2025 Weekly Update

Market update

The S&P 500 closed the week at 6,552.51, -2.43% lower. The Dow Jones closed at 45,479.6, -2.73%, with the Nasdaq lower by -2.53%. The volatility index VIX closed the week at 21.66, up from 16.65, its highest level since late-June. The Euro Stoxx 600 fell -1.10%.

The 10-year UST closed at 4.03%, down from 4.12% a week before. The yield curve is upward sloping with the yield spread between the 3-month and 10-year UST at 8 bps. US Corporate Bond spreads: Investment Grade spreads widened +1bp at 77bps and High Yield spreads widened +14bps at 348bps. German 10-year Bunds yield closed at 2.64% down from 2.70% a week before. In Europe, Corporate Investment Grade spreads remained steady at 87bps and High Yield widened +13bps at 307bps.

The US Dollar Index (DXY) appreciated +1.28% last week and closed at 98.98. The Euro closed at 1.1619 (-1.05%); the Yen depreciated -2.52%, closing at 151.19 and the Swiss Franc depreciated -0.48%, closing at 0.7996. Gold closed at $4,017.79, appreciating +3.38%. Oil was lower, Brent closed at $62.73 (-2.79%) and WTI at $58.9 (-3.25%).                                                                                                                

Macroeconomy

Trade tensions

Tensions between US and China ratcheted up on Friday. President Trump threatened to withdraw from the upcoming Xi summit meeting and warned that tariffs could see a “massive increase” from present levels. Over the weekend, President Trump posted on social media: “Don’t worry about China, it will all be fine! Highly respected President Xi just had a bad moment. He doesn’t want Depression for his country, and neither do I. The U.S.A wants to help China, not hurt it!!!”. Meanwhile JD Vance also opened the door to negotiations yesterday. Trump and Xi were expected to meet on the sidelines of the APEC 2025 summit in South Korea on October 31st–November 1st. Also note that the suspension of higher US tariffs on Chinese goods expires on November 10th. Investors still think the tit for tat between the US and China these last few days is mostly posturing. As a reference, Polymarket has the probabilities of the two Presidents meeting by October 31st at 62% this morning, down from a peak of 88% last week but up from around 35% at the lows on Friday night. Interestingly, data show that China is diversifying their exports. While exports to the US decreased by -27.0% y-o-y in Sept, marking the sixth consecutive month of double-digit declines, growth in its global exports reached a six-month high of +8.3% (compared to +6.6% expected), significantly surpassing the +4.4% y-o-y increase recorded in August. Imports rose by +7.4% in Sept., exceeding the forecast of +1.8%, resulting in a surplus of $90.5bn.

Govt. shutdown

The government shutdown barrels deeper into its second week. The Senate rejected dueling government funding bills for the sixth time Wednesday. The White House has threatened that federal workers might not receive back pay for days they have been furloughed, a practice established in the Guaranteed Employee Fair Treatment Act of 2019 during the last shutdown that took place during President Donald Trump’s first term. Military pay date on Oct. 15 could be an important forcing event for a compromise to restore funding, but a standalone troop pay measure is possible. Approximately 750k federal workers have been furloughed, in line with expectations so far. The Polymarket odds of the shutdown ending before October 15 are down to just 8%. Due to lack of government data, alternative data gain more importance. There are mixed signals coming from different jobs indicators with ADP reporting negative payrolls growth (partly due to benchmark revisions but ex that still weak) and Revelio labs reporting an acceleration in jobs. Labor market perceptions continued to deteriorate among households, as job openings to unemployed workers make a new cycle low. The NY Fed labor market survey shows it’s a tough market to find jobs especially for young and entry-level employees. Nowcast from the Chicago Fed shows the unemployment rate remaining stable. On the inflation front, daily data from the PricingLab suggests retail prices rose further after implementation of lumber and furniture tariffs.

FOMC minutes

The Fed minutes showed that most FOMC members at the Sept. meeting “judged that it likely would be appropriate to ease policy further over the remainder of this year.” This aligns with the dot plot as well as recent fedspeak. There was clearly a level of caution throughout the minutes as “Participants generally assessed that recent readings of these indicators did not show a sharp deterioration in labor market conditions.” However, on inflation, the majority of members emphasized upside risks.

