2025 Weekly Update

Market update

The S&P 500 closed the week at 6,791.69, +1.92% higher. The Dow Jones closed at 47,207.12, +2.20%, with the Nasdaq higher by +2.31%. The volatility index VIX closed the week at 16.37, down from 20.78. The Euro Stoxx 600 rose +1.68%. 

The 10-year UST closed at 4%, down from 4.01% a week before. The yield curve is upward sloping with the yield spread between the 3-month and 10-year UST at 14bps. US Corporate Bond spreads: Investment Grade spreads narrowed -1bp at 79bps and High Yield spreads narrowed -5bps at 355bps. German 10-year Bunds yield closed at 2.63% up from 2.58% a week before. In Europe, Corporate Investment Grade spreads widened +1bp at 90bps and High Yield narrowed -2bps at 319bps. 

The US Dollar Index (DXY) appreciated +0.53% last week and closed at 98.95. The Euro closed at 1.1627 (-0.24%); the Yen depreciated -1.49%, closing at 152.86 and the Swiss Franc depreciated -0.30%, closing at 0.7957. Gold closed at $4,113.05, depreciating -3.26%. Oil was higher, Brent closed at $65.94 (+7.59%) and WTI at $61.5 (+6.88%).

Macroeconomy

FOMC preview

Despite the lack of official data due to the government shutdown, investors expect the FOMC to cut rates by 25bps on Wednesday. The move has been well telegraphed by the core of the committee and fully priced by the market. Chair Powell recently noted the outlook for employment and inflation does not appear to have changed much since the Sept. FOMC meeting, and the downside risks to employment appear to have risen. Regarding Quantitative Tightening (aiming to reduce the Fed’s balance sheet), Fed Chair Powell recently suggested QT could end “in coming months”, and the plan is to “stop balance sheet runoff when reserves are somewhat above the level we judge consistent with ample reserve condition”. Given money market pressures in the past few days, the Fed could choose to announce an end to QT this week out of risk management considerations. The Fed is likely to stop monthly redemptions of Treasuries but continue to unwind MBS holdings, with the option to reinvest the proceeds, possibly in T-bills, to keep the balance sheet size stable.

US data

The September CPI report, last week’s sole official government data release, came in softer than expected. Headline inflation rose +0.31% m/m (vs. +0.4% expected), while core CPI increased +0.23% m/m (vs. +0.3% expected). This was primarily driven by easing owner equivalent rents (+0.13% m/m), marking their slowest monthly rise since the pandemic, alongside lower food costs and moderating services prices. However, upward pressure persisted in tariff-linked categories such as apparel, household furnishings, and appliances, coupled with energy prices jumping 2.8% due to higher fuel oil costs and a smaller drop in gasoline prices compared to August. The final Michigan sentiment report was net negative, with declining confidence, weaker expectations, and a jump in long-term inflation expectations.

Global PMIs

The S&P Flash Eurozone Composite PMI rose to 52.2 in Oct. from 51.2 in Sept., marking the tenth consecutive month of expansion, reaching a 17-month high and beating expectations at 51.0. Services activity led the euro zone's expansion, with its PMI climbing to 52.6 from 51.3 in Sept., reaching a 14-month high. Manufacturing data came in at 50.0 from 49.8 in Sept. Employment returned to growth in Oct. following Sept. slight decline, with the services sector creating jobs at the fastest rate since June 2024. Manufacturing firms, however, cut staff at the quickest pace in four months as they adjusted to weaker demand conditions. In France, activity declined faster than expected as demand for goods and services in the euro zone's second-biggest economy weakened further amid a volatile political climate. But in Germany, Europe's largest economy, the private sector recorded its strongest growth in nearly 2-1/2 years, buoyed by a robust rise in services activity. In the US, S&P Global flash Composite PMI increased to 54.8 this month from 53.9 in Sept. The services sector accounted for most of the improvement, with manufacturing maintaining a steady pace of expansion. New orders received by businesses increased to 54.2 from 53.1 in Sept. Its gauge of export orders dropped to six-month low of 47.8 from 49.7 in Sept. The flash PMIs in Japan show manufacturing activity declining to its lowest level in 19 months in Oct. at 48.3 vs. 48.5 in Sept. The services PMI also slowed, albeit to a still solid 52.4 vs. 53.3 in Sept.

Global central banks

This week, we expect rates decisions by four of the G7 central banks, with the Fed and BoC on Wednesday followed by the BoJ and ECB on Thursday. In Europe, the ECB is widely expected to keep the deposit rate steady at 2% for a third consecutive meeting. Investors think ECB President Lagarde will again describe policy as “in a good place” and will be watching whether she maintains the net hawkish tone that she struck in July and September. The Bank of Japan is expected to maintain its current policy stance, while the Bank of Canada is likely to deliver its own 25bps rate cut. It would come after their latest inflation report which surprised on the upside. It showed headline CPI rising to +2.4% in Sept. (vs. +2.2% expected), whilst both the trim core and the median core measures tracked by the Bank of Canada also moved higher.

Trade update

On US-China news, China’s Ministry of Commerce said that the sides reached an initial consensus on a range of issues including an extension of the tariff truce, fentanyl, agricultural trade, export controls and shipping levies. In turn, US Treasury Secretary Bessent suggested that China would defer its new rare-earth export controls for one year and make “substantial” purchases of US soybeans, while the US threat of 100% tariffs on China was “effectively off the table”. Bessent signaled that the agreed “framework” should allow Presidents Trump and Xi to have “a very productive meeting” when they meet on Thursday on the sidelines of the APEC summit. Also, President Trump signed trade framework pacts with Malaysia, Thailand, Vietnam and Cambodia. The countries will allow preferential access for US goods in return for tariff exemptions on some of their exports to the US, though many of exact details are still to be finalized. By contrast, President Trump announced a 10% additional tariff on Canada amid a spat over an anti-tariff ad released by the government of Ontario. It’s not clear whether USMCA-compliant goods would remain exempt from the extra 10% levy.

