2025 Weekly Update

Market update

The S&P 500 closed the week at 6,643.7, -0.31% lower. The Dow Jones closed at 46,247.29, -0.15%, with the Nasdaq lower by -0.65%. The volatility index VIX closed the week at 15.29, down from 15.45. The Euro Stoxx 600 rose +0.07%.  

The 10-year UST closed at 4.18%, up from 4.13% a week before. The yield curve is upward sloping with the yield spread between the 3-month and 10-year UST at 21bps. US Corporate Bond spreads: Investment Grade spreads widened +2bps at 77bps and High Yield spreads stayed at 329bps. German 10-year Bunds yield closed at 2.75% unchanged from a week before. In Europe, Corporate Investment Grade spreads narrowed -1bp at 88bps and High Yield narrowed -5bps at 289bps.

The US Dollar Index (DXY) appreciated +0.52% last week and closed at 98.15. The Euro closed at 1.1703 (-0.37%); the Yen depreciated -1.04%, closing at 149.49 and the Swiss Franc depreciated -0.30%, closing at 0.7979. Gold closed at $3,759.98, appreciating +2.03%. Oil was higher, Brent closed at $70.13 (+5.17%) and WTI at $65.72 (+4.85%).   

Macroeconomy

Tariffs

President Trump announced a new set of sectoral tariffs. From this Weds. Oct. 1, the US will impose a 100% rate on branded or patented pharmaceutical products, 50% on kitchen cabinets, 30% on upholstered furniture, and 25% on heavy trucks. At the same time, the US Department and Commerce published a document lowering the tariffs on auto imports from the EU to 15% retroactively as of August 1, as well as making effective exemptions on products such as aircraft and generic drugs. This cemented the terms of EU-US framework trade deal whose outline was agreed in late July.

Fedspeak

Powell’s prepared remarks on the economic outlook largely echoed his post-FOMC comments last week. The Fed’s Chair said that “Two-sided risks” on inflation and the labor market “mean that there is no risk-free path” and avoided giving a firm rate cut signal for the upcoming meetings. However, in the Q&A he appeared to lean a little more into the dovish arguments, noting that “we do see meaningful weakness in the labor market“. In contrast, Scott Bessent said that rates “need to come down”. Indeed, he said he was “a bit surprised that the chair hasn’t signaled that we have a destination before the end of the year of at least 100 to 150bps (lower)”. A big contrast with the dot plot, with 50bps of cuts by year-end. Meanwhile, Fed officials offered more measured signals. Chicago Fed Goolsbee sounded cautious on future cuts, saying that he was “a little uneasy with too much front-loading”. Kansas Fed Schmid continued to lean on the hawkish side, saying “inflation remains too high while the labor market, though cooling, still remains largely in balance”. The Vice Chair for Supervision Bowman was more dovish, and she said that recent data had shown “we have a more fragile labor market than we were expecting to see”. Otherwise, Governor Miran, who dissented in favor of a larger 50bps cut at last week’s meeting, said that “I would rather act proactively and lower rates as a result ahead of time, rather than wait for some giant catastrophe to occur”.

Government shutdown

US government funding currently runs out on September 30, unless Congress vote to authorize more spending, which could imply a government shutdown. Even though the Republicans have a majority in both chambers of Congress, they need 60 votes in the Senate to avoid a filibuster, when they only have 53 among themselves. Meanwhile, the Democrats are calling for an extension of healthcare subsidies, so there’s an impasse as it stands. There had been a meeting planned between President Trump and the House and Senate Democratic leaders, but President Trump cancelled the meeting, posting that “I have decided that no meeting with their Congressional Leaders could possibly be productive”. That has led to a fresh bout of concern that funding will run out at next week’s deadline, and we could see the first shutdown since the winter of 2018-19.

US data

US data was on the strong side. Core PCE rose 0.2% m-o-m and 2.9% y-o-y, matching forecasts. Personal income (+0.4%) and spending (+0.6%) for August both exceeding economists’ projection by 10bps. The University of Michigan Consumer Survey was finalized with Inflation expectations reaching +4.7% for 1-year (vs. +4.8% forecast) and +3.7% for 5 to 10-year (vs. +3.9% forecast), both softened. Weekly initial jobless claims fell to just 218k in the week ending Sept. 20 (vs. 233k expected), which was the lowest level since July, and pushed back against concerns of a labor market slowdown. Moreover, some Q2 data got revised in a hawkish direction, with GDP growth revised up half a point to an annualized +3.8% rate. The so-called “core GDP” measure of real final sales to private domestic purchasers was revised up a full point to a +2.9% rate. Lastly, new home sales came in at an annualized pace of 800k in August (vs. 650k expected), marking the fastest pace since Jan. 2022, back when rates were still at the zero lower bound. So that undercut the recent message of housing weakness that had driven some of the calls for rate cuts.

