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The Vortex - Global Market Weekly

Fed Hints at Rate Cuts, AI Boom Meets Reality

26/08/2025 September 15th, 2025

Fed Hints at Rate Cuts, AI Boom Meets Reality

The Vortex – Global Market Weekly – 24–30 August, 2025

Central bankers turned dovish, tech stocks rode a roller coaster, and Chinese markets soared in this eventful week. From Fed Chair Powell hinting at rate cuts and sending the Dow to a record high, to Europe closing a major trade deal and China’s stocks jumping despite economic woes, the week of August 17–23, 2025 saw pivotal shifts across the U.S., EU, and Asia.

United States – Fed Shift Sparks Market Rally

The U.S. financial narrative this week was dominated by the Federal Reserve’s changing tone and a euphoric stock market response. In a much-anticipated address on Friday (Aug 22) at the Jackson Hole symposium, Fed Chair Jerome Powell strongly hinted that the Fed is ready to ease monetary policy. Powell noted that downside risks to employment have risen and that with policy already restrictive, “the shifting balance of risks may warrant adjusting our stance”. This was widely interpreted as confirmation that the Fed is likely to cut interest rates in September, which would be the first rate reduction of 2025.

Markets reacted with relief and enthusiasm. Stocks surged on Friday, capping a roller-coaster week. The Dow Jones Industrial Average jumped ~850 points (+1.9%) in one day, reaching a record closing high (its first record of the year)[1]. The S\&P 500 leapt 1.5% Friday, just a hair below its own record, and the Nasdaq Composite rebounded 1.9%[1]. This powerful rally erased earlier losses and meant the Dow and S\&P notched their third consecutive weekly gain (up about +1.5% and +0.3% for the week, respectively). Investors, who had been nervous all week leading up to Powell’s remarks, breathed a sigh of relief. Rate-sensitive sectors led the charge: giant tech stocks, which had slumped mid-week, roared back to close higher across the board by Friday. Tesla stock soared over 6%, while Alphabet and Amazon climbed ~3%. Homebuilder and real estate stocks also popped 5–8% on expectations that mortgage rates will fall with Fed easing.

Earlier in the week, the mood was more cautious. Hawkish signals from the Fed’s July meeting minutes (released Wednesday) had given investors pause. Those minutes showed most Fed officials still saw upside risks to inflation outweighing downside risks to growth[2], suggesting a bias to keep policy tight. Additionally, a couple of economic reports were mixed: for example, weekly jobless claims came in higher than expected (229,000 new claims, slightly rising)[3], hinting at a mild cooling in the labor market, while business surveys showed resilience. But all that was overshadowed by Powell’s dovish pivot. Notably, futures markets quickly priced in an ~80% probability of a September rate cut after his speech[2] (up from ~60% a week prior), and the U.S. 10-year Treasury yield fell sharply to around 4.26%. The dollar also weakened on the prospect of lower rates, hitting a one-month low and boosting gold prices (gold futures rose ~1.1% to $3,415/oz).

Outside of the Fed, technology sector news provided its own drama. Mid-week, tech shares stumbled amid talk of an “AI bubble” losing air. A report from MIT and comments by OpenAI’s CEO Sam Altman cautioned that many companies see “zero return” from generative AI so far[2], which sparked a sell-off in high-flying AI stocks on Tuesday: Nvidia fell over 3%, and other AI darlings like Palantir and ARM sank 5–9%[2]. The Nasdaq was down as much as 1.2% through Thursday[2]. However, strong earnings from some tech firms (e.g. chipmaker Analog Devices beat forecasts) and the Fed-induced rate optimism helped the sector quickly recover. By week’s end, the Nasdaq’s loss was pared to –0.6%. In other corporate news, an unusual development saw President Donald Trump announce plans for the U.S. government to take a 10% stake in Intel (a bid to bolster chip manufacturing); Intel shares jumped 5.5% on the news. Meanwhile, cryptocurrency markets mirrored the resurgence in risk appetite: Bitcoin rebounded to ~$117,000, up from $112K earlier in the week, as investors rotated back into speculative assets post-Fed speech.

Energy prices in the U.S. eased, helping the inflation outlook. U.S. oil benchmark WTI briefly dipped to its lowest levels since early June (near $63/barrel) mid-week. Brent crude, the global benchmark, was around $66.5 on August 18[4] and remained in the mid-$60s by week’s end – marking about a 7% drop over the past month. This slide in oil, driven by ample supply and concerns of weakening demand, is a potential boon for American consumers heading into fall, with gasoline prices likely to tick down. For the Fed, softer oil prices provide breathing room on inflation, reinforcing the case for a rate cut.

