Weekly Market Recap

The UK

Revised data showed that the UK economy expanded 0.5% in the second quarter, slightly stronger than the previous estimate of 0.4%, with services remaining the principal driver of growth. Still, elevated gilt yields continued to create a challenging backdrop for rate-sensitive sectors and kept attention on borrowing costs and the fiscal policy outlook. The S&P Global UK Manufacturing PMI rose to 51.9 in September. This was higher than the 51.7 registered in August.

Europe

Oil and interest rates continued to strongly influence European equities. Brent crude moved above USD 108 per barrel early in the week as hopes for progress in US-Iran negotiations faded, reinforcing inflation concerns and pushing sovereign borrowing costs higher. Oil subsequently eased as crude flows through the Strait of Hormuz improved. Bond yields, however, remained elevated, suggesting that concerns about inflation, real rates, and fiscal sustainability extended beyond movements in energy prices alone.

September inflation readings generally surprised to the upside, reinforcing expectations that the European Central Bank may need to keep monetary policy restrictive. Annual inflation in the eurozone accelerated to 3.8% in September, up from 3.2% in August and above the 3.6% expected. Inflation accelerated to 3.3% in Germany, 3.0% in France, 4.9% in Spain, and 4.1% in Italy. Inflation data added to pressure on bond markets and rate-sensitive areas of the equity market.

France became an increasingly important source of country-specific risk. The government presented a 2027 budget aimed at reducing the fiscal deficit to 5% of GDP, but uncertainty over parliamentary approval renewed investor concerns about public finances. French borrowing costs rose sharply. The S&P Global France Manufacturing PMI slipped to 50.6 in September, down from 51.1 the previous month.

China

Chinese authorities rolled out a fresh raft of policy support to reverse a months-long moderation in economic momentum, after the State Council pledged to introduce “practical and effective additional policies.” Key measures included subsidies on mortgage interest payments for qualified first-time homebuyers. Beijing also unveiled steps to encourage banks to increase lending to targeted sectors. The People’s Bank of China cut the interest rate on its pledged supplementary lending (PSL) facility, which provides low-cost financing to selected policy banks to fund investment, while expanding the sectors eligible for PSL financing. The central bank also increased the quota for its relending programme supporting technological innovation upgrading.  

Overall, the measures represent China’s biggest stimulus package since 2024 and could help ensure the achievement of the 4.5% to 5% economic growth target this year. However, some market participants felt that the measures may not be sufficient to address the economy’s structural imbalances of sluggish domestic demand and growing export reliance. 

China’s official manufacturing PMI increased to 50.1 in September from 49.8 in August, returning to expansion for the first time in three months. Production accelerated at its fastest pace this year, helping to offset a modest moderation in the pace of new order growth. The improvement was also reflected in the private sector RatingDog manufacturing PMI, which climbed to a five-month high of 52.1 in September from 51.5 in August as output and new orders both rose. 

Outside manufacturing, the official nonmanufacturing PMI rose to 50.2 in September from 49.0 in August. The services sector returned to growth, while construction activity expanded for the first time in 2026. Meanwhile, the RatingDog services PMI came in at 51.6 in September, up from 51.4 in August, driven by stronger new business inflows.  

Japan

The Bank of Japan (BoJ)’s Summary of Opinions from its September monetary policy meeting, where the central bank raised its policy rate to its highest level since 1995, highlighted differing views over the pace of further tightening. One board member argued that the central bank may need to accelerate rate hikes if signs of an upward deviation in prices emerge, while another favoured bringing the policy rate closer to its approximate goal relatively soon. A more cautious view, however, was that underlying inflation was expected to reach 2% without accelerating at a pace that risked leaving the BoJ behind the curve, meaning there was no need to take hasty action. As the discussion tempered expectations for an immediate follow-up hike in October, the yield on the 10-year Japanese government bond remained elevated but ended the week broadly unchanged at 3.08%. 

The yen traded around JPY 157 against the US dollar for much of the week. Finance Minister Satsuki Katayama reiterated that the currency’s undervaluation was problematic and said that Japan and the US would strengthen cooperation on foreign-exchange matters. Prime Minister Sanae Takaichi later said she had raised similar concerns with US President Donald Trump, while emphasising that stronger growth and competitiveness would help underpin confidence in the yen. 

The BoJ’s September Tankan survey showed that sentiment among large manufacturers improved to +24 from +22 in June, although this was slightly below the +25 market consensus, while sentiment among large nonmanufacturers eased to +35 from +37. Separate data showed that Tokyo-area consumer inflation accelerated sharply in September, reinforcing expectations that the BoJ is likely to tighten policy further. The core consumer price index rose 2.7% YoY, up from 1.8% in August and above consensus, while inflation excluding fresh food and energy rose to 3.0% from 2.0%. Elsewhere, industrial production fell 1.7% month-over-month (MoM) in August, against expectations for an increase, highlighting some underlying weakness in activity.

Australia

The Reserve Bank of Australia (RBA) unanimously raised the cash rate by 25bps to 4.60% on Tuesday, a 15-year high. The Board statement maintained a hawkish tone, focusing on addressing upside inflation risks and leaving the door open to further hikes. Australia's headline CPI increased by 0.42% MoM in August, with YoY growth accelerating 52bps to 3.97%, broadly in line with expectations. The closely watched trimmed mean CPI rose 0.2% MoM and 3.6% YoY, matching the prior month. Household spending was flat in August, following three consecutive gains of near 1.0% MoM or higher. Annual growth eased to a still strong 6.8% YoY.  Australia's goods trade balance narrowed by AUD 0.9 billion to AUD 0.5 billion in August, below expectations. Residential building approvals fell 6.1% MoM in August, below expectations. National house prices fell 1.1% MoM in September, extending the downturn to six consecutive months and leaving values 5.2% below their March peak.

Canada

The Bank of Canada is navigating a policy dilemma, with Deputy Governor Toni Gravelle acknowledging vigorous internal debate over how to balance trade war headwinds against rising inflationary pressures from elevated energy prices, while the central bank also eased short-term funding market strains. Statistics Canada's preliminary data showed GDP expanded just 0.2% in August following flat growth in July, signalling a marked third-quarter slowdown after a strong spring, though retail sales are estimated to have rebounded 1.3% in August.