PMIs

S&P Global flash US Composite PMI slipped to 53.6 this month from 54.6 in August. Activity slowed in manufacturing, with the flash PMI easing to 52.0 from 53.0 last month. The services flash PMI ticked down to 53.9 from 54.5 in August. The survey's measure of prices paid by businesses for inputs increased to 62.6 from 60.8 last month, noting that "tariffs were again overwhelmingly cited as the principal cause of further cost increases". But its gauge of prices charged by businesses for goods and services fell to 56.0 from 58.3 in August as "firms across both manufacturing and services often reported difficulties passing higher costs on to customers due to weak demand and growing competition". The Euro Area composite PMI moved up to a 16-month high of 51.2 (vs. 51.1 expected), which added to the optimism around European growth, particularly with the fiscal stimulus ahead. Nevertheless, there was a pretty divergent picture across different countries. Germany led the advance, with its composite PMI rising to 52.4 (vs. 50.7 expected), which was also a 16-month high. But France’s composite PMI fell back to a 5-month low of 48.4 (vs. 49.7 expected). UK PMIs surprised to the downside as businesses face challenging conditions amid uncertainties related to the upcoming budget. High input costs are hurting corporate margins as firms' selling prices eased, while employment continues to contract. In Australia, the S&P Global Flash composite PMI decreased to 52.1 in September from 55.5 in August, remaining above the 50 threshold for the 12th consecutive month. The services activity index fell to 52.0 from 55.8 the previous month, while the manufacturing PMI dropped to 51.6 from 53.0 as output growth also slowed.

Swiss National Bank

The Swiss National Bank (SNB) kept its policy rate at 0.0%, as was widely expected. The policy statement was broadly unchanged, with no major surprises. Conditional inflation forecasts were unchanged compared to June. In the press conference, Chairman Martin Schlegel mentioned that “the impact of US tariffs on the whole economy is limited”. He reiterated that “the bar to go into negative territory is higher than for a normal rate cut”. In all, the SNB’s communication continues to indicate a high hurdle for reintroducing negative rates. Furthermore, the SNB’s inflation profile, which is upward sloping with the end point at 0.8% (previously 0.7%), suggests that the SNB is done with cutting rates. Therefore, barring any negative surprise on the trade front or a significant appreciation of the Swiss franc, the policy rate is likely to remain at 0.0% in the coming quarters.

Japan & Australia data

Sept. Tokyo CPI showed a downside surprise of +2.5% in the headline CPI (vs. +2.8% expected). However, that was partly because the Tokyo government expanded the entitlement for free childcare, and that was a policy specific to Tokyo that won’t apply nationwide. In Australia, CPI increased by +3.0% y-o-y in August (compared to +2.9% expected; +2.8% in July), marking the highest reading in a year, primarily driven by housing costs. Although the RBA’s preferred trimmed mean measure, which excludes volatile items such as food and energy, decreased to +2.6% in August from 2.7% in the previous month. The RBA’s forecast as outlined in the August SMP was for a 0.6% q-o-q/2.5% y-o-y print.

Highlights

On rates

On the back of strong US economic data, markets ended the week pricing 41bps of Fed cuts by year end, down -3.9bps over the week (but +1.4bps on Friday). That meant the 2yr yield moved up +7.1bps to 3.64% (-1.2bps Friday) and the 10yr yield rose +4.8bps to 4.18% (+0.5bps Friday). In Switzerland, the 2-year Swiss sovereign yield at -0.1% reflects the SNB’s messaging, with markets anticipating a low probability of further rate cuts. Despite limited prospects for SNB rate cuts, the 10-year Swiss government bond yield has fallen to 0.2% in recent weeks, causing the Swiss sovereign yield curve to flatten significantly. The ‘ultra safe haven’ status of Swiss bonds due to entrenched fiscal conservatism and the strength of the CHF probably explains the compression of the term premium. In Europe, markets are not pricing in additional rate cuts from the ECB. However, the ECB's easing measures have positively impacted credit to households and corporations, supporting private domestic demand. The 10-year Italian sovereign bond spread remain tight, reflecting improved fiscal resilience and ongoing reforms. Fitch has recently upgraded Italy’s rating to BBB+. Moody's next rating review for Italy on October 24, 2025, is a key event to monitor, as it has a Baa3 rating, which is close to high yield. On the other hand, unless a snap election occurs in France, the 10-year OAT spread is unlikely to reach 100bps.

What to watch

• Monday: US Dallas Fed Manufacturing Activity
• Tuesday: China Official PMI; Australia RBA Policy Rate; UK Q2 GDP; US JOLTS Job Openings, Conference Board Consumer Survey
• Wednesday: Japan BOJ Tankan Survey; Korea Exports; Asian Manufacturing PMI; India RBI Rates; Eurozone Manufacturing PMI and CPI; US ADP Employment, MBA Mortgage Applications, ISM Manufacturing
• Thursday: Switzerland CPI; US Challenger Job Cuts, Initial Jobless Claims, Durable Goods Orders
• Friday: Japan Jobless Rate; Eurozone Services PMI and PPI; US Non-Farm Payrolls, Unemployment Rate, Hourly Earnings, ISM Services