By Bas Kooijman, the CEO and Asset Manager of DHF Capital SA.
United States
U.S. equity markets ended the holiday-shortened week mixed, with most indexes registering modest gains. The Nasdaq Composite advanced 1.14%, supported by Apple and Alphabet shares after antitrust ruling was seen as less restrictive than feared. Smaller-cap stocks also benefited from rate-sensitive optimism, while the S&P 500 added 0.33%. In contrast, the Dow Jones Industrial Average slipped 0.32%.
Investor sentiment turned volatile on Friday following the release of August labor market data, which painted a weaker-than-expected picture. Nonfarm payrolls rose by just 22,000, far below expectations, while the unemployment rate climbed to 4.3%, its highest since 2021. Downward revisions to June and July further underscored the slowdown. ADP’s private payrolls report showed a similar trend, with only 54,000 jobs added, and job openings fell to their lowest level since 2024. For the first time since 2021, the number of unemployed Americans exceeded available job openings.
Markets quickly adjusted expectations for monetary policy. Futures tracked by the CME FedWatch tool priced in a 100% chance of at least a 25-basis-point rate cut at the Federal Reserve’s next meeting, while the probability of a 50-basis-point move rose to 10%. Treasury yields declined sharply, with the 10-year note falling to its lowest since early April.
Elsewhere, the Institute for Supply Management reported that manufacturing activity contracted for the sixth straight month, although the pace of decline eased slightly. In contrast, services activity expanded at a faster clip in August, with new orders and business activity showing solid gains.
Europe
European equities were broadly weaker, with the STOXX Europe 600 Index edging down 0.17%. Growth concerns following weak U.S. labor data and a stronger euro weighed on sentiment. Italy’s FTSE MIB fell 1.39%, France’s CAC 40 declined 0.38%, and Germany’s DAX dropped 1.28%. The UK’s FTSE 100 bucked the trend, adding 0.23%.
Eurozone inflation remained close to target, with headline CPI at 2.1% in August and core inflation steady at 2.3%. Services’ inflation moderated slightly to 3.1%. Policymaker comments reinforced expectations that the European Central Bank will keep rates unchanged in September, with most economists now forecasting the end of policy easing.
Labor market conditions in the euro area stayed resilient, with unemployment ticking down to 6.2% in July. However, retail sales softened, falling 0.5% sequentially after a stronger June. In the UK, mortgage approvals exceeded expectations, suggesting stabilization in the housing market. Yet, price data from Nationwide and Halifax showed mixed signals. Bank of England Governor Andrew Bailey expressed caution about further rate cuts, citing persistent inflation risks and rising uncertainty in the labor market.
Asia-Pacific
Japan’s equity markets posted solid gains, with the Nikkei 225 rising 0.70% and the TOPIX up 0.98%. Auto stocks rallied after the U.S. finalized a trade deal with Japan, capping tariffs on Japanese goods and boosting cross-border investment commitments. Bond markets steadied, with the 10-year government bond yield easing to 1.57%, while the yen weakened to JPY 148 against the U.S. dollar.
The Bank of Japan remained in focus as strong wage data increased expectations for a potential rate hike later this year. Nominal wages rose 4.1% in July, beating forecasts, while real wages turned positive for the first time in 2025. BoJ officials reiterated that rates would rise if inflation trends aligned with forecasts, supported by healthy wage-price dynamics.
In China, markets consolidated after a sharp August rally. The CSI 300 fell 0.81%, while the Shanghai Composite lost 1.18%. Hong Kong’s Hang Seng Index advanced 1.36%. Despite strong equity momentum driven by liquidity and retail investor participation, fundamentals remain under pressure. Industrial data continues to show a slowdown, with deflation, property sector weakness, and tariff risks clouding the outlook. Analysts expect further stimulus measures in the months ahead to support growth.
Summary
Global markets reflected a mix of resilience and caution last week. In the U.S., weak job creation and rising unemployment strengthened expectations for a Fed rate cut, while in Europe, steady inflation and a resilient labor market suggest monetary policy may stay on hold. Japan showed signs of wage-driven momentum that could prompt the Bank of Japan to tighten, while China’s rally has been liquidity-driven against a backdrop of persistent economic headwinds. Investors remain focused on central bank actions and the interplay between labor markets, inflation, and growth as the final quarter of the year approaches.