Divergent remarks from Federal Reserve members combined with US macroeconomic data that was generally resilient have weighed on optimism for future rate cuts. Attention now turns to this week’s labour market report as a key gauge of job creation, while President Trump is set to meet Democratic and Republican leaders in an effort to avert a government shutdown.
Market recap
Beyond the numbers
Macroeconomics
Last week, US macroeconomic data highlighted a resilient economy. While flash PMIs disappointed slightly, both the manufacturing and services sectors remained in expansion territory (52.0 and 53.9, respectively). The Fed’s preferred inflation gauge (core PCE) remained steady at an elevated 2.9% in August, while real GDP growth for Q2 was revised up by 0.5 percentage points to an annualised +3.8%, driven by robust consumption growth and a strong business investment cycle. Meanwhile, initial jobless claims fell to their lowest level since mid-July, reflecting companies’ reluctance to lay off workers and willingness to limit new hires.
Nevertheless, we project US real GDP growth to slow from 2.8% in 2024 to 1.7% in 2025 as higher tariffs dampen consumer spending. To counter a weakening labour market, the Federal Reserve is likely to deliver two 25-bp rate cuts, one in October and one in December.
The eurozone’s composite PMI inched up to 51.2 in September, slightly above forecasts and marking its highest level since May 2024. The modest rise was driven by stronger services activity (+0.9 pts to 51.4), which offset a 1.8-pt drop in manufacturing output to 50.7. Regionally, Germany outperformed expectations, buoyed by a 3.5-pt surge in services, while France and peripheral economies lagged behind. In contrast, September’s German IFO report showed pessimism among the country’s businesses, with concerns over how Germany’s fiscal plan will be executed.
This week, the crucial US labour market report will reveal the state of job creation. Moreover, President Trump will enter discussions with both Democratic and Republican leaders to try to avoid a government shutdown. Last, the US manufacturing ISM and eurozone inflation figures will be published.
Asset allocation: strategic views as at September 2025
Equities
Global equities ended last week modestly lower (MSCI ACWI total return -0.5%), with US equities leading declines among developed markets (S&P 500 -0.3%). Mixed commentaries from Fed members dampened optimism for future rate cuts, reinforced by stronger-than-expected US macro data, shifting the market narrative from ‘bad is good’ to ‘good is bad’.
The global energy sector outperformed (+3.4%) as oil prices rose following President Trump’s call for EU member states to halt Russian oil and gas purchases, whereas most other sectors declined (the worst-performing ones were communications services at -2.3% and healthcare at -1.7%).
September has defied its historically negative trend for US equities, with the region up +2.9% month-to-date, driven by the Magnificent 7 (+8.5%). Year-to-date, the S&P 500 has delivered a total return of +14%, with 54% from earnings, 38% from multiples’ expansion, and 8% from dividends.
While market movements in the coming week will hinge on macro data (namely US labour market indicators), the Q3 earnings season in October will be critical for the next phase of market strength.
The S&P 500 has delivered a total return of +14%, year-to-date
Fixed income
Last week the yields on US 10-year notes were more or less stable, fluctuating around 4.15%. Meanwhile, the performance of fixed income was slightly negative, as AT1s were flat while investment grade and high yield were down 20 bps and 30 bps, respectively.
New Fed policymaker, Stephen Miran, is pushing for a sharp rate cut path to protect the job market, but most of his colleagues are more focused on inflation and therefore more cautious on rate cuts. Our revised outlook places 10-year US Treasury yields within a 3.5–4.5% range, where adding duration becomes attractive as we approach the top of the range.
Outside the US, the Swiss National Bank (SNB) did as expected and kept its policy rate unchanged at 0.00%. In contrast, in the UK, we saw yields on 10-year gilts rising and breaching 4.75% as investors’ concerns about the outlook of UK long-term finances mount and given the weaker demand seen for UK notes at the latest auctions.
Our outlook places 10-year US Treasury yields within a 3.5–4.5% range
Forex & Commodities
Last week the EUR/USD fell to levels of just below 1.17, reflecting better-than-expected US activity data (such as the revised Q2 GDP data). Markets moved to price in only 39 bps of Fed rate cuts by year-end. The main event for the coming week will be non-farm payroll data on Friday: if the data print poorly, it will limit the scope of potential USD gains. We expect the recent ranges of between 1.16–1.18 to hold.
The CHF was unchanged following the SNB’s rate meeting, where it maintained its deposit rate at 0.00%. In our view, the CHF will continue to trade at robust levels, although the latest pharmaceutical tariff announcement by the US may result in modest USD/CHF upward moves toward 0.8050.
The GBP fell against both the EUR and the USD following worse-than-expected PMI data. The Bank of England’s governor, Andrew Bailey, noted that the central bank could move to cut rates in the coming months. Sentiment towards the pound remains poor, meaning that the EUR/GBP will trade at around 0.87, and the GBP/USD will trade at around 1.33 in the coming week.
Precious metals put in astonishing returns, with platinum, palladium, silver and gold showing returns of +8.8%, +5.7%, +2.2% and +0.1% respectively. These rises reflect clear technical breakouts on the upside as they play catch-up with gold. We expect that gold will be well supported over the coming week, with only limited downside.
The CHF will continue to trade at robust levels
The opinions expressed herein are correct as at 29 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.
