On Friday, the Dow Jones (US30) Index gained 0.33% (for the week +0.60%), while the S&P 500 (US500) Index fell 0.13% (for the week +0.43%). The NASDAQ Technology Index (US100) closed negative 0.13% (for the week +0.50%). The US personal spending and income reports released on Friday were weaker than expected and were favorable to the Fed. In addition, the PCE Core Price Index for August, which is the Fed’s preferred inflation gauge, matched expectations, driving bond yields lower and supporting equities. Dovish comments from the Fed on Friday suggest that the Fed will gradually ease monetary policy without taking drastic steps.

Equity markets in Europe were steadily growing on Friday. Germany’s DAX (DE40) rose 1.22% (+3.77% for the week), France’s CAC 40 (FR40) closed 0.64% higher (+3.89% for the week), Spain’s IBEX 35 (ES35) gained 0.12% (+1.76% for the week), and the UK’s FTSE 100 (UK100) closed 0.43% higher (+1.10% for the week).

The Eurozone Economic Confidence Indicator for September fell 0.3 to 96.2, weaker than expectations of 96.5. The ECB’s 1-year Eurozone inflation expectations for August fell to a 3-year low of 2.7% from 2.8% in July, which was in line with expectations. Inflation expectations for 3-year inflation in August declined to 2.3% from 2.4% in July, matching expectations. French Consumer Price Index for September (EU harmonized) fell to 1.5% y/y from 2.2% y/y in August, weaker than expectations of 1.9% and the smallest increase in 3 years.

WTI crude futures rose to $69/bbl on Monday, extending gains from the previous session, driven by concerns over the possibility of supply disruptions amid escalating tensions in the Middle East. Concerns over widening conflict in the region intensified after Israel stepped up its bombardment of Lebanon following the death of Hezbollah leader Hassan Nasrallah. Israeli Prime Minister Netanyahu also warned Iran, suggesting it could be targeted, further increasing the risk of supply disruptions from the OPEC producer. However, prices continued to be pressured by Saudi Arabia’s plans to increase production later this year, with OPEC+ set to raise output by 180,000 barrels a day in December.

Asian markets were mostly up last week. Japan’s Nikkei 225 (JP225) fell 0.91%, China’s FTSE China A50 (CHA50) jumped 24.28%, Hong Kong’s Hang Seng (HK50) jumped 15.41%, and Australia’s ASX 200 (AU200) was positive 1.43%.

China’s manufacturing activity contracted less than expected in September, while service sector activity stalled. Meanwhile, a private survey showed an unexpected decline in manufacturing activity and a slowdown in service sector growth. On Sunday, the People’s Bank of China (PBoC) announced it would order banks to cut mortgage rates by October 31 amid efforts to support the real estate sector.

Japanese stocks retreated sharply from two-month highs, weighed down by a strong yen rally following the results of last Friday’s election for the ruling Liberal Democratic Party. Former Defense Minister Shigeru Ishiba, who was seen as less dovish than his rival Sanae Takaichi, won the leadership of Japan’s ruling party, effectively making him the next prime minister. Meanwhile, data released today showed that retail sales in Japan rose more than expected in August, while industrial production was weaker than expected.

The Australian dollar rose to $0.69 on Monday, hitting its highest level since February 2023, as China’s economic stimulus measures boosted demand prospects in Australia’s largest trading partner, driving up commodity prices and commodity-linked currencies. The Australian dollar also benefited from general dollar weakness as soft US economic data reinforced expectations of further rate cuts by the Federal Reserve.

The New Zealand dollar rose to around $0.637, reaching its strongest level since July 2023. The kiwi was supported by a rise in New Zealand business confidence in September, which rose to its highest level since April 2014. In addition, consumer confidence rose for the third consecutive month and reached the highest level since January 2022. On the monetary policy front, the Reserve Bank of New Zealand (RBNZ) is expected to cut interest rates again in October, with a 67% chance of a half-point rate cut.