Global Markets Weekly Update

U.S.

The S&P 500 Index shrugged off concerns about inflation and rising interest rates to finish higher. Strength was concentrated in information technology and communication services, which benefited from the excitement surrounding the strong uptake of Meta Platforms’ consumer artificial intelligence (AI) agent and what the rise of agentic AI could mean for computing infrastructure demand. Utility stocks lost ground on concerns about higher interest rates. The energy sector also lagged. Growth stocks outperformed value in the large-cap universe. The small-cap Russell 2000 Index pulled back.

U.S. business activity accelerates at fastest pace in more than five years

Early readings for S&P Global’s U.S. purchasing managers index (PMI) indicated that economic activity in September expanded for a fourth consecutive month. Composite PMI, which encompasses services and manufacturing output, increased to 58.4 from 58.0 in August, hitting a 62-month high. (PMI readings greater than 50 indicate an increase in business activity.) This acceleration was driven by strong growth in services PMI, which climbed to 58.7 from 56.5 in August, hitting a 59-month high. Strength in manufacturing also contributed, with PMI jumping to 57.0 from 53.9 in the preceding month. Production growth hit its fastest pace since April 2022, while new orders increased at a rate not seen in almost 4.5 years. According to S&P Global, historical data suggest that the composite PMIs registered in the third quarter would imply an economic expansion of about 4%. Average input costs for goods and services, however, surged to the highest rate since October 2022.   

Inflation worries pressure bonds

Signs of acceleration in the U.S. economy, combined with hawkish comments on monetary policy from several Federal Reserve officials during the week, spurred expectations that inflationary pressures would necessitate further interest rate increases. Rumblings during the week that the Trump administration might seek to restrict diesel exports from the U.S. likewise stoked inflation concerns.

These worries and weak participation from foreign buyers resulted in a September 23 auction of five-year U.S. Treasury bonds pricing at a clearing yield of 5.033%—the highest level since 2006 and more than 3 basis points above expectations. (A basis point is 0.01 percentage point.) The U.S. Treasury Department’s auction of USD 44 billion worth of seven-year notes the next day likewise involved yields that were 7 basis points higher than where the bonds traded before the deal. These premiums stand out, as the depth of the market means that Treasury bond sales typically have involved minimal price disruption. 

The resulting rout in bond prices was widespread. Selling pressure in Treasuries was more pronounced in the belly and long end, steepening the curve. Yields on 30-year Treasuries climbed above 5.5%—the highest level since 2004—and 10-year U.S. government debt on Thursday peaked above 5.2%. Credit spreads widened in U.S. investment-grade corporates and the U.S. high yield universe.

However, the leveraged loan market remained active and constructive throughout the week, as a continuing repricing wave and active primary market underscored robust demand. The sector attracted meaningful inflows, as floating rate assets benefited from rising expectations for rate hikes.

Unemployment comes in below expectations

New filings for unemployment benefits totaled 197,000 for the week through September 19, coming in below a consensus estimate of 201,000 jobless claims. Continuing claims numbered 1.72 million for the seven days ended September 12—below expectations for 1.75 million.

 

Europe

The pan-European STOXX Europe 600 Index ended the week up 0.50% in local currency terms. In terms of the factors driving markets, it was a tug-of-war between signs of improving European growth and optimism around AI and concerns that high energy prices and resilient economic data could prompt the European Central Bank to tighten monetary policy further. Among major stock indexes, Germany’s DAX closed 0.41% higher, France’s CAC 40 Index rose 0.16%, and Italy’s FTSE MIB gained 0.62%. The UK’s FTSE 100 Index climbed 0.34%.

Indications of improving economic conditions in the eurozone

Flash data released on Wednesday showed the eurozone composite PMI rising to 53.1 in September from 52.0. This reading was comfortably above expectations. On an individual country basis, Germany’s PMI strengthened, while business activity in France returned to growth for the first time in 10 months. The survey also showed input costs and selling prices increasing at their fastest pace in four months, reinforcing concerns about persistent inflation pressures. 

German business confidence rises; consumer sentiment weakens

Germany's Ifo Business Climate Index rose to 89.9 in September from 88.8 in August, its fifth consecutive increase and highest reading since May 2023. Both assessments of current conditions and expectations improved.

Conversely, the forward-looking NIM Consumer Climate Indicator for October fell sharply to -30.6 from a revised -26.8 for the previous month—considerably weaker than the roughly -27 consensus and suggesting renewed pressure on German households.

Signs of slowing economic activity in UK

The Confederation of British Industry retail sales balance fell to -55 in September from -48 in August, while orders placed with suppliers declined at the fastest rate since the survey began in 1983.

Other data suggested that business activity slowed in the country this month, with the flash composite PMI falling to 51.7 in September from 52.5, reflecting a weakening in services growth. Manufacturing was more resilient, with its PMI rising to 52.0. Input cost inflation accelerated, partly reflecting higher fuel costs.

