Weekly house view | Don’t fight the fed
The week in review
The Federal Reserve cut interest rates by 25bps, as expected, with Fed Chairman Jerome Powell framing the move as a “risk-management” cut. Markets now anticipate two additional rate cuts this year and modest easing in 2026 as policymakers monitor the impact of a weakening US labour market. The lack of broad support for a larger reduction shows that, despite political pressure, the Fed has so far resisted major challenges to its independence.
US and Chinese Presidents Donald Trump and Xi Jinping confirmed a deal to dilute Chinese ownership of TikTok. Next month, the two presidents are expected to hold their first face-to-face meeting since 2019 on the sidelines of the APEC summit in South Korea. Meanwhile, China’s internet regulator instructed Chinese companies to stop ordering Nvidia’s chips. Intel surged 22.8% following a USD 5bn investment by Nvidia.
The Bank of England held its rates at 4%, maintaining a cautious stance with a bias towards easing. Timing of the next cut remains uncertain as the pace of quantitative tightening moderates. Gilt yields eased after the BoE meeting, but concerns about fiscal sustainability remain high due to a larger-than-expected deficit. EU leaders plan to accelerate their efforts to stop buying Russian liquid natural gas by the end of 2026.
Quote of the week
“The labour market has softened. The case for there being a persistent inflation outbreak is less”, Fed Chair Powell said after the FOMC agreed to cut interest rates.
Key data
August US retail sales rose 5% year over year and 0.6% month over month, led by online sales and restaurants. We are monitoring Tuesday's PMI survey, which is expected to moderate slightly, and Friday's PCE release, which could maintain July's 2.9% core inflation reading.
Investor confidence in Germany improved in September to 37.3 from 34.7 the previous month, while a measure of current conditions deteriorated as expected. Euro area labour costs grew by 3.6% in the second quarter, compared with a year earlier.
China's economic activity slowed in July and August, led by weakness in the industrial sector and consumption. Chinese fixed-income investment fell to 0.5% in August and retail sales eased to 3.4%, from 3.7% the previous month.