Equity Markets Firing on All Cylinders

For the week ending 19 September 2025

As of midday Friday, global equities are trading in record territory, with even US small caps reaching new highs as the US Federal Reserve eases interest rates at a time when odds of recession appear to be fading. The yield on the US 10-year Treasury note edged up 8 basis points on the week to 4.12% amid solid US economic data, while the price of a barrel of West Texas Intermediate crude oil was little changed at $63.10. Volatility, as measured by futures contracts on the Cboe Volatility Index (VIX), rose to 17.7 from 15.5 last week. 

MACRO NEWS

Fed cuts: one down, two to go

As widely expected, the Fed lowered rates by a quarter-point on Wednesday and signaled that they may cut twice more before the end of the year. Downside employment risks have risen, the FOMC said, while inflation remains somewhat elevated. Newly appointed Governor Stephen Miran was the lone dissenter, voting to cut rates by a half-precent. Fed Chair Jerome Powell characterized the reduction as a risk management move meant to preempt further softening of the labor market. In an interview Friday morning, Miran acknowledged that his was the “low dot” on the dot plot of forecasted Fed funds. Miran projected a year-end Fed funds midpoint of 2.88%, well below the 3.6% consensus view. Below is the Fed’s latest summary of economic projections. 

_{Source: Federal Reserve Board}

Trump calls to end quarterly reporting

US President Donald Trump proposed this week ending quarterly corporate earnings reports, saying semiannual reports would save money and allow managers to focus on running their companies. Quarterly reporting in the US began in 1970. Advocates say the change could increase the number of public companies, as the quarterly process is too onerous for some smaller companies. Europe and the United Kingdom did away with requiring quarterly reporting about a decade ago, but many companies continue to report four times a year. Any such change would need to pass through the US Securities and Exchange Commission rulemaking process, suggesting that any shift in reporting is still many months away.

Trump, Xi talk trade

President Trump and Chinese President Xi Jinping held trade talks by telephone on Friday morning Washington time. Chinese state media portrayed the talks between the leaders as “pragmatic, positive, and constructive.” Xi said the China-US relationship is important and that the two countries can properly handle issues between them. Xi asked the US to avoid taking unilateral trade measures and to avoid undermining outcomes from recent trade talks. Regarding TikTok, Xi said he’d like to see the companies come to a resolution on the issue, suggesting he wouldn’t stand in the way of a deal to separate the company’s US operations from its Chinese parent. After their conversation, President Trump posted on social media that the TikTok deal has been approved and that progress was made on trade, fentanyl, and the war between Russia and Ukraine. Xi and Trump will meet at the APEC Summit at the end of October, and Trump also plans to make a visit to China in early 2026. 

QUICK HITS

US retail sales rose a stronger-than-expected 0.6% in August, while core sales rose 0.7%, also handily beating forecasts. July sales were revised up as well, expanding 0.6%, up from the 0.5% initial estimate. Despite a softer labor market, economic activity appears to remain solid.

After trade talks with Chinese officials in Madrid on Monday, US Treasury Secretary Scott Bessent said that there will be no penalty from the US for China’s purchases of Russian oil unless any sanctions are matched by the European Union.

Late last Friday, Fitch Ratings downgraded France’s credit rating to A+ from AA-, with a stable outlook. The ratings agency said political fragmentation makes it unlikely that the country’s fiscal deficit will fall to 3% of GDP by 2029 as targeted by the outgoing government.

Economic activity in China undershot expectations in August. Retail sales rose more slowly than expected at 3.4% year-over-year, while industrial production also fell short of estimates, rising 5.2% from the year before. Unemployment rose to 5.3% from 5.2%, while property investment fell 12.9%.

Russian drones made incursions into Romanian airspace this week, days after similar infiltration into Polish territory.

Former St. Louis Fed President James Bullard said he interviewed with Secretary Bessent last week to replace Fed Chair Powell when his term expires in May. Bullard said he is very interested in the role, provided Fed independence is preserved. Bessent also interviewed Blackrock fixed income chief Rick Rieder for the position.

Eurozone industrial production rose by 0.3% in July, indicating resilience despite trade tensions.

A survey by the British Retail Consortium found that a majority of the British public expects a deterioration in the economy in the next three months, while just 16% expect things to get better. Consumers also remained pessimistic about their personal finances and plan to rein in spending, the survey found.

On Wednesday, the Bank of Canada lowered its policy rate to 2.5%, as expected. Policymakers cited weaker growth, higher unemployment and less pressing price pressures for the reduction.

After spiking to 264,000 a week ago, US initial jobless claims receded to 231,000 last week, cooling fears that the pace of labor market weakening was accelerating. Continuing claims also declined, falling to their lowest level since May.

The Bank of England voted 7-2 on Thursday to hold rates steady at 4% but decided to shrink its balance sheet more slowly over the coming year, trimming the pace of quantitative tightening from £100 billion down to £70 billion.

US Agriculture Secretary Brooke Rollins said the Trump administration is exploring using tariff revenues to fund support for farmers impacted by tariffs.

Bank of Japan policymakers voted 7-2 vote to leave rates unchanged at its meeting on Friday. However, the BOJ also announced that it will begin to very gradually unwind its massive holdings of equity ETFs. At the pace announced Friday, the liquidation would take over 100 years. BOJ Governor Kazuo Ueda gave no signal regarding a rate rise at the October meeting. Markets have priced in a roughly 50% chance of a hike next month and have a 0.25% hike fully priced in by January.

The US investment grade corporate bond spread over Treasuries narrowed to 72 basis points this week, its tightest level since 1998.

Figures released by the US Treasury Department on Thursday showed that foreign holdings of US Treasuries rose to a record $9.16 trillion in July.

Canadian retail sales fell 0.8% month-over-month in July.

President Trump this week appealed to the US Supreme Court to allow him to remove Governor Lisa Cook from the Fed Board while her lawsuit, which contends that her removal for cause was unjustified, continues to be adjudicated. The Supreme Court did not immediately act on Trump’s request but asked for a response from Cook by next Thursday.

The US House of Representatives voted Friday to extend current fiscal year funding through November 21. The bill now goes to the Senate, where it faces an uphill battle to pass before the end of the fiscal year September 30. 

THE WEEK AHEAD

Monday: Eurozone consumer confidence

Tuesday: Global preliminary PMIs, Fed Chair Powell speaks on economic outlook

Wednesday: US new home sales

Thursday: US final Q2 GDP revision, durable goods orders, existing home sales

Friday: US PCE, Canada July GDP. 

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Sources: MFS research, Wall Street Journal, Financial Times, Reuters, Bloomberg News, FactSet Research.