Japan

Japanese equities traded for only two sessions during the week ended September 25, with markets closed from Monday through Wednesday for national holidays. The Nikkei 225 Index rose 2.07%, while the broader TOPIX Index was up 0.92%. Gains were led by AI- and semiconductor-related shares, with Japanese markets reflecting the earlier strength in U.S. technology stocks during the holiday closure. On Friday, buying broadened to banks, as rising bond yields improved the earnings outlook for lenders. 

Government bond yields rise

The yield on the 10-year Japanese government bond rose to around 3.09% from about 2.99% at the end of the previous week. Yields climbed as Japanese bonds tracked a sell-off in U.S. Treasuries, while yen weakness added to domestic inflation concerns. The Bank of Japan’s (BoJ’s) September 18 decision to raise interest rates was broadly viewed as less hawkish than expected, reflecting two dissenting votes and limited guidance on the next policy move. However, BoJ Governor Kazuo Ueda kept the prospect of further tightening in focus by emphasizing upside inflation risks and leaving the door open to additional rate increases. 

Currency intervention watch

The yen weakened modestly over the week, moving beyond JPY 158 against the U.S. dollar before strengthening on Friday as investors remained on alert for an intervention to prop up the Japanese currency. Finance Minister Satsuki Katayama said that concerns about an undervalued yen had been highlighted during Prime Minister Sanae Takaichi’s talks with U.S. President Donald Trump, reinforcing expectations that authorities remained sensitive to further depreciation and that Japan and the U.S. would continue close communication on foreign exchange matters. According to reports, Japanese authorities had conducted a “rate check” on September 18, asking market participants for prevailing exchange rate levels—a step often interpreted as signaling possible intervention.

Growth in business activity slows

PMIs compiled by S&P Global showed continued private sector expansion in September, although the pace eased. The composite PMI fell to 52.5 from 53.5 in August; the manufacturing PMI slipped to 54.1 from 54.9; and the services PMI dipped to 51.6 from 52.5. Manufacturing remained the main driver of growth, supported by a weaker yen and a further rise in goods exports. Supplier delays linked to the Middle East conflict contributed to continued inflationary pressures.

China

China equities declined over the week, with mainland growth shares and Hong Kong technology stocks among the weaker areas. Mainland markets were closed on Friday for the Mid-Autumn Festival. Through Thursday’s close, the CSI 300 Index fell 1.51%, and the Shanghai Composite Index declined 0.60% week over week in local currency terms. The Hang Seng Index fell 0.97% through Friday’s close, according to FactSet. Mainland markets began the week higher, supported by health care, property, and selected technology shares, but reversed as growth stocks weakened, U.S. Treasury yields remained elevated, oil prices stayed high, and expectations for a broader breakthrough in U.S.-China talks diminished. Thursday’s sell-off deepened mainland losses, while Hong Kong extended the weakness on Friday as the Hang Seng fell 1.01% and the Hang Seng Tech Index declined 1.1%, with artificial intelligence-related, auto, and gaming shares among the laggards.

U.S. and China extend trade truce to January

The U.S. and China agreed to extend their existing trade truce by two months to January 10, 2027, preserving the current framework while negotiations continue. Reuters and Bloomberg reported that Washington continued to press Beijing over implementation of existing trade commitments, including agricultural purchases and flows of rare earths and other critical minerals. 

Other key markets

South Korea

AI chip demand and rate expectations supported South Korean markets

South Korean equities advanced over the holiday-shortened week, outperforming much of the region as technology shares benefited from continued optimism around global AI investment and semiconductor demand. Strong early September export data reinforced the positive backdrop, with chip shipments remaining the main driver of trade growth and underscoring the continued strength of South Korea’s export-oriented technology sector. The won also strengthened against the U.S. dollar.

Local bonds gained as investors appeared to increase expectations that the Bank of Korea  could pause its recent tightening cycle at its October meeting. The central bank raised its policy rate by 25 basis points to 3.0% in August, its second consecutive increase, amid firm underlying inflation and stronger-than-expected economic growth. Meanwhile, South Korea continued efforts to improve foreign access to its financial markets, beginning a trial of a 24-hour won settlement system ahead of broader reforms planned for next year.

Hungary

Central bank lowers inflation target and EU funding outlook improves

The National Bank of Hungary  left its benchmark interest rate unchanged at 5.50% following a series of cuts and lowered its medium-term inflation target to 2.5% from 3.0%, effective in 2028. The central bank said inflation is expected to rise to 3.1% in 2027, partly reflecting higher energy prices. Policymakers also emphasized that elevated energy prices and uncertainty in global financial markets warrant a cautious, data-dependent approach.

Fiscal and European Union (EU)-related developments also remained in focus. The European Commission proposed unfreezing EUR 4.2 billion of cohesion funding following steps by Prime Minister Peter Magyar's government to address rule-of-law concerns. The proposal, which still requires approval from EU member states, follows the unlocking of EUR 10 billion of recovery funding earlier this year and would leave Hungary with access to most of the roughly EUR 17 billion previously frozen. Zoltan Kurali, the deputy governor in charge of monetary policy, indicated that another rate cut remains possible this year if progress toward euro adoption improves Hungary’s fiscal and external backdrop. Kurali also emphasized that volatile energy prices and global bond yields warrant caution.