By Bas Kooijman, CEO and Asset Manager of DHF Capital SA.
This edition covers the Federal Reserve’s first rate cut of the year, diverging monetary policies across Europe, and key developments in Asia and China that continue to shape the investment landscape.
U.S. Markets – Fed Delivers First Rate Cut of the Year
U.S. financial markets rallied this week as the Federal Reserve lowered interest rates for the first time since December 2024, cutting by a quarter of a percentage point. The move had been widely anticipated, but it reassured investors that the central bank is ready to support growth as the labor market shows signs of softening. The Fed’s updated projections suggest that policymakers expect further cuts of up to half a percentage point by the end of the year, which investors interpreted as a sign that borrowing costs could continue to ease into 2026.
Equity markets responded positively, with the Nasdaq up 2.2%, the S&P 500 up 1.2%, and the Dow Jones Industrial Average up 1%. Smaller companies also benefited, with the Russell 2000 index advancing more than 2%, reflecting optimism that lower interest rates will ease financing costs. Retail sales offered another bright spot, rising 0.6% in August, beating expectations for the third consecutive month. However, the housing market continued to show weakness, with housing starts down 8.5% and builder sentiment still subdued despite a modest improvement in near-term sales expectations due to lower mortgage rates.
On the geopolitical front, U.S. President Donald Trump and China’s President Xi Jinping held a call that advanced negotiations over trade and technology. An agreement was reached regarding U.S. ownership of TikTok, which investors saw as a small but constructive step toward easing tensions between the world’s two largest economies.
European Markets – Diverging Monetary Policies
In Europe, equity performance was mixed as investors assessed a range of monetary policy decisions. The pan-European STOXX 600 index finished slightly lower, while France’s CAC 40 rose modestly, Germany’s DAX slipped, and the UK’s FTSE 100 fell nearly three-quarters of a percent.
The focus was on the Bank of England (BoE), which decided to keep interest rates unchanged at 4%. Policymakers voted 7–2 in favor of maintaining the current rate, while also announcing a slowdown in their bond sales program, cutting the pace from £100 billion to £70 billion per year. This adjustment was designed to reduce volatility in the UK government bond market, which has been under pressure from rising long-term yields. BoE Governor Andrew Bailey struck a cautious note, warning that while inflation is expected to continue falling toward the 2% target, “we are not out of the woods yet.”
Meanwhile, UK economic data provided a mixed picture. Inflation held steady at 3.8% in August, still above the central bank’s target, while wages continued to grow at an annual pace of 4.7%. At the same time, payroll data showed a decline in employment for the seventh straight month, highlighting some softening in the labor market. Across the eurozone, industrial production rose 0.3% in July, recovering from a decline the previous month. Stronger output in manufacturing sectors such as durable goods helped offset weaker energy production, suggesting resilience despite ongoing uncertainty around tariffs and trade.
Other Regions – Asia Faces Crosswinds, China Slows
Elsewhere, global markets saw varying results. In Japan, the Nikkei 225 gained slightly while the broader TOPIX index slipped. The Bank of Japan surprised markets by announcing plans to sell some of its holdings of exchange-traded funds and real estate investment trusts earlier than expected, signaling a gradual shift toward policy normalization. Although the central bank left its benchmark interest rate unchanged at 0.5%, two board members voted for a hike — a first under current Governor Kazuo Ueda. Inflation in Japan moderated to 2.7% year-on-year in August but remained above the BoJ’s 2% target, keeping the possibility of a future hike alive.
In China, markets weakened as a series of disappointing economic indicators pointed to slowing momentum. Retail sales grew 3.4% year-on-year in August, the slowest pace this year, while industrial output rose 5.2%, also weaker than expected. Fixed asset investment growth was particularly sluggish at just 0.5% year-to-date, close to record lows. The property sector continued to drag on the economy, with both new and existing home prices declining across major cities. In Beijing, new home sales dropped nearly 20% compared with last year. These figures raised concerns that Beijing will need to introduce further stimulus measures to achieve its 5% growth target for 2025.
In contrast, Norway’s central bank cut interest rates to 4%, marking its second cut of the year. However, officials signaled that further reductions are unlikely before mid-2026, suggesting a cautious approach. Taken together, these developments highlight how central banks across the globe are moving at different speeds — some easing to support growth, while others like Japan are preparing to tighten policy as inflationary pressures persist.