Highlights
The S&P 500 Index managed to finish the week higher despite renewed concerns about inflation and the prospect of higher interest rates. Gains were concentrated in information technology and communication services, where investor enthusiasm over the strong adoption of Meta Platforms’ consumer artificial intelligence (AI) agent fuelled optimism about the broader potential of agentic AI and its implications for demand for computing infrastructure. Utilities underperformed as higher interest rates weighed on the sector, while energy stocks also lagged. For the week, the S&P 500 advanced 1.21%, the Dow gained 0.28%, while the Nasdaq 100 outperformed with a 3.25% increase. Preliminary September readings from S&P Global’s purchasing managers indexes (PMIs) pointed to another month of solid U.S. economic expansion. The composite PMI, which combines manufacturing and services activity, increased to 58.4 from 58.0 in August. The reading represented a 62-month high and marked the fourth consecutive month of expansion. The strength of economic activity, however, came alongside renewed price pressures. Average input costs for goods and services increased at their fastest rate since October 2022, highlighting the risk that stronger economic momentum could be accompanied by renewed inflation. This evidence that the U.S. economy was accelerating, combined with more hawkish comments from several Federal Reserve officials, led investors to increase expectations that persistent inflation could require additional interest rate increases. Reports that the Trump administration could consider restricting U.S. diesel exports added another potential source of upward pressure on energy prices and inflation expectations. Credit markets also came under pressure, with spreads widening across both U.S. investment-grade corporate bonds and the high yield market. Across the Atlantic, European markets were pulled in opposing directions by improving economic indicators and continued enthusiasm around AI on one side, and renewed inflation concerns caused by elevated energy prices and resilient economic activity on the other. For the week, the pan European Euro STOXX 600 managed to eke out a gain of 0.81% while the Euro STOXX 50 gained 1.07%. Investors also considered whether stronger economic data and persistent inflation could encourage the European Central Bank to pursue tighter monetary policy. Money markets are now pricing in roughly 100 basis points of ECB rate hikes by late 2027, while investors in both the US and UK have similarly increased expectations for further monetary tightening amid hawkish policymaker commentary and resilient economic data. Moving along to Asia, Japanese equity markets were open for only two trading sessions during the week ending September 25, with markets closed from Monday through Wednesday for national holidays. Despite the shortened trading period, equities advanced. The Nikkei 225 increased 2.07%, while the broader TOPIX rose 0.92%. AI and semiconductor stocks led the gains, reflecting the strength previously seen in U.S. technology shares while Japanese markets were closed. The Bank of Japan’s September 18 interest rate decision had been viewed as less hawkish than some investors had anticipated. The decision included two dissenting votes and offered limited guidance regarding the timing of future policy moves. Separately, Chinese equities declined over the week, with mainland growth stocks and Hong Kong technology companies among the weakest performers. Mainland markets were closed Friday for the Mid-Autumn Festival. Through Thursday’s close, the CSI 300 had fallen 1.51%, while the Shanghai Composite was down 0.60% for the week.
Data Highlights
CAD Retail Sales YoY (Jul) fell less than expected, -10bps, from 5.2% to 5.1%, analysts expected a -130bps decrease, from 5.2% to 3.9%. CHF SNB Interest Rate Decision stayed the same at 0%. ZAR Inflation Rate YoY (Aug) rose less than expected, +10bps, from 4.3% to 4.4%, expectations were for a stronger increase, from 4.3% to 4.5%. AUD Unemployment Rate (Aug) rose +10bps, from 4.5% to 4.6%, consensus was for the print stay the same at 4.5%.
Week Ahead
AUD RBA Interest Rate Decision, USD JOLTs Job Openings (Aug) – Tuesday | AUD CPI (Aug), USD ADP Employment Change (Sep), USD GDP Growth Rate QoQ (Q2), USD Core PCE Price Index MoM (Aug), USD Personal Spending MoM (Aug) – Wednesday | CHF Inflation Rate YoY (Sep), CHF Retail Sales YoY (Aug), AUD Balance of Trade (Aug), EUR Unemployment Rate (Aug), USD ISM Manufacturing PMI (Sep) – Thursday | JPY Unemployment Rate (Aug), EUR Inflation Rate YoY (Sep), EUR Core Inflation Rate YoY (Sep), USD Nonfarm Payrolls (Sep), USD Nonfarm Payrolls Private (Sep), USD Unemployment Rate (Sep) – Friday
