Equity markets rose globally in September, led by the US. Measured in euros, the MSCI North America index rose nearly 3%, while MSCI Europe and MSCI Japan gained just over one percent. The strongest gains came from China, where the MSCI China index climbed more than 8% in euro terms, boosting the MSCI Emerging Markets index by over 6%. The growth and technology sectors drove performance in China’s equity market.
Optimism despite mixed signals
The global economic outlook remains mixed, with divergent signals on business sector activity. Global corporate investment has been surprisingly robust, and positive business outlook surveys provide hope for a potential pick-up following weaker-than-expected economic growth in the second half of the year. However, the slowdown in US labor demand, coupled with rising inflation, is a key concern as it is expected to reduce household purchasing power. Despite these concerns, the OECD revised its global growth forecast for the year upward, from 2.9% to 3.2%.
US economic data remain contradictory. Retail sales and manufacturing exceeded expectations, signaling continued economic growth, yet the view that the labor market is softening gained ground: US jobs figures were significantly revised down by 911,000, and fewer Americans were filing for unemployment benefits. While inflation came in higher than expected, underlying indicators suggested more moderate price pressures. Meanwhile, the University of Michigan's 5–10-year inflation expectations rose to 3.9%, above the forecasted 3.4%.
Monetary policy supports market sentiment
As expected, the US Federal Reserve cut interest rates by 0.25 percentage points at its September meeting, with further reductions anticipated. Fed Chair Jerome Powell described the move as a “risk management cut” in response to concerns about the labor market. He also emphasized a situational approach, signaling that the Fed is not yet committed to an aggressive stimulus cycle. Nevertheless, the Fed’s own forecast, reflecting the interest rate expectations of its Board members, suggests that two additional rate cuts could be on the cards by the end of the year.
Stephen Miran, the new pro-Trump member of the Federal Reserve Board, immediately called for deeper cuts to the policy rate. Meanwhile, the legal dispute between the Trump administration and Fed Board member Lisa Cook over her dismissal has been referred to the Supreme Court.
Euro area long-term interest rates fluctuated within +/- 0.1 percentage points, ending the month at the same level as in August. Credit rating agency Fitch downgraded France’s rating by one notch to A+, citing the country’s political turmoil and growing debt burden. As expected, the European Central Bank kept its policy rate unchanged. The business outlook in the euro area slipped slightly in September, although Germany’s fiscal stimulus is expected to provide a growth boost in the final quarter of the year.
Image of the month: The Fed is expected to lower its policy rate to 3% by the end of next year
