United States

Equity Market Performance

During the latest trading week, most U.S. stock indices moved slightly lower, reflecting lighter-than-usual volumes as the market prepared for the long Labor Day weekend. Small-cap companies delivered relatively stronger performance, with the Russell 2000 gaining moderately and beating the S&P 500 for a third consecutive week. The Dow Jones Industrial Average touched a fresh record before giving back ground on Friday, ultimately closing weaker.

Corporate Earnings and Market Drivers

Investor focus during the week gravitated toward NVIDIA’s quarterly earnings. The world’s most valuable company by market capitalization exceeded consensus expectations compiled by FactSet. Although its share price dipped the following day, the results reassured markets that the AI-driven growth narrative remains intact, a critical driver of equity strength this year.

Federal Reserve and Policy Signals

Political developments also unsettled sentiment. President Donald Trump revealed plans to dismiss Federal Reserve Governor Lisa Cook, citing alleged misconduct related to mortgage dealings. Cook countered with legal action to contest the move, while the Fed pledged to abide by judicial rulings. Market observers worried that such intervention could undermine the central bank’s independence.

Meanwhile, Governor Christopher Waller reiterated his position in favor of policy easing. He confirmed support for a quarter-point rate cut in the September meeting and suggested further reductions over the coming months, highlighting the increasing downside risks for employment and slowing economic activity.

Economic Data and Labor Market Trends

From a data perspective, the Bureau of Economic Analysis reported that July’s core personal consumption expenditures (PCE) index—excluding food and energy—rose 0.3% month-on-month, consistent with expectations and June’s reading. Personal spending advanced 0.5%, while incomes rose 0.4%. The BEA also revised second-quarter GDP growth upward, from 3.0% to 3.3% annualized, driven by stronger household consumption and corporate investment.

Labor market readings were mixed. The Conference Board’s August Consumer Confidence Index fell 1.3 points to 97.4, with respondents citing growing concerns over job prospects and income. At the same time, unemployment benefit claims decreased, with weekly initial filings dropping to 229,000 from 234,000, while continuing claims dipped to 1.954 million.

Treasury Market Developments

In fixed income, U.S. Treasuries generated positive weekly returns as yields declined on shorter maturities, though longer bonds remained steady. Analysts noted that Trump’s move against Fed Governor Cook contributed to early steepening of the yield curve, while robust demand in Treasury bill auctions supported prices.

Index Performance Table

Europe

Equity Trends and Investor Sentiment

The pan-European STOXX Europe 600 retreated 1.99% in local currency terms, pressured by investor unease over the Fed’s independence, renewed tariff uncertainty, and continuing instability in France. Additional weight came from fading prospects for an early resolution to the Russia–Ukraine conflict. Major national markets followed the downward trend, with France’s CAC 40 down 3.33%, Italy’s FTSE MIB falling 2.57%, Germany’s DAX losing 1.89%, and the UK’s FTSE 100 shedding 1.44%.

ECB Policy Dynamics

Minutes from the July European Central Bank meeting revealed divided opinions among policymakers. Some members flagged weaker growth, U.S. trade tariffs, and euro strength as downside risks, warranting caution. Others highlighted that inflation risks may persist, particularly given uncertainties around energy and currency fluctuations.

At the Jackson Hole symposium, ECB officials hinted that the threshold for another rate reduction is high, as the eurozone economy has shown resilience. However, they left open the possibility of renewed debate if data weakens in the fall.

Inflation and Retail Sector

Recent inflation figures reinforced this cautious stance. Germany’s harmonized inflation rate accelerated to 2.1% year-on-year, above forecasts, while Spain’s remained unchanged at 2.7%. French inflation, however, softened to 0.8%. In the UK, CBI surveys signaled retail sales volumes declined for an 11th month straight, with retailers also raising prices at the fastest pace since late 2023.

Japan

Japanese equities delivered a mixed performance. The Nikkei 225 added 0.20%, while the broader TOPIX slipped 0.83%. Market participants attributed part of the weakness to portfolio rebalancing at month-end, which shifted allocations toward bonds rather than equities. Uncertainty ahead of U.S. inflation data and the cancellation of trade talks with Washington by Japan’s chief negotiator Ryosei Akazawa also weighed on sentiment.

The Japanese yen hovered near JPY 146 per dollar, little changed over the week, as investors digested both U.S. monetary policy uncertainty and domestic macro signals.

Bond markets drew attention, with the 10-year Japanese government yield steady at 1.61%, near its highest point in 17 years. BoJ Governor Kazuo Ueda emphasized at Jackson Hole that a tightening labor market should support wage growth, suggesting conditions are forming for further rate increases. Data confirmed these pressures: Tokyo’s core inflation remained above target at 2.5% in August, unemployment fell unexpectedly to 2.3%—a low not seen since 2019—and industrial production dropped 1.6% after a robust June expansion.

China

Mainland shares advanced, extending August’s rally. The CSI 300 Index climbed 2.71%, while the Shanghai Composite edged up 0.84%. Conversely, Hong Kong’s Hang Seng slipped 1.03%.

The CSI 300 has surged roughly 10% this month, one of the best global performances, with trading volumes on track for record highs. Analysts attributed the rally less to underlying economic strength and more to abundant domestic liquidity. Chinese households, facing few attractive alternatives, have turned to equities. Margin financing reached its highest level since 2015, indicating rising retail investor participation.

Economic releases painted a mixed picture. July industrial profits contracted 1.5%, a smaller drop than feared, supported by robust tech earnings. Yet broader indicators such as retail sales, fixed investment, and factory activity weakened, signaling slowing momentum. Many economists expect policymakers to introduce new stimulus measures soon, possibly in September, to counter deflationary pressures and cushion against ongoing trade frictions.\

Other Asia

South Korea

The Bank of Korea left its Base Rate unchanged at 2.50%. Officials judged inflation stable but highlighted uncertainties surrounding growth, housing, and household debt. While exports—particularly semiconductors—have been performing well, policymakers acknowledged they may slow as tariff effects intensify. The central bank reiterated its willingness to cut further if growth risks increase, maintaining a broadly dovish bias.

Philippines

The Bangko Sentral ng Pilipinas reduced its Target Reverse Repurchase Rate from 5.25% to 5.00%. Policymakers projected inflation of 1.7% for 2025, 3.3% for 2026, and 3.4% for 2027, suggesting real rates remain positive. Officials highlighted trade headwinds from U.S. policies but were comfortable with gradual easing, while cautioning that electricity adjustments and higher rice tariffs may pose upward price risks.