Equities progressed following the US central bank’s 25 basis points rate cut to 4.00–4.25%, which helped fuel investor optimism. Alongside the Fed, several central banks, including the Bank of England (BoE) also met, with the latter leaving its rates unchanged at 4%. This week, attention turns to economic indicators.
Market recap
Beyond the numbers
Macroeconomics
As expected, the Fed FOMC cut its rates by 25 bps to 4.00–4.25%. The Fed revised the dot plots, pointing to a further two rate cuts in 2025, but only one in 2026 and one in 2027; the Fed’s scenario bets on a gradual return to 2% growth in 2027, with unemployment declining from 4.5% in 2025 to 4.2% in 2028. Inflation (core PCE) should remain just above 2% until 2028. The decision on rates was motivated by deteriorating labour data, with one governor (Miran) dissenting, favouring a more aggressive rate cut.
The Bank of England (BoE) left its rates unchanged at 4%, but it was again a split vote; it still favours a gradual and cautious approach to rates, but we do not expect rate cuts in H2 25 due to high inflation. The BoE decided to reduce its quantitative tightening (QT) programme from GBP 100 billion to GBP 70 billion per year. The Bank of Japan (BoJ) left its key rates unchanged but decided to progressively sell its ETF holdings.
Last, the Bank of Canada cut its rates by 25 bps to 2.5% and Norges Bank cut its rates by 25 bps to 4.0%, both as expected.
In China, activity in August (production: 5.2% y/y; sales: 3.4% y/y; property investment: -12.9% y/y) came in lower than expected, pointing to the need for more incremental fiscal support. In Japan, inflation eased to 2.7% y/y in August down from 3.1% y/y the previous month, however, core inflation remained stable (3.3% y/y) and food prices maintained upside pressures.
UK CPI (August) was in line with expectations (up by 0.3% m/m and 3.8% y/y); pressures have eased on services (4.7% y/y), but prices could tilt to 4.0% y/y in September; eurozone final CPI for August came in slightly lower than expected at 0.1% m/m and 2.0% y/y.
In the US, retail sales (August) were stronger than expected in all major sectors (0.6% m/m) thanks to discounting; despite a weakening labour market and unsteady confidence, consumption remains resilient. Other data pointed to a mixed scenario: industrial production (August) was up by a modest 0.1% m/m thanks to the auto sector, but housing starts (August) were down (from 1,429,000 to 1,307,000) and the NAHB sentiment index also declined marginally (the index stood at 32 for September).
The focus this week will be on developed countries’ September flash PMIs and in particular the IFO index in Germany. In the US, durable goods, personal income and spending data will be released. Core PCE for August is expected to come in very close to 3.00% y/y after 2.87% y/y the previous month.
Sweden’s Riksbank, the Swiss National Bank (SNB) and the Bank of Mexico will all hold monetary policy meetings during the week.
Asset allocation: strategic views as at September 2025
Equities
Global equities posted another week of gains (MSCI ACWI total return +1.0%), led by the US (S&P 500 +1.3%) and driven by global technology strength (which was the best-performing sector +2.5%, with the Magnificent 7 +3.6%) amid a risk-on environment following the Fed’s actions.
A tempered geopolitical climate (the US–UK state visit, US–China talks) also supported momentum, with the notable outperformance of Chinese technology stocks (Hang Seng Tech Index +5.1%).
With elevated valuations (S&P 500 forward P/E 22.8x) and US rate path clarity now behind us, investor positioning has become one of the strongest arguments for further near-term market upside as the cost of equity underexposure rises.
Furthermore, the S&P 500 has historically delivered a median six-month return of +8% following a Fed rate cut after a prolonged hold (i.e. one of six months or more), provided economic growth persists. With markets in a ‘catalyst desert’ (blackout windows, quiet periods, limited earnings), macro data will likely drive share price movements this week.
Global equities gained for a second week led by the US (S&P 500 +1.3%) and powered by technology strength
Fixed income
Last week, the yield on US 10-year notes moved up by 6 bps to 4.13%. Despite the headwinds, spread compression meant investment grade finished the week flat, while high yield and AT1s saw gains of 0.3% and 0.4%, respectively. German 10-year Bunds saw a similar trend with yields rising 3 bps to 2.75%.
In the US – as expected – the Fed cut rates by 25 bps to 4.00–4.25%, with markets now pricing in two further cuts this year. The most interesting part was the dot plot, a statistical chart that shows where Fed members think interest rates will be in the future: this showed Stephen Miran’s 2.875% projection (implying five further rate cuts), with Miran also dissenting, preferring a 50-bp cut instead of a 25-bp one.
In Europe, a Bloomberg headline titled ‘France is replacing Italy as Europe’s poster child of fiscal woe’ is timely. While Fitch downgraded France’s rating to A+ two weeks ago (S&P and Moody’s are set to review their ratings over the coming months), Italy was upgraded last week from BBB to BBB+, with Fitch highlighting its current political stability and the improvement seen in its public finances. Despite the rating differential, French 10-year paper now has a higher yield than its Italian counterpart – the first time this happened since the euro was launched.
Markets now pricing in two further Fed rate cuts this year
Forex & Commodities
Following last week’s Federal Reserve meeting, the EUR/USD rose to highs of 1.1920. The upward move was not sustained, as the 25-bp rate cut was broadly in line with market expectations and it subsequently traded lower to levels of 1.1750. Over the coming week, the EUR/USD is likely to trade in a tight range, with modest upside risks following the release of eurozone PMI data on Tuesday.
The Bank of England kept its rates unchanged at 4%, and it slowed the pace of its quantitative tightening programme (asset sales) to GBP 70 billion annually. The GBP/USD traded lower to levels of just above 1.35 following the decision. The coming week has few important UK data releases, so the GBP/ USD will trade largely as a function of the USD’s moves.
The USD/CHF traded to lows of 0.7850 ahead of the Fed meeting, and it subsequently traded higher to levels of 0.7945. The main event for the CHF will be this week’s SNB meeting, where we expect its deposit rate to remain unchanged at 0.00%. CHF exchange rates will not do a lot in the coming week, given that an unchanged stance has already been priced in.
Gold traded to another all-time high of above USD 3,700 per oz ahead of the Fed meeting. We do not expect severe upward moves in the coming week, given that the major event risks have now been priced in. We maintain a bullish stance over the medium term, and we expect that gold will trade to levels of USD 4,000 per oz by Q1 2026.
The EUR/USD is likely to trade in a tight range
The opinions expressed herein are correct as at 22 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.