Europe – Stocks Up on Trade Deal and Economic Surprises

European markets had a generally upbeat week, powered by a major breakthrough in trade and some encouraging economic signals. The pan-European STOXX 600 index rose ~0.7% over the week[2], and Britain’s FTSE 100 index not only hit fresh record highs but also logged its best weekly performance since May[5]. The rally was fueled in part by developments in transatlantic trade:

  • EU-U.S. Trade Deal: Officials in Brussels and Washington unveiled details of a sweeping trade agreement that had been reached in principle last month. The EU agreed to invest $750 billion in U.S. energy projects and at least $600B in the U.S. overall[5]. In return, the U.S. scaled back tariff threats: across-the-board tariffs on European goods will be capped at 15% instead of a previously threatened 30%, and a feared 250% tariff on European pharmaceuticals was taken off the table[5]. This resolution of trade tensions lifted European market sentiment, especially in affected sectors. Pharmaceutical stocks in Europe bounced — the STOXX Europe Pharma index rose about 0.6% on Thursday and another 0.8% Friday as tariff fears eased[5]. Auto stocks also gained ~0.7% Friday as the deal suggested a more conditional approach to any future auto tariffs[5]. The trade peace package removed a major cloud of uncertainty, prompting Deutsche Bank economists to call it a “more dovish outcome than expected” on trade policy[5].
  • Economic Data and ECB: Europe’s economic news was a mixed bag but with some positives. In the UK, a flash Purchasing Managers’ Index (PMI) reading showed the strongest business activity in a year[5], giving a surprise boost to confidence. Retail and consumer stocks in London rallied on that news[5]. Combined with mining and defensive stocks advancing, this helped London’s FTSE 100 set record highs for four days in a row[5]. Eurozone PMIs for August also ticked up modestly, indicating that both manufacturing and services improved slightly from the prior month[2] – a tentative sign that Europe’s economy may be stabilizing. However, not all data were rosy: a revised reading of Germany’s Q2 GDP showed a –0.3% contraction[5] (worse than initially thought), underscoring that Europe’s largest economy was in a mild recession in the first half. Inflation in Europe remains mixed as well; the UK reported headline inflation of 8% year-over-year in July (a touch above expectations) with a sticky 5% core services inflation[2], complicating the Bank of England’s decisions. The European Central Bank (ECB) was quiet this week (no policy meeting), but reports suggest officials are leaning toward holding rates steady in September given the recent economic resilience[6]. ECB minutes released later indicated a split view but generally a high bar for any further rate hikes near-term.

European equities benefitted from the global rate-cut optimism too. The prospect of a Fed easing bolstered hopes that central banks overall might shift to more accommodative stances, which helped Europe’s interest-rate-sensitive sectors. Bank stocks in Europe were mostly flat, as lower future rates temper banks’ outlook, but other sectors outperformed. For instance, travel & leisure companies saw stocks climb, anticipating that lower borrowing costs could boost consumer spending on travel. Commodity-linked stocks also rallied: with China’s stimulus hopes (important for European luxury and industrial goods demand) and the trade deal lifting sentiment, French luxury goods makers and German industrials had a decent week.

By Friday, European indices closed higher across the board. The German DAX and French CAC 40 each gained roughly 1% for the week after the late boost, and the UK’s FTSE 100 set a record high of around 9,187 points[2]. The euro and British pound both strengthened ~1% against the U.S. dollar after Powell’s speech (with EUR/USD around 1.17)[5], reflecting expectations of a smaller U.S.–Europe interest rate gap. A stronger euro/pound can be a headwind for European exports, but in this case it was seen as a positive signal of confidence. Overall, Europe ended the week on a positive note: trade uncertainty eased, recession fears tempered by slightly better data, and central banks likely to maintain supportive stances barring any new inflation surprises.

Asia – China’s Divergence: Market Boom vs Economic Gloom

Asian financial news was headlined by a paradox in China: surging stock prices in the face of weakening economic data. China’s economy flashed more warning signs that its post-pandemic recovery is faltering. Key July indicators released this week were underwhelming: retail sales rose only +3.7% year-on-year, the slowest pace since late 2024[7], and industrial production growth slowed to +5.7% (a multi-month low)[7]. Perhaps most worrying, fixed-asset investment in the first 7 months of 2025 was up a mere +1.6% y/y[7], dragged by a 12% plunge in property sector investment[7] amid China’s ongoing real estate slump. In fact, new home sales by floor area dropped 4% from a year earlier[7], and consumer inflation was basically 0.0% (flat year-on-year in July)[7] – signaling a risk of deflation as domestic demand stays soft. This week also brought another sign of property sector distress: Country Garden, one of China’s largest developers, missed a bond payment, raising fears of default on its $16 billion in overseas debts. Although a guarantor for the firm said it would step in to pay interest, the news underscored the deepening housing market woes.

