Fed rate cut hopes lift US stocks while ASX 200 falters despite strong GDP

Cooling US labour market boosts equities as ASX 200 dips after GDP rise

United States (US) equity markets rose this week as the release of the Job Openings and Labor Turnover Survey (JOLTS) job openings and ADP employment report indicated a cooling labour market, raising expectations that the Federal Reserve (Fed) will restart its rate-cutting cycle in two weeks.

Locally, the Australia 200 (ASX 200) aims to break a four-week winning streak following an initial heavy sell-off at the start of the week. The market failed to recover despite a better-than-expected second quarter (Q2) 2025 gross domestic product (GDP) report, which showed growth in the Australian economy rising to 1.8% year-over-year (YoY) from 1.3% – the fastest annual growth rate since the third quarter (Q3) of 2023.

The week that was: highlights

•  In the US, ISM Manufacturing PMI rose to 48.7 in August up from 48 in July.
• JOLTS Job Openings for July fell by 176,000 to 7.18 million in July, the lowest level since September 2024
• Initial Jobless Claims increased by 8,000 to 237,000, marking the highest level in two months
• ISM Services PMI rose to 52 in August from 50.1 in July for the fastest expansion in the services sector in six months.
• The ADP Employment Report revealed that private businesses added 54,000 jobs, down from 106,000 last month and below forecasts of 65,000.
• In Europe, core inflation rose to 2.3% YoY in August for the fourth consecutive month.
• In China, the RatingDog Manufacturing PMI rose to 50.5 in August from 49.5.
• In Australia, Q2 GDP rose by 0.6% QoQ which saw the annual rate of growth rose to 1.8% YoY from 1.3% -the fastest rate of annual growth since Q3 2023
• Crude oil fell by 1.08% this week to $63.32.    
• Gold surged by 3.1% this week to $3551.  
• Bitcoin gained 2.32% this week to $110,782.
• Wall Street's gauge of fear, the volatility index (VIX), fell to 15.29 this week from 15.35 the previous week. 

Key dates for the week ahead

Australia & New Zealand

• Westpac Consumer Confidence: Tuesday, 9 September at 8.30am SGT
• NAB Business Confidence: Tuesday, 9 September at 9.30am SGT
• Business NZ PMI: Friday, 12 September at 6.30am SGT

China & Japan

• Balance of Trade: Monday, 8 September at 11.00am SGT
• CPI and PPI: Wednesday, 10 September at 9.30am SGT

United States

• BLS Labour market revisions: Wednesday, 9 September at 10.00pm SGT
• PPI: Wednesday, 10 September at 8.30pm SGT
• CPI: Thursday, 11 September at 8.30pm SGT
• Michigan Consumer Sentiment Pre: Saturday, 12 September at 10pm SGT

Europe & United Kingdom

• Euro area European Central Bank (ECB) interest rate decision: Thursday, 11 September at 8.15pm SGT
• United Kingdom (UK) GDP: Friday, 12 September at 2.00pm SGT

Key events for the week ahead

AU: Westpac consumer confidence

Date: Tuesday, 9 September at 8.30am SGT

For August, the Westpac Consumer Confidence Index rose 5.7% month-on-month (MoM) to 98.5 points, its highest level since February 2022, driven by Reserve Bank of Australia (RBA) rate cuts, rising wages, and easing cost-of-living pressures.

The significant rise suggests that Australian consumers are becoming more optimistic about major purchases and the economic outlook, potentially influencing business and consumer spending, employment, and growth prospects in the Australian economy.

The September reading likely coincides with the week ending, which included the release of the Q2 Australian GDP data, showing a rise to 1.8% YoY – the fastest rate of annual growth since Q3 2023.

This, along with speculation of a 25 basis point (bp) rate cut at the RBA’s November meeting, combined with easing inflation and positive global cues, is expected to see the Consumer Confidence Index rise further to 99.5 in September.

Westpac Consumer Confidence chart

CN: CPI

Date: Wednesday, 10 September at 9.30am SGT

For July, China’s consumer prices showed a YoY inflation rate of 0.0%, narrowly avoiding a return to negative territory. Core inflation, excluding volatile food and fuel prices, increased by 0.8% YoY, the highest level in 17 months.

For August, the market expects a fall of -0.2% YoY. Core CPI is expected to remain steady at approximately 0.7% YoY, as structural demand weakness persists.

The zero rate of inflation in July and the expected decline in August signal that China’s economy continues to face deflationary pressures, indicating insufficient consumer and business activity.

The threat of deflation, combined with slow demand and external challenges like US-China trade tensions, suggests that additional stimulus may be needed to boost economic momentum in China.

China inflation rate chart

EA: ECB interest rate decision

Date: Thursday, 11 September at 8.15pm SGT

At its last meeting in July, the ECB kept policy rates unchanged, marking a pause in the ECB’s rate-cutting cycle that began in June 2024. With inflation hovering at the 2% medium-term target, the eurozone economy shows resilience despite global trade tensions.

Expectations for the next meeting are that the ECB will keep key policy rates on hold. The European interest rate market is pricing just a 25% chance of another ECB rate cut before year-end.

ECB deposit rate chart

US: CPI

Date:  Thursday, 11 September at 8.30pm SGT

For July, headline inflation in the US increased by 0.2%, keeping the annual rate at 2.7%. The annual core consumer price index, excluding volatile items, rose by 0.3%, pushing the annual core inflation rate to 3.1%.

For August, the expectation is for the annual headline inflation rate to rise to 2.9% – the highest since January – with the core measure remaining at 3.1% YoY.

Ahead of this release, the US interest rate market is fully priced for a 25 bp rate cut on 17 September and is pricing in a total of 150 bp of Fed rate cuts between now and December 2026.

US core inflation rate chart