
The Fed’s rate cut is now a certainty.
The deterioration of the US labour market was confirmed in August. Only 22’000 jobs were created during the month, while economists had already anticipated a weak estimate of 75’000. However, the unemployment rate remained unchanged at 4.3%. Markets welcomed these figures. Indeed, the weakness is significant enough to prompt the Federal Reserve (Fed) to ease its monetary policy, but the data are not poor enough to reignite recession fears among investors. A favourable scenario is emerging for US equities. It is now certain that Jerome Powell will announce a cut in the Fed’s key interest rates next week, thus paving the way for a new cycle of monetary easing in the United States. Inflation, therefore, takes a back seat… for now!
Sentiment-driven rally in the Chinese market
Over the past two months, Chinese equities have staged a remarkable rebound, outperforming both regional and global indices. Domestic A-shares have overcome a sluggish start to the year, now posting a 14% gain since the beginning of 2025. However, this market rally is unfolding against a mixed macroeconomic backdrop, marked by a loss of momentum in domestic activity.
Data released for July confirm a weakening in economic activity: industrial production grew by only 5.7% YoY, while retail sales slowed to 3.7% over the same period. In our view, a sustainable rebound in consumption cannot materialise without a sustained recovery in the real estate sector.
So far, exports have shown notable resilience, supported by transshipment strategies aimed at mitigating the impact of tariffs. Nevertheless, despite a pivot toward Southeast Asia and Europe, the latest data reveal a clear slowdown: export growth fell to 4.4%, its lowest level in six months and below consensus expectations.
In this context of economic moderation, the question of monetary and fiscal support is once again central. While in the US, the deterioration of certain indicators, particularly employment, could pave the way for Fed easing as early as September, Beijing continues to pursue a gradual and targeted approach, avoiding broad-based stimulus.
So how can this recent performance of the Chinese market be explained?Investors have welcomed the easing of trade tensions between the US and China. However, the current tariff truce, in place until November, remains fragile, and the risk of a return to punitive levels persists. This improvement in sentiment, both domestic and international, has triggered a liquidity-driven rally. It is also worth noting that initially depressed valuations, given that the Chinese market was still deemed “uninvestable” in 2022, have contributed to a strong base effect, reflecting a market memory that can be short.
In the short term, the Chinese equity market appears slightly ahead of its fundamentals. The recent rally is largely driven by abundant liquidity, sentiment normalisation, and reallocation flows, rather than a structural improvement in corporate earnings.
The continuation of this market rally will now depend on two factors: the scale and speed of the stimulus measures Beijing chooses to implement, and developments in the Sino-American trade relationship, particularly decisions expected out of Washington by November. Until then, further upside potential remains if investor sentiment continues to improve, although the risk of profit-taking in the event of geopolitical surprises cannot be ruled out.
This week's figure: 52
In the United States, last week’s ISM Services index came in slightly above expectations and remained comfortably in expansion territory. The strength of the services sector is a key argument that allows us to dismiss the likelihood of an imminent recession in the country.
Author
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Ed Yau is an Asian market specialist with 20 years of experience in managing equity portfolios. He previously worked as Head of Research in several Hedge Funds in Switzerland and Singapore. An HES engineer by training, he also holds a degree from the University of Geneva and an MBA from the University of Chicago. He joined the Bank in 2018 and became a member of the investment committee, in charge of managing several thematic certificates and equity funds, as well as setting up ESG investments.