2025 Weekly Update

Market update

The S&P 500 closed the week at 6,715.7, +1.09% higher. The Dow Jones closed at 46,758.28, +1.10%, with the Nasdaq higher by +1.32%. The volatility index VIX closed the week at 16.65, up from 15.29. The Euro Stoxx 600 rose +2.87%.

The 10-year UST closed at 4.12%, down from 4.18% a week before. The yield curve is upward sloping with the yield spread between the 3-month and 10-year UST at 16bps. US Corporate Bond spreads: Investment Grade spreads narrowed -1bp at 76bps and High Yield spreads widened +5bps at 334bps. German 10-year Bunds yield closed at 2.70% down from 2.75% a week before. In Europe, Corporate Investment Grade spreads narrowed -1bp at 87bps and High Yield widened +5bps at 294bps.

The US Dollar Index (DXY) depreciated -0.44% last week and closed at 97.72. The Euro closed at 1.1742 (+0.33%); the Yen appreciated +1.35%, closing at 147.47 and the Swiss Franc appreciated +0.26%, closing at 0.7958. Gold closed at $3,886.54, appreciating +3.37%. Oil was lower, Brent closed at $64.53 (-7.99%) and WTI at $60.88 (-7.36%).                                                                                                                 

Macroeconomy

Shutdown

This past weekend brought no sign of an end to the impasse, with investors wondering how long the shutdown could last. The Polymarket odds of the shutdown lasting beyond October 15 is currently at 45%. So that added to concern about the shutdown having a larger economic impact, particularly given markets are lacking a lot of key data right now. In terms of progress on negotiations, Treasury Secretary Bessent called for a “clean continuing resolution” on federal spending in a CNBC interview, and warned that the shutdown could lead to a hit to US GDP and growth prospects. Those comments came as Trump posted on Truth Social that he would be meeting with his budget chief to determine which Democratic agencies he would decide to cut federal spending on, and whether these cuts would be temporary or permanent, potentially threatening "thousands" of jobs.

Fedspeak

Federal Reserve Bank of Chicago President Goolsbee said officials can turn to other economic data sources. He noted that his staff had produced labor market data that “indicates some steadiness in the labor market and I think the underlying economy is still growing pretty solidly". Also, Federal Reserve Bank of Dallas President Logan said that she “has a little bit slower of a normalization of the policy path in order to make sure we get all the way to 2%.” She added that she felt labor market risks are “fairly balanced” and that “It doesn’t appear to be that policy is more than modestly restrictive”. Boston Fed President Collins mentioned that “It may be appropriate to ease the policy rate a bit further this year – but the data will have to show that”, while Dallas Fed President Logan suggested that “there may be relatively little room to make additional rate cuts”. And Vice Chair Jefferson avoided any signal on the policy path, noting that “both sides of our mandate are under pressure”. Lastly, the Supreme Court rejected President Trump's demand to immediately remove Fed Governor Lisa Cook from her post. Cook can thus remain in her post at least until the Supreme Court hears the arguments in the case in January. So that eased some immediate concerns about White House influence over the Fed.

US data

ADP’s report of private payrolls came in at -32k (vs. +51k expected), and it raised fears that the next jobs report (whenever it is published) would disappoint like the last two. ISM manufacturing came in broadly as expected at 49.1 (vs. 49.0 expected). New orders disappointed (48.9 vs 50.0 expected) but the employment component surprised to the upside (45.3 vs 44.3 expected) and prices paid fell to an 8-month low of 61.9 (vs 62.7 expected). The Conference Board’s consumer confidence indicator fell by more than expected in September, down to a five-month low of 94.2 (vs. 96.0 expected). Moreover, the latest JOLTS report offered further momentum on that front, because it showed ongoing weakness in the labor market into August. For instance, the quits rate of those voluntarily leaving their job fell to 1.9%, which is the lowest since December, and suggests that people are less confident in their prospects. Plus, the job openings number ticked up a bit more than expected, rising to 7.227m (vs. 7.2m expected).

EU data

The Euro Area final manufacturing PMIs was revised up three-tenths from the flash print to 49.8, and the German number was revised up a full point to 49.5. Also, the latest Euro Area inflation numbers settled in line with expectations, which eased fears that the ECB might need to pivot more hawkishly. The flash CPI print was at +2.2%, and the core CPI print at +2.3%, only modestly above the ECB’s target. German numbers surprised on the upside, with the EU-harmonized measure ticking up to +2.4% in September (vs. +2.2% expected). However, that was counteracted by a downside surprise from France, where inflation rose by less-than-expected to +1.1% (vs. +1.3% expected).

