2025 W36 Global DM Recap
Amidst a softening global labor market pushing central banks towards easing, can the record surge in AI-driven market optimism truly defy broader economic realities?
Markets Narratives
Macro Overview
- US Labor Market Weakening: August nonfarm payrolls added just 22,000 jobs (July revised to 79,000, June revised to a loss of 13,000). Unemployment rate ticked up to 4.3% (highest since 2021). July job openings fell to 7.18 million, lowest since September 2024.
- US Manufacturing & Services: Manufacturing PMI at 48.7% (6th consecutive month of contraction), but New Orders Index rose 4.3 percentage points to 51.4%. Services PMI expanded to 52%.
- Euro Area Inflation & Labor: Headline inflation ticked up to 2.1%, core rate stable at 2.3%. Unemployment eased to 6.2% in July (low last hit November 2024). Retail sales declined 0.5% sequentially.
- Japan Wage Growth: Nominal wages grew 4.1% YoY in July, and real (inflation-adjusted) wage growth turned positive for the first time this year.
- China Economic Slowdown: Economic indicators point to a broad slowdown, struggling with U.S. tariffs, property downturn, and persistent deflation. New home prices fell 0.27% MoM, residential sales dropped 12.6% YoY.
Policy Developments
- US Rate Cut Expectations: Futures markets pricing in 100% chance of at least a 25-basis-point rate cut at the Fed’s next meeting, with 50-basis-point cut probability rising to about 10%.
- ECB Stance: Policymakers mainly reinforced the view that interest rates would remain unchanged in September and for some time after that.
- BoE Doubts on Rate Cuts: Bank of England Governor Andrew Bailey warned of “considerably more doubt” about further reductions in interest rates.
- BoJ Outlook: Deputy Governor Ryozo Himino asserted that the central bank will raise interest rates if prices and the economy develop in line with its forecasts.
