United States

US equities closed the shortened week on a mixed but generally positive note. Investor sentiment oscillated in response to key labor market releases and shifting expectations regarding the Federal Reserve’s next policy move. Early optimism that weaker employment data would trigger policy easing faded by Friday, as concerns resurfaced over whether rate cuts could sufficiently counter slowing growth momentum.

The Nasdaq Composite Index advanced 1.14% for the week, underpinned by technology stocks, particularly Apple and Alphabet. Both companies saw share gains following an antitrust ruling that was interpreted as less punitive than investors had feared. Small- and mid-cap stocks, often more responsive to borrowing costs, also advanced. Meanwhile, the S&P 500 added 0.33%, and the Dow Jones Industrial Average slipped 0.32%, reflecting divergence among different segments of the equity market.

Employment and Monetary Policy Expectations

The Labor Department’s nonfarm payrolls report delivered a major surprise: just 22,000 jobs were added in August, far below the revised July figure of 79,000 and market expectations of around 77,000. Compounding this weakness, June’s figure was revised from a modest gain of 14,000 to a loss of 13,000, marking the first monthly decline since December 2020. The unemployment rate edged up to 4.3%, its highest since 2021, signaling slack in the labor market.

Private payroll data confirmed the slowdown. According to ADP, US businesses added only 54,000 jobs in August, nearly half of July’s 106,000 and well below forecasts of 80,000. The Labor Department also reported that job openings fell to 7.18 million in July, the lowest since September 2024. For the first time since the pandemic recovery, the number of unemployed individuals outnumbered available job openings.

Financial markets quickly repriced expectations. Fed funds futures tracked by CME’s FedWatch tool indicated a 100% probability of at least a 25-basis-point cut at the next Federal Reserve meeting. The odds of a more aggressive 50-basis-point move, previously negligible, rose to around 10%. In tandem, yields across the Treasury curve declined sharply, with the 10-year note reaching its lowest point since April. The move reflected both increased demand for safe-haven assets and expectations for looser monetary policy.

Manufacturing and Services Data

Beyond employment, economic indicators sent mixed signals. The ISM Manufacturing PMI came in at 48.7% in August, still indicating contraction but modestly better than July’s 48%. Importantly, new orders returned to expansion, climbing to 51.4%, suggesting potential stabilization. The services sector, however, showed stronger momentum: ISM Services PMI rose to 52% from 50.1% in July, marking renewed expansion supported by robust business activity and new orders. Inflationary pressures moderated slightly across both sectors but remained above comfort levels.

Index Performance

Source: Reuters, Bloomberg, Yahoo! Finance. Past performance is not a guarantee of future results.

Europe

European markets ended the week broadly lower, with the STOXX Europe 600 shedding 0.17% in local currency terms. The drag came largely from renewed global growth concerns following US labor data and the euro’s strength against major currencies. Country-level performance was uneven: Italy’s FTSE MIB fell 1.39%, Germany’s DAX slipped 1.28%, and France’s CAC 40 lost 0.38%. Conversely, the UK’s FTSE 100 managed a 0.23% gain, reflecting domestic resilience.

Inflation and ECB Policy

Eurozone headline inflation rose slightly to 2.1% in August, close to the European Central Bank’s medium-term target of 2%. Core inflation held steady at 2.3%, in line with analyst expectations. Services inflation, a closely monitored measure, eased from 3.2% to 3.1%. ECB officials emphasized that rates would likely remain unchanged in September and beyond, reinforcing the consensus view that policy easing has reached its limit.

Labor market conditions were steady, with unemployment ticking down to 6.2% in July, the lowest since November 2024. On the consumer side, retail sales volumes slipped 0.5% in July, though June’s figure was revised higher. This underscored an uneven spending environment, where resilience in employment contrasts with softer consumption.

United Kingdom Developments

In the UK, July mortgage approvals rose to 65,352, exceeding forecasts. Housing prices, however, sent mixed signals. Nationwide reported a 0.1% decline in August, reversing part of July’s 0.5% rise, while Halifax reported a modest 0.3% increase. Bank of England Governor Andrew Bailey expressed caution, noting greater uncertainty about further rate reductions amid heightened inflation risks. Deputy Governor Clare Lombardelli added that rates may stabilize slightly below the current 4%, given persistent inflationary pressures.

Japan

Japanese equity markets rose over the week, with the Nikkei 225 gaining 0.70% and the broader TOPIX Index up 0.98%. Positive sentiment was fueled by the US-Japan trade agreement finalized in July, which capped tariffs on most Japanese exports, including autos, at 15%. In return, Japan pledged USD 550 billion in investments across US markets, alongside expanded access for American agricultural and industrial goods.

Bond markets reacted to domestic political uncertainties. The yield on the 10-year JGB fell from 1.61% to 1.57% by week’s end, though it briefly touched 17-year highs midweek amid speculation about Prime Minister Shigeru Ishiba’s political future. The Japanese yen weakened to JPY 148 per US dollar, compared with JPY 147 the prior week.

Wages and Monetary Policy Outlook

Wage data reinforced the likelihood of a Bank of Japan policy shift. Nominal wages grew 4.1% year over year in July, beating consensus forecasts and accelerating from June’s 3.1%. Importantly, real (inflation-adjusted) wage growth turned positive for the first time in 2025, fueling speculation that the BoJ could tighten policy as early as October. Deputy Governor Ryozo Himino reiterated that the central bank will raise rates if economic conditions align with forecasts, noting that positive wage-price dynamics should eventually push inflation toward the 2% target.

China

Mainland Chinese equities declined, with the CSI 300 Index down 0.81% and the Shanghai Composite off 1.18%. In contrast, Hong Kong’s Hang Seng Index rose 1.36%. The weakness onshore reflected profit-taking following a strong rally in August, when the CSI 300 gained 10%—its best monthly performance since September of the previous year.

The surge in Chinese equities has been largely liquidity-driven rather than earnings-led. Average daily turnover in August hit record levels, and margin trading activity also peaked, suggesting a speculative element in the rally. Retail investors, flush with cash and lacking alternative investment options, contributed significantly to demand. Investor optimism was buoyed by advances in artificial intelligence and Beijing’s “anti-involution” campaign, aimed at reducing overcapacity and curbing destructive price competition. Nonetheless, macroeconomic data highlighted ongoing fragility: property markets remain in prolonged downturn, deflationary pressures persist, and looming US tariffs threaten external demand. Economists widely anticipate further stimulus to counteract these headwinds.

Other Key Markets

Malaysia

Malaysia’s central bank left its Overnight Policy Rate unchanged at 2.75%, citing stable inflation and resilient domestic consumption. Policymakers forecast GDP growth between 4.0% and 4.8% in 2025, following 4.4% growth in the first half of the year. Headline inflation averaged 1.4% over the first seven months, while core inflation stood at 1.9%. Officials expect both measures to remain moderate, supported by stable global cost conditions and balanced demand.

Poland

Poland’s central bank implemented another rate cut, lowering the reference rate by 25 basis points to 4.75%, following a surprise cut in July. This decision was justified by slowing inflation: headline CPI eased to 2.8% in August from 3.1% in July, while core inflation also moderated. Growth improved modestly, with GDP expanding 3.4% in Q2 from 3.2% in Q1, largely driven by stronger consumption. Policymakers suggested further easing may be warranted if disinflation persists.