Global Markets Weekly Review: Rate Cut Hopes Fuel U.S. Rally as Debt Fears Weigh on Europe

A Week of Diverging Fortunes

The week ending September 5, 2025, presented a starkly fractured picture across global equity markets, driven by a powerful divergence between monetary policy optimism in the United States and resurgent structural concerns in Europe. The overarching narrative was one where regional-specific catalysts either amplified or completely counteracted the dominant theme emanating from the U.S.: the fervent expectation of an imminent interest rate cut by the Federal Reserve. This anticipation, ironically sparked by a surprisingly weak U.S. jobs report, propelled American indices to new record highs under a “bad news is good news” paradigm.¹

This bullish sentiment found traction in Asia, where markets largely tracked Wall Street’s positive lead. Japanese equities were a particular standout, bolstered by favourable domestic data and a positive trade development with the U.S..³ Chinese markets also posted gains, supported by ongoing policy measures and tentative signs of a thaw in trade relations with Washington.⁴ In India, markets navigated a complex interplay of forces. A landmark domestic tax reform initially cheered investors, but the enthusiasm was capped by significant profit-taking at key technical levels, resulting in a week of modest gains but a flat finish.⁶

In sharp contrast, European bourses suffered significant losses. The optimism from across the Atlantic was completely overshadowed by a revival of fears surrounding sovereign debt sustainability and political instability, particularly in France and the United Kingdom, sending a chill through the region’s markets.¹ Meanwhile, the Australian market in Oceania charted its own unique course, decoupling from the global trend. Stronger-than-expected local economic data diminished the prospect of domestic rate cuts by the Reserve Bank of Australia, leading to a weekly decline for the benchmark index and snapping a month-long winning streak.⁹

This dynamic was mirrored in commodity markets, where gold surged to a new record high on safe-haven demand and rate cut hopes, while oil prices slipped on concerns of a supply glut.¹ The week’s events underscore a global investment landscape where central bank policy, and the speculation surrounding it, has become the preeminent driver of market direction, often leading to counterintuitive reactions to fundamental economic data.

Table 1: Major Global Index Performance (Week Ending 5 Sept 2025)

Note: Weekly change for some indices is based on Friday’s performance and weekly commentary where full data is not available.

The Global Backdrop: Key Drivers of a Fractured Market

The week’s divergent market performances were not random; they were rooted in a set of powerful macroeconomic and geopolitical themes that rippled across the globe with varying intensity. The primary catalyst was a dramatic shift in U.S. monetary policy expectations, but its influence was heavily mediated by pressing fiscal issues in Europe, ongoing trade negotiations, and contrasting movements in key commodities.

The U.S. Jobs Report Shockwave: “Bad News is Good News”

The defining event of the week was the release of the U.S. August nonfarm payrolls report, which acted as a powerful shockwave through global financial markets. The report revealed that the U.S. economy had added a mere 22,000 jobs, a figure that fell dramatically short of the consensus forecast of 75,000.² The weakness was compounded by downward revisions to the data from previous months and an uptick in the headline unemployment rate to 4.3%.¹⁰

In a normal economic environment, such data would be unequivocally bearish for equities, signalling a rapidly cooling labour market and a potential precursor to recession. However, the market’s reaction was precisely the opposite. U.S. stock futures, which were lower before the report’s release, immediately rallied, sending major indices soaring to record highs by the close of the week.¹ This reaction was a textbook demonstration of the “bad news is good news” sentiment that has come to define markets hyper-focused on central bank liquidity. Investors looked past the grim implications for economic growth and corporate earnings, interpreting the weak labour data as the final piece of evidence the Federal Reserve needed to justify an interest rate cut at its upcoming September meeting.¹

The market’s conviction was so strong that speculation even emerged about the possibility of a more aggressive 50-basis-point cut, a scenario that had been largely dismissed just weeks prior.² This wholesale shift in expectations had an immediate and predictable impact on asset prices. The yield on the benchmark 10-year U.S. Treasury note fell to 4.08% as bond prices rose on the prospect of lower rates, while the U.S. Dollar Index weakened significantly.¹⁰ This chain reaction—weak data leading to lower rate expectations, which in turn fuels higher stock prices—demonstrates that for the time being, the primacy of monetary policy has eclipsed traditional economic fundamentals as the key driver of investor behaviour

