Weekly house view | Xi-Trump, round two
The week in review
The US Federal Reserve raised interest rates for the first time since 2023 in a unanimous decision that defied calls from President Donald Trump to lower the cost of borrowing. Members of the Federal Open Market Committee (FOMC) also updated their “dot plot” projections to show most penciling in another hike this year.
The US 10-year Treasury yield crossed 5% and reached its highest level since 2007. More importantly, the yield curve flattened, meaning short-term yields rose faster than long-term yields, dragging on shares in banks, which typically borrow short and lend long. Bank of America also warned of weaker trading and dealmaking revenue.
The S&P 5001 fell 0.1%.
The Bank of Japan (BoJ) raised its benchmark rate by 25 basis points to 1.25%, marking its highest level in 31 years. The decision passed with a 7–2 split vote. The yen fell after the BoJ failed to deliver a unified, aggressively hawkish outlook.
In the US, the average diesel price hit a record high of USD 6.27 per gallon. Senate Majority Leader John Thune said he is “open to exploring” an export ban for diesel fuel.
In Germany, Chancellor Friedrich Merz vowed to stay on despite the far-right Alternative for Germany (AfD) becoming the largest party in the former East German state of Mecklenburg-Vorpommern. The AfD and Moscow are preparing talks to get Russian gas flowing back to Germany, media reported.
Quote of the week
“I’m relying on Kevin (Warsh), but he’s got, you know, a very tough board,” Trump said of the Fed Chair. “I talked to Kevin, and I said, ‘You might as well vote with the board. It’s not going to matter.’”
Key data
US retail and food services sales rose 1.2% in August from the prior month, beating forecasts and reversing a July decline. The Atlanta Fed's GDPNow model raised its estimate for third quarter real gross domestic product growth to an annualised 5.1%. One weak spot in the US economy is housing, with homebuilder sentiment falling to a one-year low in September.
In China, retail sales grew just 0.4% in August, falling short of the 0.8% economists had forecast.
