USA

The U.S. stock market closed on a positive note last week, buoyed by optimism about economic resilience. The S&P 500 rose by 0.62%, the NASDAQ gained 0.95%, and the Dow Jones Industrial Average advanced by 0.59%.

However, the week saw a mixed performance overall, influenced by surprising economic data and inflationary concerns. On Friday, weaker-than-expected personal income and spending reports for August revealed a deceleration in household financial activity. Both income and expenditures increased by just 0.2% month-over-month, falling short of July’s growth rates (0.3% and 0.5%, respectively) as well as analysts' forecasts of 0.4% and 0.3%.

At the same time, the core Personal Consumption Expenditures (PCE) price index—a key inflation metric closely monitored by the Federal Reserve—dropped to 0.1% in August, below the Fed’s target. This data suggests that the U.S. economy is experiencing a moderate slowdown, with household spending reflecting cautious sentiment despite a strong labor market.

Meanwhile, the University of Michigan's Consumer Sentiment Index showed a slight improvement, rising from 69 to 70.1. Inflation expectations for the next one and five years remained stable at 2.7% and 3.1%, respectively.

As the market awaited key economic reports and speeches from prominent Federal Reserve officials, speculation grew about whether the Fed might take an unconventional approach at its next policy meeting, possibly cutting interest rates again. Investors focused on the upcoming U.S. employment report and a speech by Fed Chair Jerome Powell, both seen as crucial for guiding future rate expectations.

In other economic news, the final revision of U.S. Q2 GDP remained unchanged, with growth at 3% and the GDP deflator at 2.5% annually. However, Q1 GDP was revised upward, while the deflator was adjusted downward.

Despite concerns about a potential recession, unemployment claims dropped from 222,000 to 218,000 last week, beating economists' forecasts and reflecting continued strength in the U.S. labor market. Durable goods orders for August remained flat, following a robust 9.9% surge in July, which was far above the expected 2.8% decline. Meanwhile, core durable goods orders rose by 0.5%.

Europe

Major indices across Europe posted positive results last week. The Stoxx 600 rose by 2.69%, with broad-based gains across various sectors. However, the FTSE 100 in the UK increased by 1.10%, Germany’s DAX 40 gained 4.03%, France’s CAC 40 increased by 3.89%, and Spain’s IBEX 35 rose by 1.83%.

European stock markets experienced volatility as concerns over economic growth deepened, following a disappointing decline in the eurozone’s private sector Purchasing Managers' Index (PMI). The unexpected fall in the PMI gave the European Central Bank (ECB) more room to accelerate interest rate cuts. Market expectations shifted toward a total rate cut of 43 basis points by the end of the year, up from the previously expected 38 basis points. The probability of an additional rate cut in October also rose to 40%.

Germany's economic indicators were particularly weak, with the country’s business activity index falling to 48.9 in September, below the forecasted 50.5. This, combined with other weak eurozone data, raised concerns about the potential for another economic contraction in October.

ECB policymakers have warned that excessively high interest rates could further harm the economy, adding pressure for quicker monetary easing. Upcoming eurozone inflation data for September and the Ifo Institute’s monthly survey on the German economy are expected to play a crucial role in the ECB's next decision. The uncertainty surrounding interest rates, inflation, and growth left European equity markets under pressure, as investors weighed the potential for faster rate cuts against the risks of a deteriorating economic outlook, particularly in key markets like Germany.

Japan

The Japanese stock market recorded notable gains last week.The Nikkei 225 climbed by 5.66%, while the Topix index increased by 3.73%. However, Japanese stocks are expected to decline on Monday following Shigeru Ishiba's surprise victory in the ruling party's leadership race, which has heightened expectations of rising interest rates.

Nikkei 225 futures dropped 6% in Osaka after Ishiba’s win, following an earlier 2.3% jump in the index as traders had anticipated a victory by Sanae Takaichi, who opposes higher rates. Analysts predict heightened volatility in the stock market until Ishiba's policies become clearer.

The yen appreciated significantly after Ishiba’s election. While the stronger currency may negatively impact exporters, banks are expected to benefit from optimism about improved profits driven by the prospect of higher interest rates.

China

The Chinese stock market surged to a four-month high, driven by new economic stimulus measures from the People's Bank of China (PBOC). The Shanghai Composite Index rose by 12.81%, while Hong Kong’s Hang Seng Index surged by 13.00%. During a press conference on September 24, PBOC Governor Pan Gongsheng announced a series of initiatives, including a 50-basis-point reduction in the reserve requirement ratio (RRR) for banks, injecting 1 trillion yuan ($142.15 billion) into the financial system. Pan also suggested that the loan prime rate (LPR) could be lowered by 0.2 to 0.25 percentage points.

These measures aim to counter the country’s slowing economy, particularly in the weak manufacturing and consumer spending sectors. With limited inflationary pressures and tight fiscal conditions, the PBOC is expected to take a cautious and gradual approach to stabilize the economy without overextending.

While investors welcomed the stimulus, some remain skeptical about its ability to fully revive consumer demand and end China's longest deflationary period since 1999. There is a general consensus that monetary policy alone may not be sufficient to address challenges like the real estate slump. However, casino stocks with exposure to Macao benefitted greatly from the news.

The Chinese government also committed to "necessary fiscal spending" to achieve its 5% GDP growth target. The broader stimulus package, potentially exceeding $300 billion, includes reducing banks' reserve requirements, cutting interest rates, and providing loans for stock purchases. Economists are skeptical that these measures will significantly boost the economy, but investors are eager to capitalize on China’s potential recovery, particularly in Macao. The city has seen steady growth, with gambling revenue rising 33.4% year-to-date and posting double-digit growth every month.