Global Markets Weekly Update

U.S.

Most U.S. equity indexes finished the holiday-shortened week higher. Stock indexes were generally up through Thursday and opened higher Friday morning following the release of some weaker-than-expected labor market data, which fueled hopes that the Federal Reserve would lower short-term interest rates at its next meeting. However, sentiment shifted later in the day and stocks gave back their early gains, due in part to fears that rate cuts may not be enough to boost economic growth. 

The Nasdaq Composite finished the week 1.14% higher, supported by shares of Apple and Google parent Alphabet, which both rose in the wake of an antitrust ruling that some investors viewed as less severe than expected. Smaller-cap stocks, which can be more sensitive to interest rate movements than larger companies, also advanced for the week. The S&P 500 Index added 0.33%, while the Dow Jones Industrial Average lost 0.32%.  

September rate cut probability rises on weak labor market data

The week’s economic calendar brought several reports that painted a bleak picture of the health of the U.S. labor market, the most notable of which came on Friday morning from the Labor Department’s nonfarm payrolls report. The closely watched report revealed that U.S. employers added just 22,000 jobs in August, a sharp decline from July’s revised figure of 79,000 and well below estimates for around 77,000. June’s figure was also revised down from a gain of 14,000 to a loss of 13,000, the first negative monthly reading since December 2020. August’s unemployment rate also ticked up to 4.3%, the highest since 2021. 

Private payrolls firm ADP’s employment report indicated a similar trend, showing that private employers added 54,000 jobs in August, down from the prior month’s reading of 106,000 and below estimates for around 80,000. Meanwhile, the Labor Department reported that July job openings fell to the lowest level since September 2024 (7.18 million), while the number of unemployed Americans exceeded the number of job openings for the first time since 2021.

As of Friday afternoon, futures markets tracked by the CME FedWatch tool were pricing in a 100% chance of at least a 25-basis-point (0.25 percentage point) rate cut at the Fed’s next meeting, while the probability of a 50-basis-point cut rose from 0% to about 10% following Friday’s jobs report. Treasury yields—which had generally trended lower throughout the week—also decreased sharply on Friday, pushing the yield on the benchmark 10-year U.S. Treasury note to the lowest level since early April.

Manufacturing activity shrinks for sixth straight month; services sector expands

In other economic news, the Institute for Supply Management (ISM) reported that economic activity in the U.S. manufacturing sector contracted for the sixth consecutive month in August, albeit at a slower rate than in July. The ISM’s Manufacturing Purchasing Managers’ Index (PMI) came in at 48.7% for the month, up from July’s reading of 48% but below estimates for around 49.1% (readings below 50% indicate contraction). Growth in new orders drove the month-over-month improvement, with the New Orders Index rising 4.3 percentage points to 51.4%. 

Meanwhile, the ISM’s Services PMI indicated expanding activity in the sector in August, climbing to 52% from 50.1% in the prior month. The month-over-month rise was “driven by faster expansion rates for the Business Activity and New Orders indexes,” according to Steve Miller, chair of the ISM Services Business Survey Committee. Price growth moderated slightly but remained elevated across both the manufacturing and services sectors.

Europe

In local currency terms, the pan-European STOXX Europe 600 Index ended 0.17% lower amid concerns about global growth after weak U.S. jobs data and a stronger euro. Major stock indexes were mixed. Italy’s FTSE MIB gave up 1.39%, France’s CAC 40 Index slipped 0.38%, and Germany’s DAX fell 1.28%. The UK’s FTSE 100 Index, on the other hand, added 0.23%.

Euro area inflation stays close to target

Headline inflation in the eurozone ticked up in August to 2.1%, staying close to the European Central Bank’s (ECB’s) 2% medium-term inflation target. The core rate, which excludes food, energy, alcohol, and tobacco prices, was stable at 2.3%, as expected by analysts polled by FactSet. Services price inflation—keenly watched by ECB decision-makers—slowed to 3.1% from 3.2% in July.

Comments made by ECB policymakers mainly reinforced the view that interest rates would remain unchanged in September and for some time after that. Most economists polled by Reuters and Bloomberg think that the central bank has now reached the end of policy easing, thanks to a benign outlook for inflation and a resilient economy.

Eurozone labor market resilient; retail sales softer

Unemployment in the bloc eased to 6.2% in July from 6.3%, a low last hit in November 2024. Other data showed that retail sales volumes declined in July by 0.5% sequentially. However, June’s increase was revised higher to 0.6% from 0.3%.

UK housing market settling down; BoE’s Bailey: “doubts” about more rate cuts

UK banks and building societies in July approved 65,352 mortgages, exceeding forecasts. However, house prices sent mixed signals. The Nationwide Building Society’s index unexpectedly fell in August by 0.1%, after rising 0.5% in July, while Halifax, another leading home loans provider, said prices rose 0.3% in August compared with 0.4% the previous month.

