2025 Weekly Update

Market update

The S&P 500 closed the week at 6,664.36, +1.22% higher. The Dow Jones closed at 46,315.27, +1.05%, with the Nasdaq higher by +2.21%. The volatility index VIX closed the week at 15.45, up from 14.76. The Euro Stoxx 600 fell -0.13%.

The 10-year UST closed at 4.13%, up from 4.06% a week before. The yield curve is upward sloping with the yield spread between the 3-month and 10-year UST at 15bps. US Corporate Bond spreads: Investment Grade spreads narrowed -4bps at 75bps and High Yield spreads narrowed -10bps at 329bps. German 10-year Bunds yield closed at 2.75% up from 2.71% a week before. In Europe, Corporate Investment Grade spreads narrowed -2bps at 89bps and High Yield narrowed -10bps at 296bps.

The US Dollar Index (DXY) appreciated +0.10% last week and closed at 97.64. The Euro closed at 1.1746 (+0.10%); the Yen depreciated -0.18%, closing at 147.95 and the Swiss Franc appreciated +0.14%, closing at 0.7955. Gold closed at $3,685.3, appreciating +1.16%. Oil was lower, Brent closed at $66.68 (-0.46%) and WTI at $62.68 (-0.02%).          

Macroeconomy

Fed meeting

The FOMC cut rates by 25bps as widely expected, with the median dot showing three cuts this year against expectation of two. At the FOMC meeting, Waller and Bowman supported only a 25bps cut, showing resistance to political pressure from the Trump administration. Their independence is crucial as the Fed’s Board of Governors will soon decide on reappointing regional Fed presidents (February 2026). If Waller and Bowman remain independent, the Board could reappoint regional presidents even if political pressure increases or Governor Cook is dismissed. This independence would limit the Trump administration’s influence over the Fed Board and the FOMC. The new Fed chair may steer policy in a dovish direction, but Trump’s impact on monetary policy could be constrained. The dot plot indicates a deeply divided outlook. For 2025, the FOMC has a rate forecast with a 9 (two more 25bps cuts) vs. 9 (one or no cut) vs. Miran (100bps more cuts) split. For 2026, the dot plot points to a wide interest rate range of 2.625% to 3.875%. Longer-run dot median remains unchanged at 3.0%. Markets quickly reversed their initial dovish reaction during Chair Powell’s press conference, as he described today’s rate cut as a “risk-management cut” and emphasized there is no risk-free path ahead. He reiterated a meeting-by-meeting approach and highlighted that there was not broad support for a 50bps cut at this meeting. The policy statement noted downside risks to labor market have risen, as expected. Investors expect a weak labor market and visible but moderate impact of tariffs on inflation to lead to two more rate cuts this year, with two more cuts in H1 2026 leading to a terminal rate of 3-3.25%. Current policy stance remains modestly restrictive.

US data

Strong US data pushed back against fears about a slowdown, particularly in the labor market. For instance, the weekly initial jobless claims fell to 231k (vs. 240k expected) in the week ending Sept. 13. So that was a sharp decline from the previous week’s 264k print, which was the highest since late-2021. Moreover, the continuing claims were also stronger than expected, falling to 1.92m (vs. 1.95m expected) over the previous week ending September 6. The Philadelphia Fed’s manufacturing business outlook survey rose to an 8-month high of 23.2 in Sept. (vs. 1.7 expected). The NY Fed’s Empire State manufacturing survey for Sept. fell to a 3-month low of -8.7 (vs. +5.0 expected), coming in beneath every economist’s estimate on Bloomberg.

Bank of Japan

Bank of Japan kept their policy rate at 0.5%, in line with expectations, but there were a couple of more hawkish aspects. First, two of the nine members dissented in favor of a 25bps rate hike, which is the first time Governor Ueda has seen a dissent against holding rates. And second, the BoJ announced that they’d begin selling their holdings of ETFs and J-REITs. The ETFs will be sold at a pace of around 330bn yen per year (book value), and J-REITS at around 5bn yen per year. Or in market value terms, that would be around 620bn yen for the ETFs and around 5.5bn yen for the J-REITs. Japan CPI print for August was broadly in line with expectations. The headline CPI came in down to +2.7% (vs. +2.8% expected), whilst the core-core CPI print was down a tenth to +3.3% as expected.

Bank of England

The BoE remained on hold at 4% by a 7-2 majority. The committee maintained its “gradual and careful” stance as the policy is “not on a pre-set path”. There is a range of views on the inflation outlook among members, but the overall stance is that the risks are tilted to the upside in the medium term, while downplaying the labor market weakness. The Bank maintained an easing bias, but the timing of the next cut remains uncertain. Given the inflationary pressures, the risks are for a longer pause until the next cut. On Quantitative Tightening, the MPC decided to reduce the pace from £100bn to £70bn while reducing its long-dated gilt sales. In economic data, Headline CPI remained unchanged in August at 3.8% y-o-y, in line with the BoE’s forecast, with the outcome driven by higher energy and slightly higher food prices.  Core CPI eased to 3.6% y-o-y reflecting lower inflation in core goods and services. Services CPI surprised slightly to the downside, edging down to 4.7%, driven by a reversal in volatile components such as airfares, while super core components remained broadly flat.

