As the week draws to a close, market participants remain attentive to shifting inflation dynamics, monetary policy moves, and indicators of economic strength across major regions. Below is an overview of the key developments shaping the U.S., European, and Asian markets.
United States -Stocks rise despite government shutdown
U.S. equity markets advanced over the week, brushing off concerns about the partial government shutdown that began Thursday after lawmakers failed to reach a funding agreement. In a “bad news is good news” environment, investors appeared to interpret weaker labor data as increasing the likelihood of an interest rate cut at the Federal Reserve’s upcoming October meeting.
The Nasdaq Composite led gains as technology and growth stocks outperformed, while the small-cap Russell 2000 Index rose sharply on expectations that lower borrowing costs would particularly benefit domestic-focused companies. The S&P 500 also finished higher, supported by optimism surrounding easing monetary policy.
Commodity markets told a mixed story. West Texas Intermediate (WTI) crude oil prices fell more than 7% after OPEC+ indicated it would raise output in November. Gold, on the other hand, climbed over 3%, extending its impressive year-to-date rally, while copper surged 7%, signaling potential resilience in industrial demand.
With government data releases halted by the shutdown, markets turned to private indicators for clues about the economy’s health. Payroll provider ADP reported a surprising 32,000 job losses in September—far below expectations for job gains—fueling expectations for Fed rate cuts. However, several Fed officials maintained a cautious tone. Chicago Fed President Austan Goolsbee warned of persistent services inflation, while Dallas Fed’s Lorie Logan suggested a slower path to policy normalization.
In fixed income, U.S. Treasury yields fell across the curve as weak employment and consumer confidence reports boosted demand for safe-haven assets. Corporate and municipal bonds also performed well, supported by steady issuance and strong investor appetite.
Europe – European markets rally on rate-cut optimism
European equities advanced strongly, with the STOXX Europe 600 Index climbing nearly 3% to record levels amid expectations that lower U.S. interest rates could ease global financial conditions. All major markets joined the rally: Germany’s DAX rose 2.7%, France’s CAC 40 gained 2.7%, and the UK’s FTSE 100 added 2.2%. Technology stocks were among the top performers, mirroring trends in the U.S.
Inflation in the eurozone picked up slightly, with headline prices rising 2.2% year-over-year in September, compared with 2.0% in August. Core inflation, which excludes food and energy, remained steady at 2.3%. European Central Bank (ECB) President Christine Lagarde described inflation risks as “quite contained” and said the ECB’s 2% policy rate leaves room to respond to future economic shocks if needed.
The eurozone unemployment rate inched up to 6.3%—still near record lows—reflecting minor weakness in labor markets. Meanwhile, consumer confidence improved for a second consecutive month, signaling cautious optimism among households.
In the UK, housing activity cooled modestly over the summer. Mortgage approvals slipped slightly in August, ending a three-month streak of increases. Yet, the Nationwide Building Society reported a 0.6% monthly rise in house prices, suggesting underlying demand remains resilient despite elevated borrowing costs.
Overall, the European outlook remains balanced: slowing inflation supports the case for gradual monetary easing, while consumer sentiment shows tentative signs of recovery.
Asia and Other Markets – Japan steady; China’s Golden Week boosts optimism
In Asia, Japanese equities posted mixed results. The Nikkei 225 Index gained nearly 1%, driven by technology shares tied to artificial intelligence developments, while the broader TOPIX Index edged lower. The yen strengthened to JPY 147.3 per U.S. dollar as markets adjusted to expectations of slower U.S. rate hikes.
The Bank of Japan maintained its cautious stance, signaling that another rate increase remains likely before year-end if economic conditions align with forecasts. Governor Kazuo Ueda noted that while U.S. trade tensions have weighed on exporters, Japan’s overall economy remains stable. Yields on 10-year Japanese government bonds rose slightly to 1.67%. In China, markets rose during a shortened trading week ahead of the National Day and Mid-Autumn Festival holidays. The Shanghai Composite and CSI 300 indices gained modestly, while Hong Kong’s Hang Seng Index surged nearly 4%. The eight-day “Golden Week” holiday typically provides a boost to domestic consumption as millions travel and spend, offering a barometer for China’s consumer-driven recovery efforts.
Economic data showed mixed signals. The manufacturing Purchasing Managers’ Index (PMI) improved to 49.8, still below the expansion threshold of 50, marking the sixth consecutive month of contraction. Meanwhile, the non-manufacturing PMI slipped to 50, indicating softer growth in services and construction. Analysts remain watchful for signs of renewed momentum following a strong first half of the year.
Across Asia, investors remain focused on policy cues and domestic demand trends as key drivers for the final quarter of 2025.
Looking Ahead –
As investors navigate shifting economic data and policy expectations, global markets continue to demonstrate resilience, with cautious optimism prevailing as the final quarter of 2025 unfolds.By Bas Kooijman, CEO and Asset Manager at DHF Capital S.A.
