Investment Viewpoint: the calm before the shutdown?

Simplify the complex with clear and concise market insights direct from our investment experts every week.

Markets and macro insights with Bernard Swords, Chief Investment Officer

How did the markets perform last week?

• Overall, equity markets showed minimal movement last week, with global equities dipping slightly—by about 0.3% in local currency terms. The US Dollar did strengthen during the week, which limited the losses to a modest 0.1% in Euro terms. The key determinant of performance was a change in expectations regarding US interest rates, with fewer cuts now considered likely.

What were the strongest sectors?

• Sector performance has been narrowing this month, with just three areas leading the charge: Information Technology, Communication Services, and Consumer Discretionary—the latter boosted by a strong move in Tesla’s share price. As in recent months, the dominant positive narrative concerns the potential of AI. However, its capacity to lift results across the board remains limited. Four of the eleven major sectors are now in negative territory.

What did last week’s data releases show?

• In Europe, economic data was light, but the latest PMI surveys offered a cautiously optimistic signal. The Composite PMI rose to a 16-month high of 51.2, thanks to a solid uptick in the services sector, which climbed to 51.4. However, manufacturing remains under pressure, slipping below the 50 mark, which indicates a mild contraction. The weakness was broad-based—affecting output, new orders, and employment—and was largely driven by domestic demand rather than exports.

What is the news on tariffs and their impact?

• On the trade front, President Trump announced a proposed 100% tariff on branded pharmaceuticals to take effect from the 1st of October for any companies not actively building manufacturing facilities in the US. The market reaction in Europe has been muted, possibly because most major pharma firms already have plans to expand US operations over the next five years. As a result, the impact on European and US markets appears to be limited in scope.

The week ahead: what to watch out for

This week may see a US government shutdown produced by a standoff over the debt ceiling. However, markets remain largely unfazed by political tensions. If a shutdown does occur, it is expected to be short-lived and of minimal economic impact, as were past episodes of a similar type. Most significant among next week’s data releases will be the jobs report (non-farm Payrolls). We also see the main US business sentiment surveys, the ISMs. From the euro area we will receive the inflation reports, on both consumer and producer prices. China will be releasing its main business surveys, the PMIs.