on Chinese products and cancel the meeting with Xi Jinping scheduled in two weeks. This caused equity declines and a rally in bonds, which acted as safe-haven assets.

That same weekend, Trump softened his tone, and during the week both he and Treasury Secretary Scott Bessent hinted at a new deal with China. At the end of October, the meeting between Trump and Xi Jinping in South Korea took place, resulting in a 12-month extension of the trade truce. China withdrew new measures on rare earth exports and committed to restoring soybean imports from the U.S., while the U.S. agreed not to raise tariffs on Chinese goods.

Geopolitics was influenced by two key developments:

  • In France, the political situation early in October created uncertainty, especially for French assets. Newly appointed Prime Minister Sébastien Lecornu resigned only to be reappointed. Macron granted him full authority to calm the political landscape. The pension reform was suspended until 2028, after the presidential elections. Lecornu survived two motions of no confidence, reducing political noise. Nevertheless, S&P downgraded France’s sovereign rating from AA- to A+.
  • Donald Trump canceled his meeting with Vladimir Putin after the latter refused a ceasefire in Ukraine. Both the U.S. and Europe increased sanctions on Russia, particularly on oil exports. The commodity spiked sharply after nearing annual lows around $55 per barrel (WTI). Overall, the month ended with a -2.23% decline, bringing WTI down -14.97% for the year.

Despite the U.S. government shutdown, the CPI for September was exceptionally calculated, as it is used to adjust pensions and social security benefits. The figure came in better than expected (+3.0% vs +3.10%), and the core CPI showed a similar pattern.

In the penultimate session of the month, the Federal Reserve cut rates by 25 bps for the second time this year, bringing the benchmark rate to 4.0%. Powell’s subsequent remarks surprised markets by calling for caution regarding further cuts in the final 2025 meeting, which pushed yields higher along the U.S. curve. Additionally, the Fed announced the end of Quantitative Tightening, having reduced its balance sheet from $8.96 trillion in March 2022 to $6.59 trillion in October 2025. The program will conclude on December 1, which should improve U.S. money and bond markets.

Meanwhile, the European Central Bank kept rates unchanged at 2.0%, with no further moves expected in upcoming meetings or in 2026.

The U.S. equity market posted its sixth consecutive monthly gain. The S&P 500 rose +2.27%, reaching a new all-time high at 6,920 points, with a year-to-date gain of +16.30%. The “Magnificent 7” and strong demand for AI-related companies remain the main drivers. NVIDIA stood out as the first company in history to reach a $5 trillion market capitalization.

European indices also closed with similar gains, despite France’s political noise. The Eurostoxx-50 advanced +2.39%, bringing its year-to-date return to +15.65%.

In fixed income, the U.S. yield curve performed strongly, pricing in rate cuts and acting as a safe haven amid tariff concerns. The 10-year Treasury briefly traded below 4.0%, though Powell’s remarks later triggered renewed selling pressure. European curves also rose in price, shifting downward in parallel, which favored duration returns. The German 10-year yield ended the month at 2.63% (down from 2.71%).

Finally, in foreign exchange markets, the U.S. dollar continued to strengthen, closing October at 1.1537 EUR/USD (+1.70%). The easing of tensions with China and the Fed’s hawkish tone were the main drivers of this appreciation.

Informe Mensual de Mercados - Octubre 2025Descarga

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