Issue #28 - Central Banks, Klarna’s IPO & Oracle’s Cloud Bet: Markets Face a Pivotal Week

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What’s in this issue;

• Central bank moves from the Fed, BOE & BOJ set the tone for markets

• Klarna’s $17B IPO and Oracle’s cloud ambitions dominate headlines

• Inflation pressures, global slowdown fears, and EM resilience in focus

• Key earnings: Micron, Costco, Accenture, AutoZone, FedEx, General Mills

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Weekly Movement - Heatmaps

European Shares Weaken Ahead of Trump–Xi Call; Japan and UK Data in Focus

European stocks slipped into the red on Friday as investors weighed multiple headwinds, from monetary policy in Japan to UK borrowing concerns, while awaiting a closely watched call between President Trump and China’s Xi Jinping. The Stoxx 600 edged 0.10% lower, with Germany’s DAX under pressure after weak freight data hit shipping stocks, while France’s CAC 40 managed modest gains. Sentiment was dampened by the Bank of Japan’s surprise decision to begin offloading ETF holdings despite leaving rates unchanged, alongside softer Japanese inflation.

Meanwhile, UK borrowing figures came in well above expectations at £18bn, rattling gilts and sterling, while stronger-than-expected retail sales data failed to offset concerns about fiscal sustainability. Container shipping names like Maersk and Hapag-Lloyd slumped on falling freight indices, while Kuehne+Nagel dropped after a Deutsche Bank downgrade.

Wall Street Opens Higher as Rate Cut Hopes Support Tech, UK Markets Slide on Borrowing Strains

In contrast, Wall Street opened higher, extending record highs for the Dow, S&P 500, and Nasdaq, buoyed by renewed appetite for tech stocks and hopes that the Fed’s recent rate cut will underpin growth. Gains were tempered by Chair Jerome Powell’s insistence that the move was “risk management” rather than the start of a deeper easing cycle, with traders scaling back 2026 cut expectations.

Tech names such as Apple, Tesla, and Intuit led early risers, while Micron and Broadcom weighed on the Nasdaq after profit-taking. Options expiry added to volatility, particularly in index-linked contracts. Back in London, the FTSE 100 and FTSE 250 both slipped as weakness in banks and consumer confidence overshadowed upbeat miners and select defensives. Public borrowing figures and softer consumer sentiment painted a challenging backdrop for Chancellor Rachel Reeves ahead of November’s Budget, with analysts warning tax rises look increasingly unavoidable.

What is Moving the Markets This Week

Fed Finally Cuts Rates

• The Federal Reserve cut interest rates by 0.25% after nine months on hold.

• Its “dot plot” projections suggest more cuts are likely later this year.

• Stocks dipped midweek after Fed Chair Jerome Powell called the move “risk management,” raising doubts about a larger easing cycle.

Geopolitics in Focus

• President Trump spoke with China’s Xi Jinping in a “very productive” call and plans to visit China next year.

• China blocked Nvidia’s AI chips, escalating tech tensions with the U.S.

• Nvidia countered with a $5 billion investment and partnership with Intel.

Earnings Spotlight

• FedEx beat expectations with strong revenue and profit growth.

• The results reinforced its reputation as a bellwether for the global economy.

Top Economic News This Week

Central Bank Rate Decisions Dominate Markets

Three of the world’s most influential central banks—the US Federal Reserve, Bank of England, and Bank of Japan—hold monetary policy meetings this week. The US Fed is widely expected to resume its rate-cutting cycle, with markets anticipating a 25 basis point reduction. The Bank of England is likely to hold rates steady given near-4% inflation in the UK, while the Bank of Japan’s decision will be closely scrutinized for any shifts in yield curve control given ongoing yen weakness. These decisions set the tone for global markets and risk appetite.

US Inflation Remains Above Target, Labour Market Weakens

US inflation printed at 2.9% in August, the highest since January, with core inflation at 3.1%. Rising prices—exacerbated by recent tariffs and reduced labour supply—are of concern, even as job growth has slowed sharply (just 22,000 jobs added in August vs. over 100,000 per month earlier in the year). The Fed’s decision and projections (“dot plot”) will be crucial in signaling the future rate path, especially amidst signs of cooling consumer demand and stalling manufacturing.

China’s Economic Slowdown Intensifies

China’s August data reveals a pronounced slowdown: factory output and retail sales both posted their weakest growth since early 2024. Property investment fell by nearly 13% year-on-year in the first eight months of 2025, and property sales also slumped. This intensifies pressure on Beijing to deliver further stimulus as the world’s second-largest economy risks missing its growth targets and continues to weigh on global trade sentiment.

Emerging Markets

Emerging markets sustained their overall resilience during the week, driven by strong local currency debt performance and continued equity gains despite geopolitical and economic headwinds.

The MSCI EM index remains supported by a weakening US dollar, which has declined about 10% year-to-date, enhancing returns for global investors.

