Global Economy & Markets, Weekly Roundup 15/09/25
With job creation slowing, the Fed is expected to cut interest rates on Wednesday, probably by 25 bps to 4.0% - 4.25%
The MSCI ACWI edged higher by +1.6% on a weekly basis, as the prospect of monetary policy easing by the Fed supported risk appetite. US equities led the increase, while sector-wise, Information Technology overperformed due to Oracle’s strong business revenue guidance.
Euro area equities also increased by +1.6%, with investors keeping an eye on French political developments. The government lost the confidence vote, as expected, and the former Prime Minister (PM) Bayrou resigned, with President Macron appointing Mr. Lecornu as PM. The new PM’s first task is to seek consensus in the Parliament for the 2026 Budget and then to form a government, as the outgoing Cabinet will remain in place in the meantime.
The CAC40 followed the upward trend in the past week, while French government bond spreads stabilized, albeit at elevated levels of c. 80 bps against the Bund. Note that Fitch Ratings downgraded France’s sovereign credit rating, by one notch to A+ with a stable outlook on September 12th.
The rating downgrade came on account, inter alia, of (i) high and rising public debt, as Fitch projects a debt/GDP ratio of 121% in 2027 from 113% in 2024 and 98% in 2019 and (ii) uncertain political capacity to deliver substantial fiscal consolidation. Indeed, the fiscal deficit stood at -5.8% of GDP in 2024, with Fitch projecting a modest narrowing to -5.5% of GDP in 2025.
On monetary policy, the ECB stood pat for a second consecutive meeting on September 11th, with the Deposit Facility Rate (DFR) at 2.0%, a decision which was widely anticipated. On forward guidance, the data-dependent and meeting-by-meeting approach remains in place.
Recall that following a reduction of 200 bps since June 2024, the DFR stands well within the central range of estimates for the neutral levels. At the same time, CPI inflation is in line with the 2% target (2.1% in August), while the underlying trend is also judged by the ECB as consistent with inflation remaining at target in the medium-term.
The ECB’s economic outlook was broadly unchanged, with some GDP revisions being mostly of technical nature. Notably, the framework trade agreement between the European Union and the US, prompted the ECB to view the risks to economic activity as “more balanced” (previously: negative), in view of reduced uncertainty and a diminished risk of European retaliation.
Attention now turns to the Fed on September 17th. The case for a rate cut by -0.25% to a range of 4.00% - 4.25%, the first reduction since December 2024, appears to have been sealed, in view of further indications of labor market slowdown. Having said that, derivatives tied to the FFR reflect about a ½ likelihood that the Fed will reduce its policy rate by 50 bps on Wednesday.
On the other hand, US inflation remains above target (CPI: 3-month average of +2.8% yoy in August 2025 from +2.8% yoy in August 2024), with elevated uncertainty regarding the timing and extent of the pass-through to consumer prices of higher import costs due to increased tariffs. In that context, attention will turn to the forward guidance in the meeting statement and the Press conference, combined with the quarterly FOMC members’ assumptions for the appropriate path of monetary policy.
The MSCI ACWI edged higher by +1.6% on a weekly basis, as the prospect of monetary policy easing by the Fed supported risk appetite. US equities led the increase, while sector-wise, Information Technology overperformed due to Oracle’s strong business revenue guidance.
Euro area equities also increased by +1.6%, with investors keeping an eye on French political developments. The government lost the confidence vote, as expected, and the former Prime Minister (PM) Bayrou resigned, with President Macron appointing Mr. Lecornu as PM. The new PM’s first task is to seek consensus in the Parliament for the 2026 Budget and then to form a government, as the outgoing Cabinet will remain in place in the meantime.
The CAC40 followed the upward trend in the past week, while French government bond spreads stabilized, albeit at elevated levels of c. 80 bps against the Bund. Note that Fitch Ratings downgraded France’s sovereign credit rating, by one notch to A+ with a stable outlook on September 12th.
The rating downgrade came on account, inter alia, of (i) high and rising public debt, as Fitch projects a debt/GDP ratio of 121% in 2027 from 113% in 2024 and 98% in 2019 and (ii) uncertain political capacity to deliver substantial fiscal consolidation. Indeed, the fiscal deficit stood at -5.8% of GDP in 2024, with Fitch projecting a modest narrowing to -5.5% of GDP in 2025.
On monetary policy, the ECB stood pat for a second consecutive meeting on September 11th, with the Deposit Facility Rate (DFR) at 2.0%, a decision which was widely anticipated. On forward guidance, the data-dependent and meeting-by-meeting approach remains in place.
Recall that following a reduction of 200 bps since June 2024, the DFR stands well within the central range of estimates for the neutral levels. At the same time, CPI inflation is in line with the 2% target (2.1% in August), while the underlying trend is also judged by the ECB as consistent with inflation remaining at target in the medium-term.
The ECB’s economic outlook was broadly unchanged, with some GDP revisions being mostly of technical nature. Notably, the framework trade agreement between the European Union and the US, prompted the ECB to view the risks to economic activity as “more balanced” (previously: negative), in view of reduced uncertainty and a diminished risk of European retaliation.
Attention now turns to the Fed on September 17th. The case for a rate cut by -0.25% to a range of 4.00% - 4.25%, the first reduction since December 2024, appears to have been sealed, in view of further indications of labor market slowdown. Having said that, derivatives tied to the FFR reflect about a ½ likelihood that the Fed will reduce its policy rate by 50 bps on Wednesday.
On the other hand, US inflation remains above target (CPI: 3-month average of +2.8% yoy in August 2025 from +2.8% yoy in August 2024), with elevated uncertainty regarding the timing and extent of the pass-through to consumer prices of higher import costs due to increased tariffs. In that context, attention will turn to the forward guidance in the meeting statement and the Press conference, combined with the quarterly FOMC members’ assumptions for the appropriate path of monetary policy.