The Return of Sovereign Debt Concerns in Europe

While U.S. markets celebrated the prospect of monetary easing, European markets were grappling with a far more tangible and immediate threat: the return of sovereign debt anxiety. Concerns over unsustainable budget deficits and burgeoning public debt levels, reminiscent of the Eurozone crisis of 2010-2015, resurfaced with vigour casting a long shadow over the continent’s equities.¹

The anxiety was most acute in two of Europe’s largest economies:

• United Kingdom: Investor nervousness ahead of an upcoming budget statement pushed the yield on 30-year UK government bonds (gilts) to its highest level since 1998. This surge in long-term borrowing costs signalled deep-seated concern about the UK’s fiscal trajectory and its ability to manage its debt load.¹
• France: Political instability added another layer of risk. A looming confidence vote in the government amplified fears that the country’s budget deficit would remain stubbornly and unsustainably high at approximately 5.5% of its Gross Domestic Product (GDP).¹

These fiscal pressures created a significant headwind for European stock markets. Rising government bond yields not only increase borrowing costs for corporations but also signal the potential for future austerity measures, which would act as a drag on economic growth.¹ This fundamental, present-day structural issue stands in stark contrast to the U.S. market’s forward-looking speculation on central bank policy. While American investors were betting on the Federal Reserve’s response to a

potential future slowdown, European investors were reacting to the current reality of deteriorating public finances. This fundamental divergence in risk perception explains why European indices fell sharply while their U.S. counterparts rallied.⁸

The Tangled Web of Global Trade

The global trade environment presented a complex and mixed picture during the week, with signs of both de-escalation and renewed friction influencing sentiment across different regions.

• U.S.-China Relations: A note of optimism emerged as it was announced that the U.S. and China would commence preliminary talks, a development that provided support to Chinese equities.⁴ Market analysts now anticipate that a partial reduction in the punishing mutual tariffs is likely in the coming days, as both sides recognise that the current tariff levels risk bringing bilateral trade to a virtual standstill.⁴
• U.S.-Japan Accord: In a clear positive development, U.S. President Donald Trump signed an executive order to lower tariffs on Japanese automobile imports.³ This move, part of a trade deal agreed upon in July, provided a direct and significant boost to Japan’s crucial auto sector and the broader Nikkei index.³
• U.S.-India Tensions: Conversely, trade relations between the U.S. and India soured. The U.S. administration imposed a new 25% tariff on a range of Indian imports, citing India’s continued purchases of Russian oil as the reason.¹¹ This new levy, on top of existing duties, added to the headwinds facing the Indian market and weighed on investor sentiment.⁷

Commodities in Contrast: Oil Slips as Gold Shines

The divergent risks perceived by investors were clearly reflected in the contrasting performance of two key commodities: oil and gold.

• Oil Prices Weaken: Crude oil prices were set for their first weekly loss in three weeks, with both Brent and West Texas Intermediate (WTI) benchmarks declining.³ The drop was precipitated by a double-barreled threat to the supply-demand balance. On the supply side, reports emerged that the OPEC+ coalition of oil-producing nations may consider increasing production at its upcoming meeting.³ This was compounded by official U.S. government data showing a surprise inventory build of 2.4 million barrels, against forecasts for a draw.³
• Gold Hits New Record High: In stark contrast, the price of gold surged, reaching a new record high.¹ The rally was fueled by a perfect storm of factors that enhance its appeal as a safe-haven asset. The rising concerns over public debt in Europe, combined with the prospect of lower interest rates and a weaker U.S. dollar, drove significant investor demand for the precious metal.¹ Lower interest rates reduce the opportunity cost of holding non-yielding gold, making it a more attractive store of value.

The opposing trajectories of these two commodities provide a telling barometer of the market’s fractured outlook. The fall in oil, a pro-cyclical asset sensitive to economic growth, suggests concern that industrial demand may not be robust enough to absorb growing supply. Simultaneously, the record-breaking rally in gold, a classic counter-cyclical asset, indicates deep-seated fears about fiscal instability and the potential for currency debasement from loose monetary policies in the West.

