EQUITY RETURNS STRENGTHEN AS CENTRAL BANKS WEIGH NEXT MOVES
MONTHLY HIGHLIGHTS
- Convertible bond issuance has risen to a five-year high as firms seek alternatives to traditional debt financing in a higher-rate environment. Hybrid instruments are increasingly being used not only for expansions but also to refinance upcoming maturities or fund M&A, especially among technology and growth-oriented firms.
- In China, factory activity has now contracted for six straight months which is the longest such run since 2019 reflecting weak domestic demand, property sector distress, and caution in the face of trade headwinds with the U.S. While the official PMI rose slightly in September (to 49.8), it remains below the expansion threshold and suggests producers are waiting for more stimulus or clarity on trade policy.
- The U.S. stock rally of September encountered a pullback after a stretch of gains, the S&P, Dow and Nasdaq all declined at the latter part of the month as observers questioned whether valuations were getting ahead of fundamentals. Nonetheless, all three remain in positive territory for September, making it one of the stronger months historically.
- The U.S. Congress faced a looming government shutdown toward end-September, fuelling investor nervousness. The impasse threatened to suspend key federal services and delay economic data releases, adding uncertainty to the market backdrop at a delicate moment.
- In the UK, a diplomatic flashpoint occurred as President Donald Trump made a state visit in September. Welcomed by King Charles III and hosted at Chequers by Prime Minister Starmer, the trip was leveraged to highlight the "special relationship" and deepen trade ties even as protests and political sensitivities loomed.
- The UK also took a significant diplomatic step by reviving formal trade dialogue with China which is the first Joint Economic and Trade Commission meeting since 2018 was scheduled for September, signalling an attempt to reset engagement and boost economic links after years of drift.
EQUITY MARKETS
Global equity markets registered advances during September, with strength evident across most major regions. Asia led the gains, where Taiwan’s benchmark rose by more than 6%, Japan’s Nikkei posted a similar increase, and African equities surged close to 8%. The most eye-catching performance once again came from the so-called “Magnificent Seven” which rose by over 9%, reaffirming their powerful influence over global market direction.
In the United States, the rally was broad-based, extending across both large-cap and smaller companies. The S&P 500, Nasdaq Composite, Russell 1000 and Russell 2000 each advanced by more than 3%, highlighting renewed investor enthusiasm. Technology and communication services spearheaded the move, as optimism over corporate earnings and the AI-driven growth narrative continued to attract capital inflows into the sector.
European markets painted a more uneven picture. The Euro Stoxx 50 rose by over 3% and France’s CAC 40 gained nearly 3%, but Germany’s DAX slipped slightly, and several Central and Eastern European indices ended the month in negative territory. Once again, technology proved to be the key outperformer, surging by more than 12%, while consumer staples, real estate, and communication services lagged, reflecting the region’s divergence between growth and defensive exposures.
Meanwhile, emerging markets contributed modestly but positively to global equity performance. Brazil rose by more than 3%, while India, Indonesia, and China all posted incremental gains, suggesting resilience despite persistent macroeconomic and geopolitical headwinds. Nevertheless, performance across developing economies remained mixed and continued to trail developed markets overall.
At a sector level, trends were sharply defined. Information technology was the standout performer, advancing over 7% in the United States and an impressive 12.5% in Europe. Industrials, utilities, and communication services also delivered solid returns, reflecting broader support for cyclical activity. Conversely, energy, materials, and consumer staples underperformed, as investors rotated out of defensive and commodity-linked areas in favour of higher-growth sectors with stronger earnings visibility.