US data

The University of Michigan said its Consumer Sentiment Index was little changed at 55.0 this month from a final reading of 55.1 in September. Economists polled by Reuters had expected the index to slip to 54.2. Sentiment declined among respondents identifying as Democrats. Republicans and independents were, however, more upbeat this month. Consumers were pessimistic about future personal finances and their views on current buying conditions for long-lasting manufactured goods were unfavorable. Before the government data blackout, the labor market had softened, with job growth almost stalling in the three months to August. Also, the New York Fed’s latest Survey of Consumer Expectations found that near-term inflation expectations ticked higher in September. So, 1yr inflation expectations ticked up to 3.4%, which is their highest since April, and 5yr expectations moved up to 3.0%, which is their highest since February. This week, the US CPI will not be published as expected on Wednesday, but we now know it will be released on the 24th October. The special treatment during a shutdown is since September’s CPI is a crucial input into the government’s calculation of the “cost of living adjustment” (COLA) that is applied each year to several categories of federal outlays.

Central Banks

In New Zealand, the Reserve Bank of New Zealand delivered a surprise 50bps cut, larger than the 25bps move expected, which takes their Official Cash rate down to 2.5%. So that’s led to a depreciation in the New Zealand dollar, which weakened by -0.96% against the US dollar overnight, making it the worst-performing G10 currency. The statement said that the committee “remains open to further reductions”, and New Zealand’s 10yr yield (-4.6bps) fell to a 12-month low in response.

Japan

The surprise election of Sanae Takaichi as LDP leader and thus likely next PM led to a sharp sell-off of the yen. This reflects her pro-growth policy bias and her intention to use both fiscal and monetary policy to that end. In turn, this has worried the market that the BoJ could hike by less than expected until now, even if a more expansionary fiscal stance would prompt a more restrictive monetary stance, all else equal. But Takaichi also depends on support by the LDP faction of former PM Aso, who is a fiscal conservative. On the other hand, potential coalition new partners seek an even more expansionary fiscal policy. It remains how these opposing forces will ultimately determine policy and the ability to pursue a legislative agenda in parliament. The near-term uncertainty will likely continue to weigh on the yen.

Highlights

On rates

Last week, US core sovereign yields declined across maturities as risk-off flows intensified late in the week. In the US, the 2-year Treasury yield fell 7.4bps to 3.50%, the 10-year declined 8.7bps to 4.03%, and the 30-year dropped 9.3bps to 4.62%, driven by heightened political and fiscal uncertainty and the ongoing US government shutdown, which keeps delaying some official data releases – key information pieces ahead of the next  FOMC meeting – keeping investors cautious. Renewed US–China tariff headlines into Friday further supported such sentiment. In Europe, the 10-year Bund yield fell 5.4bps on the week amid safe-haven demand linked to French political tensions, while France’s 10-year OAT yield rose about 7bps to 3.58% following news of government instability and the PM’s resignation. The OAT–Bund spread widened to a roughly nine-month high during the week, and failure to pass the budget could push the 2026 deficit higher than the projected 5.4% for this year. Italy’s 10-year BTP yield fell 5bps.

Earnings

The third-quarter earnings season is now underway with first major releases ahead this week. For Q3 2025, the estimated y/y EPS growth rate for the S&P 500 stands at 8.0%, and if realized, would mark the ninth consecutive quarter of earnings growth, with six sectors seeing upward EPS revisions versus June 30. In Europe, forecasts are more vigilant. The Stoxx 600 earnings are expected to contract by roughly 0.2% y/y, with revenues down about 0.3%. Sector-wise, US Financials are in focus, with the sector projected to post the fourth-highest y/y EPS growth at 13.2%, led by Consumer Finance at around 29%. The week ahead features the first major US bank results (J.P. Morgan on Tuesday) providing early reads on credit conditions, loan demand, and overall corporate resilience into year-end. In tech, semiconductors are in the spotlight with ASML reporting Wednesday and TSMC on Thursday, while on the European side LVMH is due on Tuesday, while EssilorLuxottica, Nestlé, and Nordea are also due Thursday.

What to watch

• Monday: Korea October Exports; China Exports
• Tuesday: US NFIB Small Business Optimism; UK Labor Earnings and Employment; Germany ZEW Survey; Singapore Q3 GDP
• Wednesday: US CPI, Hourly Earnings and Empire Manufacturing, Fed Beige Book; Eurozone & Japan Industrial production; China CPI & PPI; India Exports
• Thursday: US Retail Sales, PPI and Initial Jobless Claims; UK GDP; South Korea & Australia employment
• Friday: US Housing Starts and Industrial Production; Eurozone CPI; Singapore Exports

*Most US federal data releases are expected to be delayed due to Government Shutdown