“Walking the path of global markets, one step at a time.”
Walking into a week defined by the Federal Reserve, markets are bracing for more than just another policy decision.
At moments like this, the numbers themselves feel secondary. What matters is the recognition that the ground can shift in an instant — that years of assumptions can be unwound in the span of a single press conference.
Investors often imagine that risk comes from shocks, crises, or wars. More often, it comes quietly, through words on a page, comments at a press conference, or through signals that are open to interpretation.
Central banks do not need to surprise in order to destabilize; sometimes the simple act of clarifying their intent is enough to redraw the boundaries of what is possible.
The week ahead is not about whether the Fed moves 25 or 50 basis points, or whether the ECB and BOJ hold their ground. It is about whether the framework that investors have leaned on will still apply once the dust settles.
And, whether or not the coming week’s announcements have already been priced in…
The Week That Was
Last week began with U.S. Consumer Credit for July rising at a seasonally adjusted annual rate of 3.8%, driven by a 9.7% increase in revolving credit (credit cards) and a 1.8% rise in non-revolving credit.
On the same day, Japan’s final Q2 GDP was revised upward to an annualized growth rate of 2.2%, up from the initial 1.0%, with private consumption and inventories contributing more than in the prior estimate.
Mid-week, the U.S. Producer Price Index (PPI) for August showed that final demand prices declined 0.1% month-over-month, after rising in July, and that on a year-over-year basis headline PPI rose about 2.6%, while core PPI (excluding food, energy, and trade services) came in at 2.8%, also cooling from previous months.
On Thursday, the U.S. Consumer Price Index for August increased 0.4% month-over-month, lifting year-over-year headline inflation to 2.9%, up from 2.7% in July, with core inflation also elevated.
The European Central Bank held its policy rates unchanged at 2%, while issuing staff projections showing headline inflation averaging 2.1% in 2025, and inflation excluding food & energy projected around 2.4% for 2025, declining in later years. The ECB also slightly revised up its growth outlook for 2025-2026.
Finally, on Friday, the University of Michigan Preliminary Consumer Sentiment index for September fell to 55.4, down from 58.2 in August.
Taken together, the week’s releases reinforced a picture of easing inflation pressures alongside signs of consumer caution and policy divergence between the Fed and ECB.
Against that backdrop, financial markets rallied.
The S&P 500 gained ~1.6%, the Nasdaq rose ~2%, the Dow added ~1%, and the Russell 2000 edged higher by ~0.3%.
Asian equities also climbed, with Japan’s Nikkei and Hong Kong’s Hang Seng advancing strongly as investors positioned for a Fed rate cut.
In Europe, gains were more modest, as stronger inflation prints and the ECB’s decision to hold rates steady tempered enthusiasm.
Commodities diverged: gold surged to record highs, reflecting a weaker dollar and a bid for safety amid ongoing macro uncertainty, while crude oil prices slipped on renewed demand concerns, particularly from China.
Currency markets moved in step with these dynamics. The U.S. dollar weakened broadly, especially against the yen and Asian currencies, as traders leaned further into expectations of imminent Fed easing.
In fixed income, Treasury yields eased after the CPI and PPI data confirmed that disinflationary trends were holding, while credit spreads narrowed modestly as risk appetite improved.
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