Weekly house view | Japan heading for first female PM
The week in review
Japan’s ruling Liberal Democratic Party (LDP) elected Sanae Takaichi as its new president, putting on her course to become the country’s first female prime minister. Takaichi is seen as favouring fiscal expansion – a prospect that sent Japanese government bond (JGB) yields to their highest since 2008 last week. Amid speculation that the Bank of Japan will raise interest rates soon, a Japanese auction of 2-year government bonds drew the weakest demand since 2009.
French Prime Minister Sébastien Lecornu resigned on Monday, less than a month after his appointment, increasing the risk of parliamentary elections.
In the US, the S&P 500i hit a record closing high on Friday, buoyed by expectations the Federal Reserve will cut rates further this year. Signs of a weakening labour market supported the rate cut expectations, allowing markets to look past a US government shutdown over a funding standoff, which President Donald Trump is using to threaten mass layoffs.
Lower oil prices and the weaker dollar are also tempering shutdown-related risks, which include the delay of some economic data that leaves markets flying partially blind.
The pharma sector rebounded on Pfizer’s deal with Trump to lower prescription drug prices in exchange for tariff relief.
Quote of the week
“I believe the future is truly challenging. We need to turn the anxieties of many people into hope,” Takaichi said after winning the LDP leadership.
Key data
US private-sector businesses lost 32,000 jobs in September, data from payroll firm ADP showed. The US service sector stalled in September, with the ISM business activity index’s headline reading at its lowest since 2020. The ISM manufacturing index indicated a slower rate of contraction than in August. In the euro area, headline inflation (flash estimate) rose to 2.2% year-on-year in September from 2.0% in August, while core inflation was steady at 2.3%. Swiss headline and core inflation were both stable in September. In China, manufacturing activity shrank for a sixth month running in September, the official purchasing managers’ index showed. In Japan, business sentiment at large manufacturers improved for a second straight quarter, but retail sales declined in August from a year earlier.