Bank of England (BoE) Governor Andrew Bailey warned at a hearing before a Parliamentary committee that there is “considerably more doubt” about further reductions in interest rates. He said that the risks of inflation going up had risen and that he was “more concerned” about labor market weakness. At the same meeting, Deputy Governor Clare Lombardelli said that the key rate may need to settle only slightly below the current level of 4% due to persistent price pressures.

Japan

Japan’s stock markets rose over the week, with the Nikkei 225 Index gaining 0.70% and the broader TOPIX Index up 0.98%. Japanese auto shares were boosted by the U.S. officially implementing a trade deal with Japan reached in July, which caps tariffs on most Japanese goods, including autos, at 15%. In exchange for lower tariffs, Japan agreed to investments of USD 550 billion in the U.S., as well as granting U.S. producers greater access to many of its markets, including for rice and other agricultural products.  

The yield on the 10-year Japanese government bond (JGB) fell to 1.57% from 1.61% at the end of the previous week. The JGB yield hovered near 17-year highs midweek on political uncertainty, with Prime Minister Shigeru Ishiba facing calls to step down. The yen weakened to around JPY 148 against the U.S. dollar, from about JPY 147 at the end of the prior week.

Real wage growth turns positive

Speculation continued about the timing of the Bank of Japan’s (BoJ’s) next interest rate increase, with the latest wage growth data regarded as supporting the case for a hike in the near term, possibly as early as October, according to some economists. Nominal wages grew 4.1% year on year in July, ahead of consensus estimates of 3.0% growth and up from 3.1% in June, while real (inflation-adjusted) wage growth turned positive over the month for the first time this year. BoJ Deputy Governor Ryozo Himino continued to assert that the central bank will raise interest rates if prices and the economy develop in line with its forecasts. He said that while underlying inflation is still below the central bank’s 2% target, positive wage-price dynamics are anticipated to remain in place, eventually pushing inflation to target. 

China

Mainland Chinese stock markets declined as investors pocketed gains after a recent rally. The onshore benchmark CSI 300 Index fell 0.81% and the Shanghai Composite Index fell 1.18% in local currency terms, according to FactSet. In Hong Kong, the benchmark Hang Seng Index added 1.36%. 

China’s stock markets have surged since April, largely due to domestic liquidity rather than strong corporate earnings or an improving economy. The CSI 300 surged 10% in August, its best performance since a policy-driven rally last September, and it has climbed more than 20% from this year’s low. Average turnover volume rose to a record high in August, while the outstanding amount of margin trades rose to a record last week, Bloomberg reported, suggesting a strong appetite for risk-taking among retail investors.  

Optimism about China’s advances in artificial intelligence and a government-led “anti-involution” campaign to cut overcapacity and discourage price wars in various industries have fueled sentiment. Analysts have also attributed recent gains to cash-rich households seeking higher returns amid low interest rates and a lack of compelling investment options. However, economic indicators have pointed to a broad slowdown in China’s economy, which is struggling with the threat of higher U.S. tariffs, a yearslong property downturn, and persistent deflation. Many economists believe that data in the coming months will confirm China’s growth slowdown and lead officials to roll out more stimulus to protect the economy amid the U.S.-sparked trade war.

Other Key Markets

Malaysia 

Rates on hold amid contained inflation 

On Thursday, the Malaysian central bank’s Monetary Policy Committee held its scheduled meeting and decided to keep the key interest rate, the Overnight Policy Rate (OPR), at 2.75%.

According to their post-meeting statement, policymakers expect “continued expansion in global growth” and noted that the “conclusion of many trade negotiations has to some extent eased global uncertainty.” However, they also expect “trade policy developments…to weigh on global growth going forward.”

In Malaysia, central bank officials believe that the economy will expand between 4.0% and 4.8% for the full year, having expanded 4.4% in the first half of 2025. In addition, they anticipate that economic growth “will continue to be supported by resilient domestic demand.” Inflation, meanwhile, seems to be well contained, thus necessitating no adjustment to the OPR. Policymakers noted that headline and core inflation averaged 1.4% and 1.9%, respectively, in the first seven months of 2025. They believe that headline inflation will “remain moderate amid contained global cost conditions” and that core inflation will “remain stable and close to the long-term average, reflecting…the absence of excessive demand pressures.” 

Poland 

Policymakers reduce rates again as inflation decelerates 

On Tuesday and Wednesday, Poland’s central bank held its two-day monetary policy meeting, and policymakers decided to reduce the key interest rate, the reference rate, by 25 basis points (0.25%), from 5.00% to 4.75%. Other interest rates controlled by the central bank were also reduced by 25 basis points. This action follows on the heels of an unexpected rate cut in early July.

According to the post-meeting statement, Polish economic growth accelerated from a year-over-year rate of 3.2% in the first quarter to a year-over-year rate of 3.4% in the second quarter—primarily due to a “faster rise in consumption.” However, annual consumer price index inflation fell from 3.1% in July to 2.8% in August, and policymakers estimated that inflation “net of food and energy prices declined” in August. This was their justification for reducing interest rates again.