Summary of the week - 5 Oct 25

Interest rate

US:

In September 2025, the Federal Reserve reduced the federal funds rate by 25 basis points to a target range of 4.00%–4.25%, marking its first rate cut since December and matching market expectations. Newly appointed Governor Stephen Miran was the lone dissenter, favoring a larger 50-basis-point cut.

Alongside the decision, the Fed released updated economic forecasts. Policymakers now anticipate an additional 50 bps of rate reductions by year-end 2025, followed by a further 25 bps cut in 2026, slightly more dovish than the June outlook.

GDP growth projections were revised upward to 1.6% for 2025 (from 1.4%), 1.8% for 2026 (from 1.6%), and 1.9% for 2027 (from 1.8%). The headline PCE inflation forecast remains 3.0% for 2025, but was raised to 2.6% for 2026 (previously 2.4%). The core PCE projection was held at 3.1% for 2025 and similarly increased to 2.6% for 2026 (from 2.4%). The unemployment rate forecast stayed at 4.5% for 2025, while the 2026 estimate was trimmed slightly to 4.4% from 4.5%.

UK:

The Bank of England voted 7–2 to maintain the Bank Rate at 4%, with two members preferring a 25-basis-point reduction to 3.75%. The Monetary Policy Committee (MPC) also voted 7–2 to slow the pace of quantitative tightening, planning to reduce its gilt holdings by £70 billion over the next year to £488 billion.

Policymakers noted that disinflation is progressing as earlier shocks fade and restrictive policy takes effect, though inflation remains above the 2% target. Headline CPI was 3.8% in August and is expected to edge higher in September before declining toward target. Wage growth, while still high, has moderated and is projected to ease further, whereas services inflation has stayed relatively stable.

The MPC acknowledged upside risks to medium-term inflation but pointed to weak GDP growth, a softening labor market, and spare capacity in the economy. Looking ahead, the committee emphasized a measured, data-dependent strategy with no preset course for rate cuts, maintaining flexibility to adjust policy as conditions evolve.

EU:

The European Central Bank (ECB) left its three key policy rates unchanged, keeping the deposit facility at 2.00%, the main refinancing rate at 2.15%, and the marginal lending rate at 2.40%, in line with expectations. The Bank noted that inflation is now close to its 2% medium-term target, with the overall outlook largely unchanged from June.

According to the ECB’s latest staff projections, headline inflation is expected to average 2.1% in 2025, ease to 1.7% in 2026, and edge up to 1.9% in 2027. Core inflation (excluding food and energy) is forecast at 2.4% in 2025, 1.9% in 2026, and 1.8% in 2027. GDP growth is projected at 1.2% in 2025 (up from 0.9% previously), 1.0% in 2026, and 1.3% in 2027.

The Governing Council reiterated its commitment to maintaining inflation at 2% over the medium term, stressing a cautious, meeting-by-meeting, and data-dependent approach to policy decisions. President Christine Lagarde stated that growth risks are now more balanced and that the disinflationary phase has largely concluded.

JPN:

In September 2025, the Bank of Japan (BoJ) voted 7–2 to hold its benchmark short-term interest rate at 0.5%, keeping borrowing costs at their highest level since 2008 and aligning with market expectations. The decision came amid domestic political uncertainty, the impact of U.S. tariffs, and followed the Federal Reserve’s first rate cut since December.

At the same meeting, the BoJ announced plans to begin selling its exchange-traded fund (ETF) holdings at a pace of around JPY 330 billion per year and real estate investment trusts (REITs) at about JPY 5 billion annually, marking another step toward policy normalization.

The Board assessed that Japan’s economy continues a moderate recovery, though some sectors remain weak. Private consumption has been supported by stronger employment and income, but consumer sentiment has softened, while exports and industrial production remain subdued. Inflation has been fluctuating between 2.5% and 3.0%, largely driven by rising food prices—particularly rice. Inflation expectations have inched higher, and core CPI is projected to rise gradually in the coming months.