Other central banks

The Bank of Canada cut their overnight rate by 25bps as expected to 2.5%. It was the first rate cut since March, but there was little guidance in the statement on where policy was heading next, and the statement said that they were “proceeding carefully”. That backdrop saw Canadian government bond yields move higher, with the 10yr yield up +3.9bps to 3.19%. From other central banks, Bank Indonesia, cut rates by 25bps. The SNB is expected to remain on hold this week.

Australia & New Zealand

Australia's unemployment rate remained stable at 4.2% in August, but employment unexpectedly declined, with the economy losing approximately 5,400 jobs, including a drop of 41,000 in full-time positions, despite an increase in part-time roles. The report implies that the labor market may be gradually softening. There is no change to the house view of a November, February and March series of 25bps cuts to a 2.85% terminal rate but the report leans on the dovish side. Additionally, New Zealand’s economy contracted more than anticipated in the second quarter, as weak manufacturing activity and declining export volumes largely counterbalanced modest growth in private spending. The economy contracted by -0.9% q-o-q, worse than the expected -0.3% decline, and reversing the revised +0.9% increase from the previous quarter. Furthermore, GDP decreased by -0.6% y-o-y, falling short of expectations that growth would remain stable. GDP had also declined by -0.6% in the first quarter.

China data

China July and August data point to slower momentum from Q2. From supply side, slowdown primarily was driven by industrial sector, while service momentum held up ok and similar to Q2. Investment momentum slowed significantly, and heavy rain was a major factor weighing on outdoor construction, but it is due to policy failure. Analysts expect this failure to be corrected and weather shock to fade so government driven investment should rebound in coming months. Exports were down further though less than Q2, and US bound exports were still down significantly - while the marginal drag from tariffs could be smaller in H2. Consumption momentum was still weak, and marginal boost from trade-in policy is being reduced significantly. Housing indicators including prices and activity worsened in Q2 and weakness continued in July and August. Chinese government will achieve growth target of around 5%, which means 1) H2 growth would slow but unlikely to collapse; 2) weak momentum in July/Aug not likely to sustain in coming months; 3) the higher risk of falling short of growth target, the more likely policy easing.

Highlights

On rates

Last week, government bond yields rose as central banks were in focus, with the Fed delivering a much-anticipated rate cut on Wednesday alongside solid US data releases throughout the week. Treasury yields moved higher across the curve, with the 2yr yield up +1.5bps to 3.57%, while the 10yr was up by a larger +6.1bps to 4.13%. In Europe, the 10-year Bund yield rose by +3.2bps, while French OATs underperformed, with yields up +4.8bps on the week as investors doubted the political prospects of passing a budget after another week of social instability and political turmoil. France was downgraded for a second time in consecutive weeks, this time by Morningstar, from AA (high) to AA. In contrast, Italy secured an upgrade from Fitch (from BBB to BBB+), further highlighting the diverging trends between the two neighboring countries. The 10-year gilt yield ended the week +4.4bps higher as the Bank of England kept its policy rate unchanged at 4%. In Asia, the Bank of Japan decision led to a large sell-off in Japanese government bonds, with the 2-year yield reaching its highest level since 2008 as it climbed +4.9bps to 0.91%.

Earnings

As we prepare to enter the Q3 earnings season in two weeks, analysts have revised their earnings estimates for S&P 500 companies upwards, with an increase of 0.7% since the end of June. This reverses the usual trend, as analysts typically lower earnings estimates during the quarter—on average by 1.4% over the last five years. In addition, with 50% - of the 112 companies having issued guidance at this point both the number and percentage of S&P 500 companies issuing positive EPS guidance are above the historical average. As of today, the S&P 500 is projected to record year-on-year earnings growth of 7.7%, up from the estimated 7.2% growth rate as of June 30. If the actual growth rate for the quarter is indeed 7.7%, this would represent the lowest earnings growth for the index since the first quarter of 2024, when it stood at 5.8%. Nevertheless, it would also mark the ninth consecutive quarter of year-on-year earnings growth for the index, led by the Information Technology, Utilities, Materials, and Financials sectors, while the Energy and Consumer Staples sectors are expected to decline. The single most important driver for this market growth remains the ongoing surge in all things AI.

What to watch

• Monday: Korea September Exports; China Loan Prime Rate
• Tuesday: US PMI; Eurozone and UK September PMI; Riksbank Policy Rate; Australia & India PMI; Taiwan August Exports
• Wednesday: US New Home Sales; Germany IFO Assessment; Australia CPI
• Thursday: US Q2 GDP; Core PCE Price; Durable Goods Orders; Initial Jobless Claims; SNB Policy Rate
• Friday: US PCE, Personal Income & Spending; ECB CPI Expectations; Japan CPI