Table 2: Key Economic & Commodity Indicators (Week Ending 5 Sept 2025)

Regional Market Analysis: A Deep Dive

United States: Weak Data, Strong Rally

U.S. equity markets ended the week with a powerful rally, decisively driven by the market’s interpretation of the August jobs report. On Friday, the S&P 500 index gained 0.83% to close at 6,502.08, while the Dow Jones Industrial Average rose 0.77% to 45,621.29. The technology-heavy Nasdaq Composite led the gains, climbing 0.98% to finish at 21,707.69.¹⁰ The week’s performance was strong enough to push the S&P 500 to a new all-time closing high, underscoring the bullish conviction among investors.¹

The market psychology on display was a clear case of investors prioritising the promise of cheaper money from the Federal Reserve over concerns about the underlying health of the economy. The weak employment figures were not seen as a threat to corporate profitability but rather as a guarantee of forthcoming monetary stimulus.¹² This singular focus propelled the market upward, but it also raised questions about sustainability. Analysts noted that while near-term investor positioning indicators remained positive, equity valuations were becoming increasingly stretched after the recent run-up.¹ This has led to suggestions that it may be prudent for investors to consider rebalancing their portfolios, potentially rotating some capital from expensive U.S. equities toward less-expensive international markets that are backed by their own policy support measures.⁴

Europe: Under the Weight of Fiscal Pressure

In a stark transatlantic divergence, European markets buckled under the weight of renewed fiscal and political pressures. The pan-European STOXX Europe 600 Index finished the week down 1.99%, with major national indices suffering even more pronounced declines.⁸ France’s CAC 40 was the worst performer among the major markets, plummeting 3.33%, followed by Italy’s FTSE MIB, which lost 2.57%. Germany’s DAX fell 1.89%, and the UK’s FTSE 100 shed 1.44% over the week.⁸

The downturn was a direct consequence of the sovereign debt fears that gripped the region, with rising bond yields in the UK and political uncertainty in France serving as the primary catalysts.¹ These domestic anxieties, coupled with broader geopolitical concerns such as the fading hopes for a peaceful resolution to the Russia-Ukraine conflict, created a deeply risk-off environment.⁸ The negative sentiment was pervasive enough to completely overwhelm any potential positive spillover from the rally in the U.S. The market’s state was further reflected in the quarterly rebalancing of the S&P Europe 350 index, which saw the removal of German sportswear company Puma SE and the addition of Italian bank Bper Banca, effective September 22, 2025.¹⁴

Asia-Pacific: A Tale of Multiple Influences

Asian markets generally finished the week on a positive note, with most indices taking their primary cue from Wall Street’s record close and the accompanying optimism about a U.S. rate cut.³ However, the performance across the region was far from uniform, with local factors playing a crucial role in shaping outcomes.

Japan: The Tokyo Stock Exchange was a clear outperformer. The Nikkei 225 index surged 0.9% on Friday to close the week at a strong 42,945.16.³ The index’s robust performance was underpinned by a trifecta of positive news. First, strong domestic economic data showed that labour cash earnings had increased by a healthy 4.1% year-on-year in July, while household spending climbed for a third consecutive month.³ Second, the market received a direct boost from the U.S. executive order lowering tariffs on Japanese car imports, a significant boon for the country’s export-oriented auto industry.³ Finally, the index benefited from the broad risk-on sentiment flowing from Wall Street’s rally.³

Greater China: Mainland Chinese and Hong Kong markets also posted gains, albeit more modest ones. The Shanghai Composite rose 0.4% to 3,778.95, while Hong Kong’s Hang Seng index gained 0.5% to end the week at 25,194.85.³ The gains were attributed to several factors, including bargain hunting after a powerful 10% surge in August had left some stocks looking attractive.¹ Sentiment was also supported by a steady drip-feed of incremental policy support measures from Beijing aimed at stabilising the economy, as well as cautious optimism surrounding the announcement of preliminary trade talks with the United States.⁴

India: Domestic Reforms Take Centre Stage

Indian equity markets recorded gains for the week, with the benchmark BSE Sensex rising 1.12% and the Nifty 50 advancing 1.28%.¹⁵ However, the week’s trading culminated in a flat session on Friday, with the Sensex closing virtually unchanged at 80,710.76 and the Nifty 50 at 24,741.¹⁵ This price action reflected a market caught in a tug-of-war between a significant positive domestic catalyst and several powerful countervailing forces.