Inflation rate

US:

The U.S. annual inflation rate rose to 2.9% in August 2025, the highest since January, up from 2.7% in June and July, and in line with market expectations.

The pickup was driven by faster price gains in several categories:

• Food: up 3.2% year-on-year (vs. 2.9% in July)

• Used cars and trucks: up 6.0% (vs. 4.8%)

• New vehicles: up 0.7% (vs. 0.4%)

• Energy costs: increased 0.2%, marking the first rise in seven months (vs. -1.6% previously)

Within energy, gasoline (-6.6% vs. -9.5%) and fuel oil (-0.5% vs. -2.9%) recorded smaller declines, while natural gas prices stayed sharply higher (+13.8%, unchanged). Transportation services inflation held steady at 3.5%, and shelter inflation eased slightly to 3.6% from 3.7%.

On a monthly basis, the CPI increased 0.4%, the largest gain since January and above forecasts of 0.3%, mainly due to a 0.4% rise in shelter costs, which exerted the strongest upward pressure.

Meanwhile, core inflation (excluding food and energy) remained steady at 3.1% year-on-year, matching July’s rate and February’s peak. Core CPI also rose 0.3% month-on-month, in line with expectations and unchanged from the prior month.

UK:

The UK’s annual inflation rate remained unchanged at 3.8% in August 2025, holding steady from July and staying close to the highs last seen in January 2024, consistent with market expectations.

Price pressures eased in several categories:

• Transport: inflation slowed to 2.4% (from 3.2%), as airfares fell 3.5%, making the largest downward contribution.

• Services: inflation eased to 4.7% (from 5.0%).

• Recreation and culture: down to 3.2% (from 3.4%).

• Clothing and footwear: edged lower to 0.2% (from 0.3%).

• Housing and utilities: remained steady at 7.4%.

Conversely, some components saw renewed price momentum:

• Motor fuels provided the biggest upward contribution.

• Restaurants and hotels: inflation rose to 3.8% (from 3.4%).

• Food: accelerated to 5.1%, the highest since January 2024 (from 4.9%).

• Furniture and household goods: increased 0.8% (from 0.7%).

On a monthly basis, CPI climbed 0.3%, following a 0.1% rise in July, in line with expectations. Core inflation (excluding food, energy, alcohol, and tobacco) eased to 3.6% from 3.8%, also matching forecasts.

EU:

Euro area consumer inflation rose to 2.2% in September 2025, up from 2.0% in the previous three months, moving slightly above the European Central Bank’s 2% target, according to preliminary estimates.

The uptick was largely driven by a smaller decline in energy prices, which fell 0.4% year-on-year compared with a 2.0% drop in August. Services inflation inched higher to 3.2% from 3.1%, while food, alcohol, and tobacco prices increased at a slower pace of 3.0% versus 3.2% previously, as unprocessed food inflation eased. Non-energy industrial goods inflation held steady at 0.8%.

Meanwhile, core inflation—which excludes energy, food, alcohol, and tobacco—remained unchanged at 2.3%, its lowest level since January 2022, signaling continued progress in the euro area’s disinflation trend.

JPN:

Japan’s annual inflation rate eased to 2.7% in August 2025 from 3.1% in July, marking its lowest level since October 2024.

The slowdown was largely driven by energy price declines. Electricity costs fell sharply by 7.0% (vs. -0.7% in July) due to government subsidies, while gas prices dropped 2.7% after being flat previously. Education costs also continued to decline (-5.6%, unchanged from July).

Price growth moderated across several categories:

• Household items: 2.0% (vs. 2.5%)

• Healthcare: 1.3% (vs. 1.5%)

• Recreation: 2.3% (vs. 2.6%)

In contrast, inflation accelerated in:

• Housing: 1.1% (vs. 1.0%)

• Clothing: 2.9% (vs. 2.8%)

• Transport: 3.0% (vs. 2.6%)

• Communications: 7.0% (vs. 6.4%)

• Miscellaneous goods: 1.3% (vs. 1.2%)

Food prices rose 7.2%, easing from July’s five-month high of 7.6%, with the smallest increase in rice prices in eight months (still elevated at +69.7%) as authorities worked to contain staple food costs.

