By Bas Kooijman is the CEO and Asset Manager of DHF Capital S.A
U.S. Market: Dovish Fed Tone Lifts Sentiment Amid Volatility
U.S. stocks ended a volatile week on a positive note, with the S&P 500 rebounding after its steepest single-day decline since April. Investor sentiment improved early in the week as signs of easing tensions between the U.S. and China helped calm global markets. Additional support came from dovish comments by Federal Reserve officials and a wave of merger and acquisition activity in the artificial intelligence (AI) sector.
Earnings season kicked off strongly, led by major banks such as JPMorgan Chase, Citigroup, and Wells Fargo, all of which reported results that exceeded expectations. Of the roughly 12% of S&P 500 companies that had reported by Friday, an impressive 86% beat earnings forecasts, according to FactSet. This helped buoy optimism despite lingering concerns over credit risks in the regional banking sector.
Federal Reserve Chair Jerome Powell reaffirmed expectations for another interest rate cut later this year, citing “downside risks to employment” even as inflation remains above the central bank’s target. Supporting this outlook, the Fed’s Beige Book highlighted subdued consumer spending, stable employment levels, and moderate wage growth. Treasury yields fell across maturities, with the 10-year yield reaching its lowest level in 12 months as investors sought safety amid economic uncertainty.
Europe: Stabilization Amid Mixed Growth and Political Challenges
European markets closed the week slightly higher, supported by dovish signals from the U.S. Federal Reserve and tentative signs of easing U.S.-China trade tensions. The pan-European STOXX Europe 600 rose 0.37%, though major regional indexes were mixed. France’s CAC 40 gained over 3%, while Germany’s DAX and the UK’s FTSE 100 saw modest declines.
In the UK, the economy showed marginal improvement, with GDP rising 0.1% in August after a contraction in July. Over the three months to August, the economy expanded 0.3%, supported by rebounds in industrial and manufacturing output. However, the labor market appeared to soften, with unemployment ticking up to 4.8% and wage growth easing slightly to 4.7% year-over-year.
Across the eurozone, industrial production contracted by 1.2% in August, with the sharpest declines seen in Germany due to weak automotive output and summer factory shutdowns. France’s political climate also made headlines as Prime Minister Sebastien Lecornu’s government survived no-confidence votes after suspending a contentious pension reform. Overall, while Europe continues to face headwinds from sluggish growth and political tension, sentiment remained supported by expectations of policy stability and a potential U.S. rate cut.
Asia: Japan Faces Political Flux, China Struggles with Deflation Pressure
In Asia, markets were broadly weaker as investor caution grew amid global trade uncertainty and domestic headwinds. Japan’s Nikkei 225 fell 1.05%, pressured by a strengthening yen and ongoing political uncertainty following the Komeito Party’s exit from its coalition with the Liberal Democratic Party (LDP). Negotiations between the LDP and Nippon Ishin no Kai (Japan Innovation Party) remain underway to form a new ruling coalition, a step that could pave the way for Sanae Takaichi to become Japan’s next prime minister.
The 10-year Japanese government bond yield declined to 1.62%, reflecting investor demand for safe assets and fading expectations of an imminent Bank of Japan rate hike. Governor Kazuo Ueda reiterated that any policy adjustment would depend on further evidence of sustained inflation and growth.
Meanwhile, China’s markets extended losses, with the CSI 300 down 2.22% and the Hang Seng Index dropping nearly 4%. Persistent deflation concerns weighed heavily, as factory gate prices fell for a 36th consecutive month and consumer prices slipped 0.3% year-on-year. Investors are now closely watching the upcoming fourth plenum of the Communist Party, where leaders are expected to outline the country’s next five-year economic plan, focusing on stimulating domestic consumption and restoring investor confidence.
Looking Ahead –
Overall, global markets remain cautiously optimistic as investors weigh signs of monetary easing against persistent economic and geopolitical uncertainties. As policymakers worldwide navigate slowing growth and inflationary pressures, the coming weeks will be crucial in determining whether this tentative market recovery can sustain momentum.