Highlights
For a third consecutive week, U.S. equities as gauged by the S&P 500 delivered positive returns, rallying 1.22% and closing at new all-time-highs. Smaller companies outperformed, with the Russell 2000 rising 2.16%, while the tech-heavy Nasdaq Composite gained 2.21%. The central bank’s policy meeting concluded with a 25-basis-point rate cut, the first since December 2024. The main reason for this move is the Fed’s concern over a potential deterioration in the labour market, which could quickly push the economy into a recession. While such a correction is not necessarily disastrous—and can even help to cleanse the market of misallocated investments and loans—it will also result in a significantly larger government deficit. New Fed Governor Stephen Miran dissented, calling for a deeper 50-basis-point cut. Looking ahead, the Fed signalled more easing, projecting another 50 basis points of cuts this year and raising the likelihood of additional reductions in 2026 and 2027. Markets also reacted to trade news after President Donald Trump and Chinese President Xi Jinping spoke by phone. Trump later posted on social media that the two had reached an agreement over TikTok’s U.S. ownership and made progress on broader trade talks. In the European continent, the bullish sentiment was sustained, with the pan-European STOXX 600 adding 0.56% as investors digested central bank decisions. The Bank of England kept rates steady at 4% in a 7–2 vote but announced it would slow the pace of bond sales from GBP 100 billion to GBP 70 billion per year to ease pressure on gilt markets. Governor Andrew Bailey stressed that while inflation should return to 2%, future rate cuts would be gradual. UK data showed inflation holding at 3.8% in August, wage growth rising to 4.7%, and unemployment steady at 4.7%. However, payrolls fell for a seventh month in a row, pointing to some softening in the labour market. In Asia, Japanese equities were mixed, with the Nikkei 225 up 0.62% and the TOPIX down 0.41%. The Bank of Japan (BoJ) surprised investors by announcing plans to begin selling its holdings of exchange-traded funds and Japanese real estate investment trusts much earlier than markets had anticipated—a move widely seen as a signal toward monetary policy normalization. As anticipated, the BoJ kept rates unchanged at 0.50%, though two policymakers pushed for a hike—the first dissent under Governor Kazuo Ueda. The central bank reiterated that rates could rise if economic and inflation trends continue as forecast. Chinese stocks fell after recent gains as weak data pointed to slowing momentum. The CSI 300 lost 0.44% and the Shanghai Composite dropped 1.30%. August figures showed retail sales up 3.4% and industrial output up 5.2%, both at their weakest pace this year. With consumer and producer prices under pressure, investors expect Beijing to roll out targeted stimulus to shore up growth and housing.
Data Highlights
In Canada, annual inflation for August rose to 1.9%, slightly below the 2% forecast but higher than the prior 1.7%. The Bank of Canada cut its policy rate to 2.5%, as expected, from the previous 2.75%. The U.S. Federal Reserve cut its benchmark rate by 25 basis points to 4.25%, in line with expectations and down from the prior 4.50%. The U.K. unemployment rate for July remained unchanged at 4.7%, matching analyst forecast. U.K. inflation for August held at 3.8% year-on-year, in line with market expectations. In the Eurozone, the Consumer Price Index remained stable at 2.0% year-on-year, slightly below the 2.1% forecast and matching the prior figure. The Bank of England left its policy rate unchanged at 4.0%, in line with analyst’s forecasts. The Bank of Japan maintained its benchmark rate at 0.5%, fully in line with market expectations.
Week Ahead
Australia CPI indicator – Wednesday | U.S GDP Growth Rate Q2 – Thursday | U.S Personal Consumption Expenditure Index YoY – Friday