The primary positive driver was the Indian government’s announcement of a major overhaul of the Goods and Services Tax (GST) structure. The reform, which eliminates the 12% and 28% tax slabs and shifts most goods into lower 5% and 18% brackets, is aimed at boosting consumption and was widely cheered by the market, particularly benefiting the automobile sector.⁶

However, the enthusiasm generated by the GST news was effectively neutralised by a confluence of negative factors. Investors engaged in significant profit-booking, especially as the Nifty 50 index approached the psychologically important resistance level of 25,000.⁶ The market also witnessed a distinct sector rotation; while auto stocks rallied on the tax news, heavyweight sectors like IT and FMCG experienced deep cuts, indicating that capital was shifting within the market rather than entering it in a broad-based rally.⁷ Furthermore, sustained selling by Foreign Institutional Investors (FIIs) continued to act as a drag on overall market sentiment.⁷

The market’s inability to sustain a rally on unequivocally good domestic news, combined with repeated selling pressure at a key technical hurdle, suggests that Indian equities have entered a consolidation phase. The weekly chart for the Nifty formed a candle with a long upper shadow, a technical pattern that explicitly signals selling pressure at higher levels.⁷ Analysts have identified a clear consolidation range for the Nifty between support at approximately 24,400 and resistance around 25,000.⁶ The market appears to be in a state of equilibrium, awaiting a new, more powerful catalyst to break out of this range.

Oceania: RBA Expectations Anchor Australian Market

The Australian stock market distinctly decoupled from the U.S.-led rally, with its performance dictated almost entirely by domestic monetary policy expectations. The benchmark S&P/ASX 200 index snapped a four-week winning streak, falling 1.1% for the week.⁹ Although the index managed a 0.5% gain on Friday to close at 8,871.2, it was not enough to offset the losses from earlier in the week.⁹

The weekly decline was a direct consequence of stronger-than-expected Australian economic growth data released earlier in the week.¹ This provides a fascinating counterpoint to the U.S. market’s reaction to its own economic data. While weak U.S. data was celebrated for increasing the odds of a rate cut, the strong Australian data was punished by the market precisely because it led investors to pare back their bets on near-term interest rate cuts by the Reserve Bank of Australia (RBA).⁹ This inverse reaction highlights how profoundly central bank expectations are shaping market outcomes in the current environment.

The impact was felt across various sectors. The heavyweight financials sector logged its weakest week since late July, and energy stocks were dragged lower by the global decline in oil prices.⁹ One of the few bright spots was the gold mining sector, where stocks climbed for a fifth consecutive week, benefiting from the global surge in the price of the precious metal.⁹

Conclusion: Navigating a Data-Dependent World

The week ending September 5, 2025, served as a powerful illustration of a global market operating under a set of diverging, and at times contradictory, narratives. The dominant force was the expectation of monetary easing in the United States, where weak economic data was paradoxically cheered as a harbinger of lower interest rates. This stood in stark contrast to Europe, where markets were forced to confront fundamental fiscal anxieties, and to Australia, where economic strength was penalised for dampening the prospects of domestic policy support. This fractured landscape underscores a critical reality for investors: central bank policy expectations have, for the moment, eclipsed traditional economic fundamentals as the primary determinant of market sentiment and direction.

Looking ahead, the path for global markets remains acutely data-dependent. The delicate balance of optimism, particularly in the U.S., rests on the continuation of a “Goldilocks” narrative—an economy that is cooling enough to warrant central bank support but not so weak as to signal an imminent recession that would severely damage corporate earnings. All eyes will now turn to the next slate of major economic releases, most notably the upcoming U.S. inflation report (CPI).² This report will be a critical input for the Federal Reserve ahead of its September policy meeting and has the potential to either reinforce the current market narrative or challenge it significantly. Any data point that meaningfully alters the outlook for inflation or growth could easily disrupt the market’s fragile equilibrium and introduce a fresh wave of volatility in the weeks to come.

Disclaimer

This report is for informational purposes only and is based on publicly available information believed to be reliable as of the date of publication. It does not constitute, and should not be construed as, financial, investment, legal, tax, or any other form of advice. The views and opinions expressed herein are those of the analyst and are subject to change without notice. This report is not a solicitation or offer to buy or sell any securities or financial instruments. Past performance is not indicative of future results. Investors should conduct their own due diligence and consult with a qualified financial professional before making any investment decisions. The authors and the publisher of this report accept no liability whatsoever for any direct or consequential loss arising from any use of this report or its contents.

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