United States
Equities Advance on Optimism Around Rate Cuts and Artificial Intelligence
U.S. stocks wrapped up the week on a stronger note as traders looked ahead to the Federal Reserve’s September 16–17 meeting. Investors widely expect the central bank to cut short-term rates, a move supported by signs of a softer labor market and only modest inflation pressures.
Momentum in the artificial intelligence sector also buoyed sentiment. Oracle’s announcement of improved guidance, driven by a wave of major AI-related deals, reinforced optimism about the technology’s growth prospects. That enthusiasm carried the major indexes—the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite—to fresh record levels during the week. Although the Dow and S&P 500 edged slightly lower in Friday’s quiet session, the Russell 2000 extended its rally, marking a sixth consecutive week of gains.
Inflation Data Shows Mixed Signals but Unlikely to Prevent Policy Easing
The Bureau of Labor Statistics (BLS) indicated that overall consumer prices rose at a faster pace in August, with annual inflation climbing to 2.9% from 2.7% the prior month. Excluding food and energy, core CPI moved up to 3.1%.
In contrast, wholesale price pressures showed some easing. The producer price index (PPI) slowed to 2.6% from July’s 3.1%, though the core measure of producer inflation ticked up slightly to 2.8%. While still above the Fed’s 2% objective, these results were largely seen as consistent with expectations for a rate cut, particularly as employment data continued to weaken.
Reinforcing this view, the Labor Department reported 263,000 initial jobless claims for the week ending September 6, the highest since late 2021. Moreover, updated payroll figures revealed that job creation between April 2024 and March 2025 was overstated by 911,000 positions, highlighting a further loss of economic momentum.
Consumer Confidence Softens in September
The University of Michigan’s early reading on consumer confidence showed a decline in September, with the index slipping to 55.4 from August’s 58.2. Although sentiment remains stronger than the lows recorded in April and May, the drop signals that households are growing more uneasy about job security, price pressures, and the broader economic outlook. Short-term inflation expectations stayed unchanged at 4.8%, but the survey revealed another uptick in long-run inflation expectations, which rose to 3.9%.
Treasury Market Gains as Yields Decline on Longer-Dated Bonds
U.S. government debt gained following the latest economic data, with yields on longer-dated Treasuries slipping even as shorter-term rates held relatively steady. Robust bidding at recent Treasury auctions further underpinned the market. In credit, investment-grade corporate bonds outperformed government securities, and high-yield issues also rallied as investors increasingly anticipated a forthcoming Fed rate reduction.
Major U.S. Indexes
| Index | Friday’s Close | Week’s Change | % Change YTD |
|---|---|---|---|
| DJIA | 45,834.22 | 433.36 | 7.73% |
| S&P 500 | 6,584.29 | 102.79 | 11.95% |
| Nasdaq Composite | 22,141.10 | 440.71 | 14.66% |
| S&P MidCap 400 | 3,282.40 | -14.37 | 5.17% |
| Russell 2000 | 2,397.06 | 6.02 | 7.48% |
Source: Reuters, Bloomberg, Yahoo! Finance. Past performance is not a guarantee of future results.
Europe
Stocks Climb as Investors Expect Fed Easing
European equities also ended higher, reflecting optimism that U.S. monetary easing could boost global liquidity. The STOXX Europe 600 gained 1.03% in local terms. Among individual markets, Italy’s FTSE MIB jumped 2.30%, France’s CAC 40 rose 1.96%, Germany’s DAX added 0.43%, and the UK’s FTSE 100 advanced 0.82%.
ECB Holds Rates at 2% but Updates Forecasts
The European Central Bank (ECB) kept its deposit rate unchanged at 2%. President Christine Lagarde emphasized that inflation, now around 2%, placed the eurozone “in a good place.” Updated projections raised growth and inflation forecasts slightly for 2025, with inflation now expected at 2.1% in 2025 and 1.7% in 2026. GDP growth for this year was revised up to 1.2% from 0.9%, while the 2026 forecast was trimmed to 1.0%.
