Equities advanced over the week on expectations of a first Fed rate cut on 17 September. Investors will scrutinise the Fed’s commentary for guidance on further potential cuts in October and December, moves which have largely been priced in by the markets. Policy meetings are also scheduled at the Bank of Canada (BoC), the Bank of England (BoE), and the Norges Bank, with the European Central Bank (ECB) having decided last week to leave its key rate unchanged at 2%.
Market recap
Beyond the numbers
Macroeconomics
The ECB surprised no one and left its key rate unchanged at 2%. The tone of the communication was mildly hawkish, as the ECB remains vigilant on inflation and fiscal policy. Nevertheless, the 2026–27 projections pointed towards core inflation falling below 2%, opening the door to potential rate adjustments.
US inflation came in close to expectations; PPI was lower than expected (-0.1% m/m; 2.7% y/y) thanks to lower energy prices and a moderate passthrough of tariffs onto goods prices. CPI was in line with expectations (0.4% m/m, 2.9% y/y). The indirect impact of tariffs on the prices of several goods was seen, while services remained resilient. Inflation was still on a rising trend above 3%, but firms delayed passing on the increase in goods prices from tariffs, and other sectors have mitigated the rise. Nevertheless, the Fed will ease rates in September with probably fewer concerns about inflation than the labour market and opening the door to potentially more easing due to weak labour data.
Elsewhere, US labour data were revised down sharply by a total of 911,000 jobs over the April 2024–March 2025 period. Confidence within US small and mid-sized business has gained further and regularly recovered from April’s low. In China, inflation retreated into negative territory (-0.4% y/y; PPI : -2.9% y/y) due to falling food prices.
In France, Prime Minister Bayrou lost the confidence vote as expected, with Sébastien Lecornu (formerly the defence minister) named to replace him, form a new government and put together another 2026 budget. Nevertheless, Fitch cut France’s rating from AA- to A+, citing rising debt, political uncertainties, and doubt about the country’s fiscal outlook. In the UK, the August CPI report may show continued upside risks to inflation due to the price of services, suggesting that a rate of 4% (y/y) will be reached in September.
This week in the US, retail sales (August) should remain sustained. The FOMC is expected to lower the federal funds rate by 25 bps to the 4.0–4.25% range, with some members possibly dissenting in favour of a 50-bp cut. The updated economic projections and dots will probably validate an easing trend in key rates next year. No change is expected at the Bank of Japan’s (BoJ) policy meeting, while the BoC will also probably cut its rates by 25 bps to 2.50%. The BoE should leave key rates unchanged (4%), but it could reduce its quantitative tightening programme.
Asset allocation: strategic views as at September 2025
Equities
Global equities posted another week of gains (MSCI ACWI total return +1.7%) led by the technology sector (+3.5%), while defensive areas underperformed (consumer staples -0.5%, healthcare -0.2%). Investor enthusiasm remained focused on the AI narrative, fuelled by Oracle’s announcement of a significant guidance increase following major AI-related deals, driving its shares up +25.5% for the week.
Chinese technology stocks also outperformed (Hang Seng Tech Index +5.3%), surpassing US technology gains (+3.1%, ‘Magnificent 7’ +3.2%), with local champion Alibaba surging +14.3% amid Beijing’s push for homegrown AI advances.
Last week’s macroeconomic data reinforced expectations for a Fed rate cut in September, supporting modest valuation expansion (S&P 500 forward P/E 22.6x vs. 22.3x the previous week), while Q3 EPS growth estimates held steady at +7.6%.
Chinese technology stocks outperformed, supported by advances in the country’s AI sector
Fixed income
Credit performed well, as spreads tightened slightly during the week. Investment grade, high yield, and AT1s added 0.2%, 0.4%, and 0.7%, respectively, with the last of these pushing returns above the 8% threshold for the year. Emerging markets continued to stand out – up 0.8% on the week – driven by the longer end of the curve (10–30-year) dropping 8 bps, bringing the year-to-date return to 10.6%.
While the 10-year Treasuries were largely unchanged for the week, they briefly dipped below 4% on Thursday despite in-line CPI figures (the first time since the early-April sell-off-induced rally in rates). This week, the main event will be the Fed’s interest rate decision on Wednesday, with a cut now fully priced in by markets, while the total expected number of cuts for the year has increased from two to three since mid-August.
In Europe, the ECB decided to hold its rates at 2% as inflation is now close to its target. Some volatility continued on French government bonds following the government’s loss of the confidence vote in parliament and a rating downgrade by Fitch from AA- to A+. Yields on French 10-year government bonds briefly traded wider than their Italian peers for the first time since the euro was launched. However, it should be noted that, despite the undeniable direction of travel (French yields widening versus Italian ones), the bond used for the 10-year benchmark rolled into a 6-month longer one, causing the perceived (one-time) spike on Tuesday. We note the drop seen in French AT1s over the last two weeks (1–2%) has now been fully recovered, as French banks’ fundamentals remain solid.
The ECB decided to hold rates at 2% as inflation is now close to its target
Forex & Commodities
Last week, the USD traded in a tight range. The EUR/USD rose to levels of above 1.17 following the ECB’s meeting where it kept rates on hold at 2% and signalled that the bar to further easing was quite high. The Swiss National Bank (SNB) signalled that it will issue a comprehensive account of its future monetary policy decisions to increase transparency with markets.
The coming week has several key event risks, with central bank meetings for the US Federal Reserve, the Bank of Canada, the Bank of England, and the Norges Bank. We expect 25-bp rate cuts from the Fed and the BoC, which will bring the base rates to 4.25% and 2.50%, respectively. These rate cuts have been priced in; however, the key for the USD will be the summary of economic projections and the vote split. If several FOMC members vote for a larger-than-25-bp rate cut, it will weigh on the greenback. There is scope to see the EUR/USD trading at levels of 1.18, and the USD/CHF has downside risks to levels of 0.79 in the short term.
Gold was a clear beneficiary from the deterioration in US labour market data and subsequent changes in pricing for Fed rate cuts. It rose to levels of USD 3,678 per oz last week, and it has continued upside risks to levels of above USD 3,700 per oz this week following the Fed meeting. Historically, gold tends to outperform during the early stages of a Fed rate-cutting cycle and given still-elevated core inflation pressures, the case for its continued outperformance is strong in our view.
Gold tends to outperform during the early stages of a Fed rate-cutting cycle
The opinions expressed herein are correct as at 15 September 2025 and are subject to change without notice. This information should not be relied upon by the reader as research or investment advice regarding any particular fund, strategy or security. Past performance is not a guide to current or future results. Any forecast, projection or target, where provided, is indicative only and is not guaranteed in any way.