In the corporate world, Lennar reported a sharp deterioration in earnings for its third quarter. Net income plunged roughly 46 per cent year-on-year, with EPS of about $2.29, as revenue slid by close to 8.7 per cent to approximately $8.25 billion. The company attributed the weakness to affordability headwinds through elevated interest rates, rising costs, and constrained demand among homebuyers. In response, Lennar lowered its guidance for home deliveries in the next quarter to 22,000–23,000 units, a figure below many analysts’ expectations, and noted that margin pressure would persist given the continued use of incentives like mortgage rate buydowns. Nike was in the spotlight as its upcoming quarterly results loomed and markets probed whether its turnaround efforts would gain traction. The company is expected to publish its next earnings on 30 September, with analysts bracing for yet another period of weakness. Already, commentary from major retail partner JD Sports in the UK expressed cautious optimism, stating that Nike is “doing all the right things” to revive sales under its new leadership direction. Moreover, Nike officially launched a high-profile collaboration with Skims, marking a strategic push into women’s activewear and reflecting its desire to reenergize brand engagement and broaden its consumer base beyond core performance lines. Hewlett Packard Enterprise (HPE) delivered a strong third quarter for its fiscal 2025, reporting revenue of $9.1 billion (up ~19% year on year) and solid free cash flow of $790 million. The acquisition of Juniper Networks has already begun to contribute to results, and HPE raised guidance for the fourth quarter, expecting non-GAAP diluted earnings per share between $0.56 and $0.60 and revenue in the $9.7–10.1 billion range. Carnival Corporation surprised on the upside in its Q3 2025 results, registering adjusted EPS of $1.43, topping expectations, and beating on revenue too. Bolstered by resilient cruise bookings and favourable onboard spending trends, Carnival lifted its full-year profit guidance. Warner Bros. Discovery (WBD) became a focal point in media and M&A circles after reports emerged in September that Paramount Skydance (backed by Larry Ellison) was exploring a bid for the company. Netflix was also reported to be weighing a possible bid, driving speculation of a potential industry-reshaping consolidation in entertainment. Philip Morris International (PMI) announced a dividend increase of 8.9 % in mid-late September, raising the annualised rate to $5.88 per share. The move sends a signal of confidence in its cash flows and the durability of its business model, even as the broader tobacco sector faces regulatory and health pressures.
CREDIT MARKETS
Government bond markets delivered generally modest gains during September, with a clear distinction between short and long maturities. Short-dated securities remained relatively stable, showing little price movement, while longer-dated bonds performed more strongly. In the United States, the rally in long-term Treasuries was particularly pronounced, with maturities beyond fifteen years advancing by over 3%. This move reflected growing demand for duration exposure and a recalibration of expectations surrounding the future path of interest rates. Across Europe, returns from sovereign bonds were steadier and more contained. Eurozone benchmarks recorded small but positive gains, capped just below 1%, as investors remained cautious in light of mixed inflation data and evolving policy guidance from the European Central Bank. UK gilts also edged higher across the yield curve, supported by signs of easing inflationary pressures and growing market conviction that the Bank of England could begin cutting rates early in 2026.
Corporate credit markets maintained a constructive tone throughout the month. Investment-grade debt performed well, led by the United States where indices returned between 1.5% and 1.6%. European investment-grade bonds followed suit, while emerging market corporates also advanced by more than 1%, highlighting sustained investor confidence in higher-quality issuers. The high-yield segment presented a more uneven picture. U.S. high-yield indices rose by around 0.8%, with global benchmarks also firming modestly. However, European high-yield performance was more subdued, and the lowest-rated CCC category declined by over 0.3%, underscoring the continued selectivity among investors towards riskier credits.
the tone across fixed income markets remained broadly supportive. The outperformance of long-duration U.S. Treasuries stood out as a clear indicator of shifting sentiment around growth and inflation prospects. Meanwhile, corporate and emerging market credit continued to attract inflows amid stable spreads and a cautiously improving risk environment, even as investors maintained a preference for higher-quality exposures within the high-yield universe.