Key investor takeaways for the week:

India: A key focus as trade tensions with the US continue, but investor sentiment is encouraged by strong policy moves supporting self-reliance and strategic resource investments. The upcoming trade talks in Washington could unlock further market optimism. Indian equity funds have lagged the broader EM gains this year but selective exposure to manufacturing and tech-linked sectors may offer upside.

China: Ongoing regulatory scrutiny coupled with disappointing economic data—particularly in industrial output and retail sales—signals near-term growth challenges. However, incremental progress on US-China tech negotiations (e.g., TikTok ownership talks) may reduce geopolitical risk premiums in the medium term.

Debt Markets: Local currency bonds in emerging markets continue to outperform, returning over 13% YTD, on the back of central banks beginning to cut interest rates as inflation eases. Hard currency debt remains attractive with lower spreads, though the compressed yield environment calls for selective credit risk management.

Latin America: Brazil’s fuel sector shows strong recovery post law enforcement raids disrupting criminal networks, a positive signal for domestic demand and investor confidence. Argentina’s heavy central bank currency interventions underscore ongoing macro risks, suggesting caution in certain sovereign debt and equity exposures.

Risk factors: Moody’s negative outlook on Poland, political gridlocks in Eastern Europe, and Nigeria’s possible oil industry reforms pose country-specific volatility. Investors should remain vigilant on idiosyncratic governance and geopolitical developments that could trigger market disruptions.

Technological innovation and trade: Partnerships expanding autonomous vehicle and digital sectors in emerging Asia hint at growth drivers beyond traditional commodities and manufacturing, particularly in regional tech hubs.

Outlook: With the US Federal Reserve widely expected to ease policy later this year, emerging markets are positioned to benefit from lower global rates and weaker dollar dynamics. However, discerning stock and bond selection remains critical amid divergent country fundamentals and political risks.

Looking Forward: What We Anticipate Next Week

Key Events This Week

Wall Street is bracing for a busy stretch, with investors weighing fresh commentary from Federal Reserve officials, a packed slate of economic releases, and a handful of notable earnings reports.

The Fed cut interest rates last week for the first time in nine months, and market participants will be listening closely to speeches from Chair Jerome Powell, newly appointed Governor Stephen Miran, and Vice Chair for Supervision Michelle Bowman.

Their remarks will provide more color on the central bank’s policy stance and the outlook for further easing.

On the economic front, updates range from manufacturing activity to the final estimate of second-quarter GDP, culminating in Friday’s closely watched release of the core PCE price index — the Fed’s preferred inflation gauge.

Earnings season is winding down, but Micron Technology, Costco, and Accenture headline a week that still features several large-cap names.

Tuesday

The week kicks off with the S&P Global Manufacturing PMI flash estimate, forecast at 49 versus 47 previously. A stronger reading would suggest business confidence is stabilising after recent softness in the sector.

Thursday

Attention turns to growth and manufacturing data. The US GDP growth rate (final estimate for Q2) is expected to come in at 3.3%, compared with the previous reading of -0.5%. While forecasts are unlikely to shift at this stage, confirmation of expansion would reassure investors that recession risks remain low. Durable goods orders are also on the docket, with expectations for a 1.5% decline following July’s 2.8% drop. Even a modest improvement would support sentiment around the manufacturing outlook.

Friday

The focus shifts to inflation with the release of the core PCE price index, forecast to rise 3% year-on-year versus 2.9% previously. As the Fed’s preferred inflation gauge, this print will be closely watched for confirmation that price pressures are moving in line with expectations. A reading near consensus should reinforce the Fed’s plan for two more rate cuts this year.

Earnings to Watch

Earnings season is drawing to a close, but a number of large-cap names remain in focus. Firefly Aerospace and Genfit report Monday, followed by Micron, AutoZone, and AAR on Tuesday. Wednesday brings results from Cintas, Worthington Steel, and Stitch Fix. On Thursday, Costco, Accenture, CarMax, and BlackBerry will publish their numbers. Additional attention will be on Micron Technology, Costco, Accenture, AutoZone, and KB Home as bellwether names offering insights across tech, retail, and housing.

Outlook

Overall, the week ahead is set to provide fresh insight into how the US economy is holding up against tariff pressures and slowing global demand. Fed speakers, alongside inflation and growth data, will help shape expectations for further rate cuts, while the last stretch of corporate earnings will show how major companies are navigating a shifting economic landscape.

ICYMI

Geopolitical Tensions – South Korea suspended military broadcasts to North Korea for the first time in 15 years, a move seen as a step to reduce tensions on the peninsula.

Middle East Conflict – Developments in Gaza continue to weigh on global risk sentiment, with new footage of Israeli hostages raising political and security concerns.

Africa Spotlight – Ongoing clashes in the Democratic Republic of Congo between M23 rebels and government forces raise risks for regional stability and global supply chains in critical minerals.

Policy Shifts – Burkina Faso criminalised homosexuality, drawing international criticism that could strain foreign aid and investment ties.

Trade & Migration – Australia struck a deal to pay Nauru to accept foreign-born criminals expelled from its territory, highlighting the growing intersection of migration policy and international agreements.

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