Core inflation (excluding fresh food) stood at 2.7%, matching expectations and marking a nine-month low. On a monthly basis, the CPI rose 0.1%, remaining flat for the third consecutive month.

Equity market

US:

U.S. equities ended the week mixed as rate-cut optimism and AI-related momentum supported gains in technology, while political uncertainty and export restrictions weighed on sentiment.

The S&P 500 slipped 0.1% on Thursday and closed flat on Friday, while the Dow Jones hit a record 46,758, and the Nasdaq eased 0.3% as the government shutdown entered its third day, delaying key economic data and reinforcing bets on further Federal Reserve rate cuts.

Technology remained the clear market leader, driven by enthusiasm around AI and semiconductor demand. OpenAI’s $6.6 billion share sale, valuing the company at $500 billion, and its partnership with South Korean chipmakers fueled gains in Nvidia (+1.4%), Broadcom (+1.9%), and AMD (+2.7%).

In contrast, health care and real estate lagged as higher financing costs and policy uncertainty pressured the sectors. Microsoft (-1.6%) and Tesla (-1.8%) fell despite strong delivery data, while Applied Materials (-2.7%) dropped after warning of a $600 million revenue hit from new semiconductor export restrictions.

Overall, equities were driven by expectations of monetary easing, resilience in tech earnings, and rotation into AI and semiconductor names, offset by shutdown-related risk aversion and export policy headwinds.

Despite the volatility, all major indexes finished higher for the week—S&P 500 +1.1%, Dow +1.0%, Nasdaq +1.3%—reflecting continued confidence in the Fed’s policy pivot and the tech-led growth narrative.

UK:

The FTSE 100 ended the week at a record high, rising 0.6% on Friday and over 2% for the week, as banks and energy stocks led gains amid optimism about corporate earnings and global rate-cut expectations.

On Thursday, the index eased slightly after a four-day rally to fresh highs. Experian (-4%) was the main drag after Fair Isaac announced a new program allowing lenders to calculate and share FICO scores directly with customers—a move Jefferies warned could reduce credit bureaus’ earnings by 10–15%. Losses were offset by strength in Tesco (+4.5%), which raised its full-year profit guidance following a 4.3% rise in first-half sales, supported by market-share gains, competitive pricing, and favorable weather. 3i Group (+4.5%) also advanced on reports of a potential £1.3 billion sale of its French IT unit Evernex.

On Friday, the rally broadened. Banks outperformed—NatWest (+2.7%), HSBC (+1.7%), and Barclays (+1.4%)—as investors priced in stronger margins and a resilient UK economy. Energy stocks also rose, with Shell (+1.2%) and BP (+0.5%) supported by firmer oil prices. Among healthcare names, AstraZeneca (+1%) gained, while GSK (-1.5%) and BAT (-1%) slipped.

In corporate developments, Princes Group announced plans for a London IPO, signaling renewed life in the UK’s listings market. The company reported 2024 revenues of £2.1 billion and adjusted earnings of £122.3 million. JD Wetherspoon reported a profit increase and 5.1% growth in like-for-like sales, though Chairman Tim Martin cautioned that energy costs could pressure margins.

Overall, the FTSE 100’s advance was driven by financials, energy, and retail strength, offsetting weakness in credit services. Sentiment was underpinned by corporate optimism, solid earnings updates, and global market resilience, even as investors monitored the U.S. government shutdown entering its third day.

EU:

European equities climbed to record highs, with the STOXX 50 and STOXX 600 each gaining around 1% over the week, supported by strength in healthcare, luxury, and autos, while technology showed mixed performance after an early surge.