CENTRAL BANKING, THE ECONOMY AND GEO-POLITICS
Over in the United States, the Federal Reserve took a notable step by trimming its benchmark federal funds rate by 25 basis points during its mid-September meeting, driving the target range down to 4.00 %–4.25 % as it seeks to strike a balance between reining in inflation and cushioning a softening labour market. Several Fed officials, including Boston’s Susan Collins, emphasised that any further cuts will heavily depend on incoming data, signalling a cautious, conditional approach to easing. Moreover, Vice-Chair Philip Jefferson warned that the U.S. jobs market is showing signs of strain, hinting that downside risks could prompt more responsive policy moves. At quarter-end, funding markets saw an interesting quirk with the effective fed funds rate briefly spiked to 4.09 %, largely due to a drop in cash supply from foreign banks, underscoring how technical factors can still complicate policy execution.
In the Eurozone, the European Central Bank largely held its ground. Having maintained its deposit and refinancing rates at 2.00 %, 2.15 % and 2.40 % respectively in its September meeting, the ECB reiterated a data-sensitive stance, neither committing to further cuts nor closing the door on adjustments if inflation or growth diverged. President Christine Lagarde emphasised that inflation risks remain “fairly contained,” with few signs of overheating despite rising geopolitical frictions and stressed that policy must remain agile. At the same time, senior policymakers including Olli Rehn called for measures to reinforce the euro’s appeal as a stable global currency, suggesting a more assertive posture might be needed in the face of growing international competition. The ECB also voiced scepticism toward recent EU proposals to liberalise securitisation rules, warning that simplifying oversight could reintroduce systemic risks.
Meanwhile, in Tokyo, the Bank of Japan revealed in its meeting summary that internal debate is heating up over whether to move rates upward in the near term. Although the central bank left its target rate steady at 0.50 %, dissenters called for a hike to 0.75 % as inflation pressures mount and food price inflation bites. The hawkish lean was made more explicit when two board members (Tamura and Takata) publicly argued for tightening, perhaps as a signal that the tolerance for ultra-accommodative policy is eroding. That said, Governor Ueda and other cautious members remain reluctant to commit, citing the need for stronger evidence on wage growth and sustained inflation. Finally, the BOJ began selling some of its ETF holdings at a modest step toward normalising balance sheet operations in a low-yield environment.
Beyond those three, other central banks also made their presence felt. At the Bank of England, Deputy Governor Sir Dave Ramsden voiced confidence that inflation will gradually return to the 2 % target, pointing to weakening labour conditions and contained wage pressure as supporting elements. Though the BoE has remained cautious, his remarks underscored that the door to future easing may not yet be fully closed.
During the month tensions rose between the U.S. and India amidst trade tensions. The Trump administration slapped sweeping reciprocal tariffs (initially 25 %, then an additional 25 %) on Indian exports, primarily attacking India’s continued Russian oil imports. New Delhi publicly condemned the move as “unfair and unjustified,” defending its strategic autonomy in energy procurement. Tensions deepened as reports circulated that India had paused major American defence contracts (claims later denied by India’s Defence Ministry). This dispute marks one of the most serious strains in U.S.–India relations in decades and signals a broader shift toward trade weaponisation. In parallel, China remained under pressure. Its manufacturing sector slipped further into contraction in September, extending a six-month downtrend in the official PMI below 50.
Turning to macroeconomics, the U.S. economy showed stronger than expected growth. Q2 growth was revised upward to 3.8 % from 3.3 %, prompting a mid-month rally in the dollar as markets scaled back expectations for aggressive rate cuts from the Federal Reserve. In Europe, inflation pressures re-emerged as a key risk. German inflation surprised on the upside in September, rising to 2.4 % which was its highest since February while core inflation (excluding food and energy) ticked up to 2.8 %. In the UK, bond markets appeared to grow increasingly uneasy. Appetite for government debt softened amid political and fiscal uncertainty ahead of the autumn budget. Auctions of medium-to long-dated gilts saw muted demand, pushing yields higher and reflecting unease over future borrowing plans.
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