2025 Weekly Update

Market update

The S&P 500 closed the week at 6,664.01, +1.70% higher. The Dow Jones closed at 46,190.61, +1.56%, with the Nasdaq higher by +2.14%. The volatility index VIX closed the week at 20.78, down from 21.66. The Euro Stoxx 600 rose +0.37%. 

The 10-year UST closed at 4.01%, down from 4.03% a week before. The yield curve is upward sloping with the yield spread between the 3-month and 10-year UST at 8bps. US Corporate Bond spreads: Investment Grade spreads widened +3bps at 80bps and High Yield spreads widened +12bps at 360bps. German 10-year Bunds yield closed at +2.58%, down from +2.64% a week before. In Europe, Corporate Investment Grade spreads widened +2bps at 89bps and High Yield widened +14bps at 321bps. 

The US Dollar Index (DXY) depreciated -0.55% last week and closed at 98.43. The Euro closed at 1.1655 (+0.31%); the Yen appreciated +0.38%, closing at 150.61 and the Swiss Franc appreciated +0.79%, closing at 0.7933. Gold closed at $4,251.82, appreciating +5.82%. Oil was lower, Brent closed at $61.29 (-2.30%) and WTI at $57.54 (-2.31%).                                                                                                               

Macroeconomy

Govt. shutdown

No significant progress has been made on the US government shutdown. The situation is having an increasingly negative impact on the economy as paychecks go missing and layoffs occur. Although September CPI will be released on Friday as a statutory exception, the economic calendar remains light, and the backlog of delayed economic data grows. With the October 25th payment deadline passed, October 31st is the next key date to watch, potentially leading to a deal by month-end.

Fed speak

Fed Chair Powell delivered dovish remarks earlier during the week, providing commentary that largely endorsed the current consensus forecast for 50bps of incremental cuts this year. Powell highlighted rising unemployment risks based on private studies, despite the lack of data from the Bureau of Labor Statistics. He also signaled a potential halt to quantitative tightening, suggesting a pause in balance sheet runoff once reserves exceed levels consistent with ample reserve conditions. Remarks from Fed Governor Waller later during the week had a more hawkish tone. Waller backed further rate cuts but with caution. He stated the Fed should proceed with continued easing carefully, avoiding mistakes that could be costly to correct. He favored a 25-bps cut, less aggressive than the 50-bps reduction called for by fellow governor Stephen Miran. His comments were echoed by Kashkari who noted that the economy might not be softening as much as feared. Elsewhere, the Fed’s Beige Book showed little change in US economic growth since early September with a largely stable labor market and muted demand.

Economic data

Euro zone headline inflation came in at 2.2% in September, in line with expectations. Core inflation rose to 2.4%, ahead of expectations of 2.3%. In the UK, wage growth slowed while unemployment rose. In China, deflationary pressures persisted, with both consumer and producer prices falling in September. Meanwhile, Q3 GDP rose +4.8% y-o-y, exceeding forecast of +4.7% but slowing from the Q2 figure of +5.2%. Looking at trade, China’s exports in USD terms accelerated in September, growing 8.3% y-o-y, and beating expectations of 6.6%. Usurpingly, exports to the US retreated 27% y-o-y, following a 33% drop in August. Meanwhile, shipments to the EU and Southeast Asia rose 14.2% and 15.6% y-o-y respectively. Elsewhere in Asia, the Monetary Authority of Singapore maintained its monetary policy stance, citing moderating GDP growth and easing inflation.

France

French PM Sébastien Lecornu survived two no-confidence votes allowing debate on the 2026 budget to proceed. Earlier, he agreed to suspend pension reforms which call for a gradual increase in the retirement age from 62 to 64 until after the 2027 presidential election. Meanwhile, France’s credit rating was unexpectedly downgraded by S&P from AA- to A+, citing political uncertainty. While France could succeed the 5.4% budget deficit target for 2025, the consolidation could be slower in the absence of significant measures.

Highlights

On rates

US Treasuries rallied across the curve, particularly in short- to medium-term maturities, driven by investor expectations of Fed rate cuts. The 2-year yield fell -4.4bps to 3.46%, the 10-year yield moved down -2.3bps to 4.01% and the 30yr yield closed the week at 4.6%, -1.4bps lower. These moves were supported by falling oil prices which contributed to reduced inflation expectations. Fed expectations moved in a dovish direction with the amount of rate cuts priced in by the June 2026 meeting increasing by 6.3bps over the week to 101bps. Sovereign bonds saw similar moves in Europe. Yields on 10-year Bunds fell by -6.4bps, while BTPs ended the week -8.8bps lower. French bonds performed well after PM Lecornu’s government survived confidence votes from both the far-right and far-left factions of the National Assembly. OATs were down -11.8bps despite S&P downgrading France’s credit rating from AA- to A+. In the UK, 10-year gilts outperformed, falling by -14.4bps, as weaker-than-expected economic data led investors to increase their expectations for BoE rate cuts.

Earnings

Q3 earning season is now underway with more than 12% of S&P 500 companies having posted their results. So far, 86% of companies surprised on EPS and 84% of them reported sales above expectations. For Q3 2025, top line is expected to growth 6.6% y-o-y while EPS is expected to grow 8.5% y-o-y which would mark the ninth consecutive quarter of earnings growth. Last week saw another set of strong results from US Banks which posted earnings ahead of consensus thanks to a combination of revenue and cost outperformance. Sales and EPS growth for the S&P Financials sector are coming in at 8.1% and 18.2% respectively. More than 80 S&P 500 companies will report this week. Major releases include Tesla and Netflix. The bar is lower for earnings growth in Europe. Stoxx 600 earnings are expected to contract by roughly 0.2% y-o-y as currency headwinds continue to negatively impact company results. Major releases last week included ASML, LVMH, Nestle, and EssilorLuxottica which all surprised on the upside. This week, SAP, Porsche, and Lloyds will be among the companies reporting.

What to watch

• Monday: China Loan Prime Rate, September Data and Q3 GDP; New Zealand CPI
• Tuesday: US Philadelphia Fed Non-Manufacturing Activity; UK Public Finance; Korea and Taiwan Exports
• Wednesday: US MBA Mortgage Applications; UK CPI; Indonesia Rate Decision
• Thursday: US Initial Jobless Claims; Korea Rate Decision
• Friday: US CPI, PMI, University of Michigan Survey; UK Retail Sales; Eurozone PMI; Japan CPI, PMI

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