Highlights

On rates

Last week, government bonds exhibited a mixed performance, influenced by easing US-China trade tensions and Friday’s US CPI release. The 2-year yield rose by +2.5bps over the week to 3.48%, while 10-year yields ended the week -0.7bps lower at 4.00%, having touched a 12-month low of 3.95% on Wednesday. The market adopted a "risk-on" sentiment following Friday’s softer-than-expected US CPI data, amplifying consensus for a second consecutive 25bps rate cut at Wednesday’s FOMC meeting, and with markets now pricing in a total of 49bps in cuts by year-end, spread across the next two meetings. In Europe, sovereign yields moved higher across the continent. The 10-year Bund yield rose by +4.5bps, OATs increased by +7.2bps, and BTPs climbed by +3.7bps. Most moves occurred on Friday, driven by the Euro Area composite PMI, while Moody’s downgraded its outlook on France from “stable” to “negative” on the same day.

Earnings

As the earnings season advances, 29% of the companies in the S&P 500 have reported actual results for Q3 2025 to date. Of these, 87% have reported actual EPS above estimates, surpassing the 5-year average of 78. If 87% holds as the final figure for the quarter, it will mark the highest percentage of S&P 500 companies reporting a positive EPS surprise since Q2 2021. On aggregate, companies are reporting revenues 2.4% above estimates, exceeding the 5-year average of 2.1%. The forward 12-month P/E ratio stands at 22.7, above the 5-year average of 19.9. During the past week, positive EPS surprises from the Information Technology (+22.3%), Financials (+20.2%), and Utilities sectors were the largest contributors to the increase in the overall earnings growth rate. The blended earnings growth rate for Q3 is now +9.2%, up from +7.9% at the end of the quarter. Earnings from luxury firms have been improving this season with LVMH’s recovery driven by a rebound in Chinese luxury consumption, while Kering negative performance beat expectations under its new management. Hermès posted a modest sales shortfall in its key Leather Goods & Saddlery business, though overall revenue growth was slightly better than expected at +9.6%. Netflix shares fell after Q3 earnings were impacted by a one-time tax item, despite stable guidance. Tesla reported strong sales growth (+12% to ~$28B) and free cash flow (+46% to $3.99B) but missed earnings due to margin pressures. Looking ahead, five of the "Magnificent 7" will report this week: Microsoft, Alphabet, and Meta on Wednesday, followed by Apple and Amazon on Thursday. Together, these companies represent $15 trillion in market cap, or 25% of the S&P 500. In Europe, UBS, Sandoz, and Airbus will also release results.

Regional banks

Market has been focused on US regional banks, with credit risk back at the forefront of investors’ minds. This kicked off 10 days ago, when Zions Bancorp and Western Alliance Bancorp both said they were exposed to alleged fraud. That followed the recent failures of Tricolor Holdings and First Brands. That caused a big slump in their share prices that day, with falls of -13.14% and -10.81%, respectively, and financials more widely dragged down the broader equity market. Last week, we had both banks reporting. Zions Bancorp reported results which were largely positive, and its profits beat estimates despite a $56mn write-down of bad loans in Q3, including $50mn in alleged fraud tied to a CRE investor group. Also, Western Alliance Bancorp delivered earnings and revenue beat even as it raised credit loss provisions to $80m (vs. $42.4m estimated). So, that offered reassurance to markets after last weeks concerns.

Oil market

Markets wrestled with the impact of sanctions announced by the US against Russia’s two largest oil companies, in particular how these will impact oil flows to China and India, which have been the main buyers of Russia’s crude exports. Reports pointed to initial disruption, with Bloomberg reporting that Chinese state oil majors have suspended seaborne Russian oil purchases due to concerns about Western sanctions, while Reuters reported that Indian refiners are poised to sharply cut imports of Russian oil. Also, the EU approved its new Russia sanctions package, which targets some Chinese entities for buying Russian oil and tightens restrictions on transactions with Russia’s largest state-owned oil producers. While the new US sanctions are likely to disrupt Russia’s oil exports in the near-term, especially to India, the medium-term impact will depend on ongoing enforcement and adaptation. Indeed, looking at previous restrictions on Russia’s oil exports, their impact typically faded after a few months. In response to the new US sanctions, Russia’s President Putin downplayed the impact on Russia’s economy and criticized the impact on global energy markets but suggested that his meeting with Trump was delayed rather than cancelled. Brent crude prices surged +7.43% over the week, following the largest two-day jump since April 2022.

What to watch

• Monday: US Durable Goods Orders; Germany IFO Survey; ECB 1Y and 3Y CPI Expectations; HK Exports
• Tuesday: US Conference Board Consumer Confidence; Germany GfK Consumer Confidence; Korea Q3 GDP
• Wednesday: US Fed Policy Meeting; Australia CPI
• Thursday: US Initial Jobless Claims and Q3 GDP; ECB Policy Meeting, Q3 GDP for Eurozone, France and Germany; Donald Trump-Xi Jinping meeting; BOJ Policy Rate
• Friday: US PCE Price Index, Personal Income & Spending; Eurozone October CPI; China PMI; Japan's CPI; HK GDP and Retail Sales

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