Trump Tariffs Spark Volatility After Taking Aim at Beijing Due to Rare Earths: Oct. 10, 2025 

President Trump is sparking risk-off sentiments in markets after declaring the potential for massive tariff hikes on China due to disagreements related to rare earths. Investors are clamoring for safe havens as a heavy levy increase could weigh on corporate earnings and the economic outlook. Emblematic of slowdown fears is the yield curve plunging in bull-flattening fashion led south by the longer tenors while gold and silver advance strongly. But risk assets were already having a sluggish day before the commander in chief’s remarks, which came around 11:00 am ET, because of concerns about valuations and no light at the end of the government shutdown tunnel, now in its 10th day. The third consecutive monthly drop in UMich’s sentiment gauge, released at 10:00 am ET, furthermore, certainly didn’t help to bolster stocks and cyclical commodities. Indeed, equities are tanking across all major domestic benchmarks, sectors and subcomponents, excluding the defensive health care and utilities areas, which are advancing. The economically sensitive crude oil, copper and natural gas futures are also suffering sharp losses, but lumber is hovering at its flatline as construction prospects benefit from rising rate cut odds alongside cheaper duration. Bitcoin is also retreating because traders are fearful of more near-term downside and they’re grabbing volatility protection instruments as a result of significantly greater hedging demand; participants are purchasing insurance as the VIX is up a whopping 25%, soaring from a daily low of 16.23 to a high of 20.73.

Consumers Feel Better About the Present, Worse About The Future

Elevated prices and softening labor market prospects drove the third consecutive monthly drop in consumer sentiment, but the decline was modest, and the indicator beat forecasts. The University of Michigan’s (UMich) gauge fell to 55 in October, higher than the 54.2 median estimate and marginally below September’s 55.1. The slip was influenced by worsening expectations for the future, which coincided with better perceptions concerning the present, as the two components shifted in bifurcated fashion from 51.7 and 60.4 to 51.2 and 61. Despite households worrying about rising costs amidst weaker employment conditions, 1-and 5-year inflation projections were relatively stable at 3.7% and 4.6%, unchanged on the former and a decrease from 4.7% for the latter. Meanwhile, survey respondents said they don’t anticipate a sharp improvement in the economy, although they didn’t reflect much concern related to the government shutdown.

Survey Data and Economic Strength Are Bifurcated

Even as confidence and sentiment surveys have become increasingly disconnected from the health of the economy following the pandemic, this morning’s print signals the need for additional monetary policy accommodation. Consumers clearly have strong angst regarding fragile employment dynamics, including sharp drops in hiring. The softening is being driven by immigration restrictiveness shrinking the labor pool, a mix of tight financial conditions, and AI adoption softening demand for workers. But Fed cuts can bolster rate-sensitive areas of the landscape and drive them to expand headcounts and investment dollars. The small business, real estate and manufacturing sectors would benefit greatly from lower costs of capital and begin contributing consistently to the number of overall payrolls. Meanwhile, the lack of government data due to the shutdown alongside the shifting characteristics of the job market is certainly clouding the outlook for central banking officials, as the risk of being too late has risen meaningfully. Finally, there is a chance that the FOMC has shifted too early; however, the doves have much more evidence in their favor than the hawks do at this juncture.

International Roundup

Canada’s Labor Market Bounces Back

Canada’s economy added 60.4k workers in September, significantly more than the 2.8k expected by a consensus of economists and a reversal from the 65.5k decline in the preceding month. Full-time workers, furthermore, increased by 106.1k after sinking by 6k in August while part-time individuals fell by 45.6k, a slightly lower decline than the 59.7k contraction in the preceding month, according to Statistics Canada. The manufacturing sector, with 28,000 additions, led the expansion. The health care and social assistance category and the agriculture sector also expanded, adding 14,000 and 13,000 workers. Payrolls in the wholesale and retail sector, conversely, sank by 21,000. Meanwhile, the unemployment rate held steady at 7.1%, a better print than the 7.2% estimate from economists. For the three-month period ended in September, however, total payrolls have surrendered 45.9k workers. Average hourly wages were up 3.6% y/y, matching the August result.

Travel to Canada Grew Modestly Last Month

Trips to Canada from non-residents via air travel grew 1.9% year over year (y/y) in September, with the metric partially pulled down by visits from the US population falling 0.4%. The decline was offset by arrivals from overseas residents jumping 4.2%. In a similar trend, Canadian-residents’ return flights were down 7%. In this category, arrivals from overseas were 3.9% higher but a 27.1% decline in air travel from Canada’s neighbor pulled the headline down. Return trips from the US by Canadians via automobiles also dropped steeply, falling 34.8% y/y.

Japan Wholesale Price Gain Hotter than Expected

Wholesale prices in Japan climbed 0.3% month over month (m/m) and 2.7% y/y during September, exceeding estimates for 0.1% and 3.7%, according to the Corporate Goods Price Index, which is also referred to as the Producer Price Index. The m/m result, furthermore, was a reversal from the 0.2% drop in August while the y/y rate was unchanged. On a m/m basis, prices for imports and exports both ascended 0.1%.