Healthcare stocks led gains as Sanofi, Novo Nordisk, Merck, and UCB rose over 2%, boosted by easing concerns over potential U.S. drug tariffs and policy support for prescription affordability. Luxury brands advanced as investors monitored China’s Golden Week consumption trends—LVMH, Kering, and Hermès added 1–4%.

Earlier in the week, technology shares had rallied on AI momentum following OpenAI’s $6.6 billion share sale valuing it at $500 billion, and new partnerships with South Korean chipmakers, Hitachi, and Fujitsu (the latter teaming with Nvidia). ASML (+3.6%), Novo Nordisk (+3.2%), and Novartis (+1%) reached record levels, though the tech sector later consolidated after outsized gains.

Autos also contributed, led by Stellantis (+7%) on stronger U.S. sales and Volvo (+1.4%) on higher global deliveries.

Overall, the rally was driven by sector rotation into defensives and cyclicals, AI optimism, and improving policy clarity, while investors largely looked past the U.S. government shutdown, keeping risk appetite intact across European markets.

JPN:

The Nikkei 225 surged to record highs, rising 0.9% on Thursday and another 1.85% on Friday to 45,769, while the Topix gained 1.35% to 3,129, driven by AI optimism and a rebound in chip-related stocks.

The rally tracked Wall Street’s strength and was fueled by OpenAI’s $6.6 billion share sale valuing it at $500 billion, alongside new partnerships with Samsung, SK Hynix, and Hitachi, which boosted confidence in Japan’s role in the global AI supply chain.

Semiconductor and AI-linked stocks led gains: Tokyo Electron (+7.9% Thursday, +2.3% Friday), Advantest (+2.5%, +4.3%), SoftBank Group (+5.8%, +3.6%), and Disco (+11.7%) all advanced strongly, while Hitachi (+10.3%) rallied on reports of an OpenAI partnership.

Broader sentiment was also supported by robust capital spending, expectations of further Fed rate cuts, and resilient domestic demand, even as investors watched the upcoming LDP leadership election, which could shape Japan’s fiscal and monetary policy direction.

Overall, the market’s advance was led by tech and AI sectors, underpinned by global AI investment momentum and policy stability expectations, offsetting lingering concerns over the U.S. government shutdown.

Fixed Income market

US:

The 10-year U.S. Treasury yield slipped below 4.1% on Thursday and held at that level on Friday, ending the week 7 basis points lower as mounting growth concerns and weak labor data fueled expectations of further Fed rate cuts.

Markets increasingly priced in two additional rate cuts in 2025, as evidence of a labor market slowdown deepened. ADP payrolls declined for a second straight month—the first back-to-back drop since the Q2 2020 COVID shock—while JOLTS data showed fewer voluntary quits and the Challenger report pointed to slower hiring. Together, the data reinforced the view that the Fed’s rate-cutting cycle, restarted last month, will continue despite sticky inflation.

The ongoing U.S. government shutdown extended into its third day, threatening to halt public sector operations and delay key economic data, including the September BLS jobs report. This data blackout, combined with the ISM services PMI showing stalled activity, further weighed on sentiment and pushed investors toward Treasuries as a safe haven.

Overall, the week’s bond rally was driven by growth pessimism, labor market weakness, and heightened policy uncertainty, keeping yields anchored near multi-month lows.

UK:

The UK 10-year gilt yield climbed to 4.7%, following the uptick in U.S. Treasury yields amid global risk aversion triggered by the U.S. government shutdown, the first in nearly seven years.

On the monetary policy front, Bank of England officials signaled diverging views. Catherine Mann warned that sticky inflation risks becoming entrenched, as firms continue to pass higher wage costs to consumers, while Deputy Governor Sarah Breeden cautioned against keeping rates elevated for too long, citing growing downside risks to the economy. The BoE held rates at 4% in September, and markets do not expect cuts until 2026.

In politics, Chancellor Rachel Reeves is reportedly planning to abolish the two-child benefit cap in the November budget, a policy estimated to cost £3.5 billion annually but significantly reduce child poverty. To offset the cost, the Treasury is said to be considering tax increases, including higher gambling duties, adding another layer of fiscal uncertainty for markets.