Markets interpreted these revisions as signaling an end to the rate-cutting cycle. However, T. Rowe Price’s Tomasz Wieladek argued that traders may be too quick to discount the chance of another cut, suggesting political risks in France, tariff effects from the U.S., and euro appreciation could yet force the ECB’s hand.
German Trade Weakens While Output Improves
German exports fell unexpectedly in July, dropping 0.6% from June. Exports to the U.S. sank 7.9%, offset partially by a 2.5% rise in shipments to the EU. Industrial output, however, climbed 1.3%, modestly ahead of forecasts, though factory orders slipped 2.9%.
UK Growth Stagnates in July
UK GDP was flat in July after a 0.4% gain in June. Services and construction showed minor growth, but manufacturing shrank 1.3%, dragging overall output. On a quarterly basis, GDP rose just 0.2%, down from 0.3% previously.
Political Change in France
President Emmanuel Macron appointed Sebastien Lecornu as prime minister after Francois Bayrou lost a confidence vote tied to budget measures. The leadership shift adds a new layer of political uncertainty to French policymaking.
Japan
Markets Advance Despite Political Uncertainty
Japanese stocks gained strongly, with the Nikkei 225 up 4.07% and the TOPIX rising 1.78%. The gains came despite Prime Minister Shigeru Ishiba’s announcement that he would resign following two election defeats within a year. An emergency leadership vote within the ruling Liberal Democratic Party is set for October 4, with investors watching whether the new leader embraces more expansive fiscal measures, such as tax cuts.
The yield on the 10-year Japanese government bond edged higher to 1.58%, while the yen held steady in the JPY 147 per dollar range.
Potential Delay in BoJ Tightening
Political instability prompted speculation that the Bank of Japan (BoJ) could pause monetary tightening, though many market participants still expect a rate hike later this year if inflation trends remain consistent. The BoJ’s next meeting on September 19 is widely expected to keep rates unchanged.
GDP Data Revised Higher
Japan’s second-quarter GDP growth was revised upward to 2.2% annualized, compared with an earlier estimate of 1.0%. The rebound was largely fueled by stronger household consumption, supported by government relief measures against rising food and energy costs. The first quarter’s growth was 0.6%.
China
Equity Markets Rally Amid Ample Liquidity
Mainland Chinese shares extended their gains, with the CSI 300 Index rising 1.38% and the Shanghai Composite up 1.52%. In Hong Kong, the Hang Seng Index advanced 3.82%. The rally has been fueled by abundant domestic liquidity, as households direct excess cash into equities given limited alternatives.
Support also came from Beijing’s push for domestic innovation, particularly in artificial intelligence. The CSI 300 logged its strongest one-day jump since March, powered by tech stocks expected to benefit from state-backed initiatives.
Deflationary Pressures Persist
Despite buoyant markets, economic data painted a weaker picture. Producer prices fell 2.9% in August, extending a nearly three-year streak of declines, though the pace eased from July’s 3.5% drop. Consumer prices fell 0.4% year-over-year, reversing recent gains, as food prices declined. This marks China’s third consecutive year of deflation, largely linked to its prolonged property market downturn and muted domestic demand.
Other Key Markets
Türkiye Cuts Rates but Maintains Tight Policy Tone
The Central Bank of Türkiye trimmed its one-week repo rate by 250 basis points to 40.5%, alongside cuts to lending and borrowing rates. While this represented a modest easing compared with July’s aggressive hike, officials emphasized that inflation risks—particularly from sticky food and service prices—require a continued tight stance. Headline inflation eased slightly to around 33% in August from 33.5% in July.
Chile Holds Rates, Flags Concern Over Core Inflation
Chile’s central bank kept its policy rate at 4.75%, as expected. Policymakers acknowledged strong domestic demand and wage growth, but also noted rising core inflation pressures. They highlighted uncertainty stemming from shifting global trade patterns due to U.S. tariffs, stressing the need for close monitoring of inflation fundamentals.