Japan

Sanae Takaichi has been elected leader of the ruling Liberal Democratic Party (LDP), positioning her to become Japan’s first female prime minister following a parliamentary vote expected on 15 October. It’s been a surprised victory based on recent polls. In terms of economic impact, she advocates for aggressive fiscal stimulus. This comes at a time when Japan is grappling with chronic labor shortages, elevated inflation, and a persistently weak yen—raising questions about the sustainability of such policies. Before that, we had a dovish speech by BoJ Governor Ueda. He reaffirmed the bank's longstanding position on interest rates, thus avoiding signaling any policy changes for this month following recent market speculation about an imminent rate hike. Market pricing has dipped to 59% for an October hike down from 65%. Lastly, the jobless rate increased to 2.6%, its highest level in over a year in August, from 2.3% the previous month, and against expectations of 2.4%. Additional data revealed that the job-to-applicant ratio decreased to 1.20 from 1.22, marking the lowest number of job openings since 2022.

China data

The official manufacturing PMI printed at 49.8 in September, which was marginally above the expected figure of 49.6, compared to the previous month's reading of 49.4. It was the highest since March. The non-manufacturing PMI, encompassing services and construction, decreased to 50.0 from 50.3 in August (50.2 expected). Conversely, the RatingDog services PMI recorded a value of 52.9 for September, exceeding expectations of 52.3 but slightly lower than the previous month's print of 53.0.

Highlights

On rates

Government bond yields declined across maturities, largely in response to the private payrolls data, as official US government statistics were unavailable due to the government shutdown. The US 2-year yield fell by 6.7bps to 3.58%, the 10-year yield dropped by 5.6bps to 4.12%. US economic data was divergent and inconclusive, with investors primarily reacting to Wednesday’s ADP report. Friday ISM print further heightened stagflationary concerns. In reaction, Treasuries rallied, with the 10-year UST yield 2.9bps higher at 4.15%, and the longer 30-year yield up by 4.1bps at 4.75%. Investors continued to lean towards a dovish outlook for the Fed’s policy cycle, with market-implied expectations for rate cuts by year-end rising by 5.1bps over the weekend to 46bps. In Asia, Japan’s JGBs rose by 0.7bps, 6.9bps, 12.1bps, and 14.5bps, respectively ahead of the much expected weekend elections of the ruling Liberal Democratic Party (LDP). Turning to Europe, eurozone bonds saw a solid rally, with the 10-year Bund yield down by 4.8bps to 2.69% (-0.1bps on Friday). OATs (-6.1bps) and BTPs (-6.9bps) outperformed, supported by better-than-expected final manufacturing PMIs.

Pharma sector

Pfizer announced, in collaboration with President Trump, a series of measures aimed at reducing drug prices in the United States (notably for its primary care portfolio and certain specialty medicines), in exchange for a 3-year grace period on tariffs and clarification of the regulatory framework. These measures include: 1) Price harmonization for new drugs launched outside the United States (aligned with U.S. prices); 2) The creation of a federal "TrumpRx" platform allowing patients to buy medicines at sharply reduced prices (discounts of up to 85%, on average 50%), thereby bypassing PBMs (Pharmacy Benefit Managers, intermediaries that capture margins of 50–70% through gross-to-net rebates); 3) A commitment to invest $70 billion in R&D and capex (capital expenditures) in the United States.

Oil

OPEC+ announced a further modest increase in production from November of +137k barrels per day as the leaders of the group, Saudi Arabia and Russia, resolved their differing views, with Saudi Arabia advocating for a more significant output increase to reclaim market share. Overall, there were thoughts that a bigger increase might be announced so Brent crude traded up +0.77% at $65.43bbl on the news following a -7.99% decline last week, which left oil prices at their lowest weekly close since May.

What to watch

• Monday: Eurozone Retail Sales; Vietnam Exports
• Tuesday: US Trade Balance, NY Fed 1Y Inflation Expectations; Germany Factory Orders
• Wednesday: US FOMC Minutes and MBA Mortgage Applications; Japan Cash Earnings; RBNZ Rate Decisions
• Thursday: US Initial Jobless Claims; Taiwan Exports; China New Loans
• Friday: US Michigan University Consumer Survey; Canada Employment; Japan PPI; Singapore Q3 GDP