EU:

The German 10-year Bund yield hovered around 2.7%, its highest in months, as investors balanced signs of persistent Eurozone inflation against expectations of further Fed rate cuts in the U.S.

Eurostat confirmed that Eurozone inflation accelerated to 2.2% in September from 2.0% in August, slightly above the ECB’s 2% target, mainly due to a smaller drop in energy prices. In Germany, both national and harmonized CPI rose 2.4%, exceeding forecasts and reinforcing the view that the European Central Bank will delay any rate cuts. ECB Vice President Luis de Guindos reiterated that current rates are “adequate” and that future decisions will be taken “meeting by meeting.”

At the same time, PMI data signaled continued economic weakness across the Eurozone, contrasting with the Federal Reserve’s expected two 25-basis-point cuts later this year. On the supply side, Germany’s latest 10-year Bund auction saw weak demand with a bid-to-cover ratio of 1.2, matching the year’s lows.

Overall, Bund yields remained elevated as markets priced in sticky inflation, limited ECB easing, and increased fiscal issuance, even as U.S. policy divergence and softening global growth capped further upside.

JPN:

The Japanese 10-year government bond yield fluctuated near 1.65%, easing early in the week before rebounding to its highest level since 2008, as investors reassessed the Bank of Japan’s policy outlook and upcoming political developments.

Early weakness came after the BoJ’s September Summary of Opinions revealed a split among policymakers—some advocating for further rate hikes if growth and inflation stay on track, while others urged caution given the drag from U.S. tariffs. Market pricing suggested about a 40% chance of a quarter-point hike at the next meeting.

Later in the week, yields rose again after Governor Kazuo Ueda reaffirmed that rates will increase if economic and price trends meet forecasts, signaling continued policy normalization. Supporting that outlook, business sentiment among large manufacturers hit its strongest level since late 2024, even as risks from tariffs persist.

Meanwhile, Japan’s unemployment rate climbed to 2.6% in August (a 13-month high), hinting at slack in the labor market, while investors turned their focus to the LDP leadership election this weekend, which will determine the next prime minister and shape fiscal and monetary policy direction.

Overall, yields reflected a tug-of-war between expectations for gradual tightening and lingering global and domestic risks, keeping markets cautious ahead of key data and political outcomes.

Commodities

• Gold prices soared to record highs as the U.S. government shutdown rattled markets, delaying key economic data and spurring safe-haven demand. Spot gold climbed to $3,894, while futures reached $3,923, with investors seeking refuge amid rising political uncertainty, sticky inflation, and global instability. Analysts said the rally could extend beyond $4,000, suggesting this may mark the beginning of a new gold bull cycle, supported by monetary easing expectations and persistent risk aversion.

  
  

• WTI crude oil ended the week near $60.90 per barrel, rebounding 0.7% on Friday after four straight sessions of losses but still down 7% for the week, pressured by rising supply expectations and global risk aversion.

  Prices fell to a four-month low of $60.5 earlier in the week as markets braced for OPEC+ to approve a larger November output hike of up to 500,000 bpd, with Saudi Arabia pushing to regain market share. A Bloomberg survey showed OPEC output rose in September after Riyadh restored previously suspended production. The market was further weighed by rising U.S. crude and gasoline inventories and the resumption of Kurdish oil exports via Turkey’s Ceyhan terminal.

  Geopolitical risks briefly lifted prices Friday as President Trump warned of severe action if Hamas rejects his peace plan, while reports of a Ukrainian strike on Russia’s Orsk refinery fueled concerns about supply disruptions. Still, these tensions were outweighed by expectations of higher OPEC+ output, ample inventories, and the U.S. government shutdown, which deepened risk-off sentiment.

  Overall, the oil market remained under pressure from oversupply signals and weak demand sentiment, with only China’s reserve buying offering limited support amid fears of a broader Middle East escalation.