Yet, in a sharp contrast, Chinese stocks staged a remarkable rally. The CSI 300 index (mainland China’s blue-chip stocks) surged about 4% for the week, reaching its highest level of 2025[2]. In Hong Kong, the Hang Seng Index rose ~1%, and Shanghai’s exchange gained similarly[8]. Investors seem to be betting that weak data will force Beijing’s hand to unleash more economic stimulus. There is also a flood of liquidity in China’s financial system – bank deposits are high and looking for returns – which is fueling speculation in equities. Indeed, margin financing by Chinese traders has climbed to multi-year highs as people borrow to buy shares, reminiscent of past rally spurts. Local government actions may have helped sentiment too: several Chinese cities eased home purchase restrictions this week (to prop up real estate), and there were rumors that the central bank might cut reserve requirements or interest rates again soon. So far, the People’s Bank of China has been cautious (it left benchmark loan rates unchanged in August), but it has signaled readiness to support growth “at an appropriate time.” The stock market, however, is front-running any policy moves. As a result, China’s market is booming despite the economy’s aches – a divergence that some analysts warn is unsustainable without concrete stimulus. Nomura’s strategists remarked that the stock surge won’t do much to fix China’s economic issues, though it does improve sentiment in the short term.

Elsewhere in Asia, Japan’s economy and markets saw more traditional alignment: economic data was mixed, and stocks reflected some caution. On the positive side, Japan reported an inflation rate of 3.1% in July (core CPI), slightly lower than June’s 3.3% but still above the Bank of Japan’s 2% target for the 17th month in a row. This keeps pressure on the BOJ to consider tightening policy. Market expectations for a BOJ rate hike later this year actually firmed up – over 60% of economists now foresee a rate increase by December. Yet BOJ Governor Ueda has been cautious, especially with signs of a global slowdown. Meanwhile, Japan’s export data revealed challenges: exports fell 2.6% in July compared to a year earlier, marking the third straight month of declines[7]. Exports to the U.S. were particularly weak (–11% y/y) due to tariffs and slower demand[7]. This contributed to the Nikkei 225 stock index slipping 1.7% for the week[2], underperforming other regions. Japanese equities had run up significantly earlier in the summer, so some profit-taking occurred, especially in tech shares and banks. Additionally, rising expectations of a BOJ hike (and higher yen) tend to temper the stock market.

Other Asian markets were mixed but generally benefited from the global trends. In India, stocks were little changed as investors balanced domestic growth optimism with global trade worries. Australia’s ASX 200 hit record highs during the week, boosted by strong corporate earnings and the global tech rally spillover[2]. Australia’s market ended about +0.3%, similar to the U.S.[2]. Emerging markets in Southeast Asia saw modest gains too, helped by the prospect of a gentler Fed (which eases pressure on their currencies and capital flows). One notable central bank move: The Philippines’ central bank cut interest rates by 0.25% to 5.00%, citing easing inflation and the need to support growth[7] – aligning with the broader theme of monetary easing in 2025.

In summary, Asia presented a tale of two Chinas – robust market gains amid economic strains – and the region mirrored the global story of the week: policy expectations driving markets. Investors are betting heavily that policy support (be it Fed cuts or China stimulus) will arrive to keep the growth engine humming. As August drew to a close, all eyes in Asia are on what Beijing and Tokyo might do next, even as U.S. and European policy shifts dominate the larger financial narrative.

Summary: The week of August 17–23, 2025 brought significant developments in global economics and finance. The U.S. Federal Reserve’s dovish signal was the catalyst for a worldwide market rally, pushing stock indices to new highs and easing bond yields. In Europe, a combination of improved economic data and a landmark trade deal with the U.S. lifted sentiment, despite ongoing recession fears in Germany. Asia showcased contrasts – China’s stock market soared on stimulus hopes even as its economic slowdown deepened, while Japan contended with persistent inflation and soft exports. Major trends in tech, banking, and energy intertwined throughout the regions: tech stocks gyrated with the evolving AI narrative, banks eyed the interest rate outlook warily, and oil prices at two-month lows provided relief on inflation even as they signaled cooler demand. It was a week where policy expectations overshadowed current economic pains, and investors rode that optimism. Going forward, the key question is whether central banks and governments will follow through on the easing and support that markets have now so clearly priced in. The transition from summer to autumn will test whether this rally on hope has been well-founded – or if markets have gotten a bit ahead of the economic reality.


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