FX

USD

The U.S. dollar strengthened over midweek trading, rebounding from early losses triggered by the government shutdown. The dollar index rose to 98 on Thursday, up from 97.79 on Wednesday, snapping a four-day losing streak as investors reassessed the economic impact of the funding impasse and positioned for further Fed rate cuts.

The recovery was supported by better-than-expected data and an 80% market-implied probability of another quarter-point Fed cut in December, even as the ongoing shutdown delayed key releases like weekly jobless claims and the September nonfarm payrolls report.

President Trump’s threat to cut federal jobs to pressure Democrats heightened political risk, but traders largely focused on rate expectations and relative growth dynamics. The greenback advanced against the euro, pound, and Canadian dollar, though analysts warned it remains vulnerable to prolonged political uncertainty—historically a factor that boosts safe-haven currencies such as the yen.

Overall, the dollar’s rebound reflected a balance between short-term rate cut expectations and safe-haven flows, with the market cautious about further volatility if the shutdown persists.

GBP/USD

The British pound rose to $1.347 on Wednesday, extending its four-day winning streak, the longest since August, as U.S. dollar weakness—driven by the ongoing government shutdown—supported sterling.

The move also reflected confidence in the Bank of England’s steady policy stance, with markets not expecting rate cuts until 2026 after the BoE held rates unchanged in September. However, policymakers remained divided: Catherine Mann warned that sticky inflation is becoming entrenched as firms pass on higher wage costs, while Deputy Governor Sarah Breeden urged caution against keeping rates elevated too long, citing growth risks.

On the fiscal side, investors looked for clarity after Chancellor Rachel Reeves reaffirmed her commitment to fiscal discipline at the Labour Party conference, signaling adherence to existing fiscal rules and hinting at potential tax increases in November’s budget.

Overall, sterling’s strength was driven by a weaker dollar, steady BoE policy expectations, and improved fiscal credibility, though lingering inflation and growth concerns kept gains in check.

EUR/USD

The euro held just above $1.17 on Friday, remaining close to its four-year high of $1.192, as investors weighed the widening policy divergence between the European Central Bank and the U.S. Federal Reserve.

Fresh Eurostat data confirmed that Eurozone inflation accelerated to 2.2% in September from 2.0% in August, slightly above the ECB’s 2% target, reinforcing expectations that policymakers will delay rate cuts. ECB Vice President Luis de Guindos reiterated that current rates are “adequate” and that policy decisions will continue to be made “meeting by meeting.”

By contrast, the U.S. dollar weakened as the Fed is expected to deliver two 25-basis-point cuts in its final meetings of the year, following disappointing ADP employment data that signaled a softening labor market. Ongoing concerns about the U.S. government shutdown further weighed on sentiment.

Overall, the euro’s strength reflected monetary policy divergence, sticky Eurozone inflation, and dollar weakness tied to slowing U.S. growth and heightened political uncertainty.

JPN/USD

The Japanese yen weakened to around 147.5 per dollar on Friday, retreating from a two-week high as investors turned cautious ahead of the Liberal Democratic Party leadership vote this weekend, which will determine Japan’s next prime minister and guide future fiscal and monetary policy.

The leadership race—focused on household relief versus fiscal restraint—added political uncertainty to already mixed economic signals. Data showed Japan’s unemployment rate rose to 2.6% in August, the highest in 13 months and above expectations of 2.4%, suggesting emerging labor market softness.

Meanwhile, uncertainty persisted over the timing of additional Bank of Japan rate hikes, as Governor Kazuo Ueda reiterated that policy tightening will continue if growth and inflation progress as forecast.

Overall, the yen’s pullback reflected political uncertainty, moderating domestic data, and divergence in global monetary policy, with investors awaiting clearer direction from both the BoJ and Japan’s new leadership.

Source: CNBC, Bloomberg, FTnews, TradingEconomics and Reuters.

Disclaimer

The content on this website is for general informational purposes only and does not constitute financial advice. No liability is accepted for any loss or damage arising from reliance on the information provided.