Rate Cut Excitement, AI Animal Spirits and Easing Trade Tensions Send Rally Further: Sep. 15, 2025

Markets are rallying and stocks are setting fresh records once again as tech enthusiasm, softening trade tensions and expectations for the Fed to resume its easing cycle this Wednesday bolster investor confidence. News that Tesla CEO Elon Musk bought $1 billion of the company’s shares, which signals his strengthening faith and commitment in the business’ future, is bolstering excitement in growth equities and artificial intelligence. Meanwhile, inflation expectations and geopolitical conditions were aided by US officials’ plans to meet with representatives from New Delhi and Beijing in the near future, including a Friday conversation between Presidents Trump and Xi. But what participants are the most delighted about on this Monday is this Wednesday’s interest rate decision and dot-plot from the Fed, with fixed-income watchers penciling in a series of reductions that coincide with analysts forecasting that the economy will maintain its momentum and fortify the outlook for corporate earnings expansion. Equities throughout sectors are rising in all but two of the defensive categories: consumer staples and healthcare. Treasuries are advancing as well, as the yield curve plunges relatively evenly across maturities. Volatility protection instruments are catching bids, however, signaling potential caution despite the day being characterized by risk-on sentiment. Forecast contracts and all commodity majors are additionally experiencing buying. Conversely, the greenback is descending on lighter domestic borrowing costs and bitcoin is seeing modest losses.

The Fed’s Outlook Will be Pivotal

The Fed includes its Summary of Economic Projections (SEP) at its meetings in the first month of each quarter and this Wednesday’s update will be significant. A series of weak employment data has Wall Street penciling in a rate cut at each of the institution’s remaining decisions in 2025, but the outlook for 2026 is much murkier. Labor conditions have challenging for economists to get a grip on, with immigration restrictiveness limiting the supply of workers, which together with economic uncertainty weighing on demand has almost halted hiring. Indeed, June featured the first period of job losses since the pandemic year of 2020, but equity market bulls are confident that monetary policy accommodation will lift payroll expansions, like it did last summer when headcount additions declined to below 100k for three consecutive months. Meanwhile, inflation has begun to drift away from the central bank’s 2% objective, but it hasn’t been the tariff-sensitive areas driving levels north. Rather, it’s been the consumer driven non-housing services components. All in all, investors are hoping that this Wednesday’s encounter is focused on the risk of increasing unemployment, rather than the possibility of stronger price momentum, because that’ll keep the rally going. Shoppers have been buoyant in the back-half. I believe we will receive confirmation of this trend tomorrow when retail sales data is released. That would bode well for profitability and stock valuations.

International Roundup

China Releases More Downbeat Data

China’s economic woes continued last month with retail sales and industrial production growth decelerating, unemployment increasing and home values plummeting. Retail sales grew 3.4% year over year (y/y) and 3.67% year to date (ytd), slowing from the 3.7% and 3.84% prints in July. The August y/y result, furthermore, fell below the 3.8% estimate from a consensus of economists. For the y/y metric, gains were led by furniture, up 18.6%, and sports and entertainment, which climbed 16.9%. Gold, silver and jewelry transactions, furthermore, ascended 16.8%. Consumption of travel services also increased. Those categories, however, didn’t fully offset declines in the other segments with the overall results being hurt by the expiration of a government programs that provided trade-in rebates to help spur consumption.

Industrial output growth relative to August of 2024, meanwhile, weakened from 5.7% y/y in July to 5.2% in August. Economists anticipated a repeat of July’s print.

Fixed asset investment, which headed north by 0.5% y/y, also disappointed. After the metric was up 1.6% in July, economists expected it to slow slightly to 1.5%.

China’s glut of real estate was reflected by investment in the sector sinking 12.9% ytd, a reversal from the 1.6% positive number in July. On an encouraging note, investments for the manufacturing and utilities sectors jumped 5.1% and 18.8%, respectively.

Also last month, the unemployment rate climbed from 5.2% to 5.3%, slightly above the economist consensus expectation for no change. A government official attributed the increase to college students entering the workforce.

In another matter, home prices fell 2.5% y/y last month, a slightly slower pace than the 2.8% depreciation in July.

Europe Trade Balance Fell Last Month

The euro area produced a €12.4 billion trade surplus in July, which was down from €18.5 billion in the year-ago period but above the economist consensus estimate of €11.7 billion. Relative to June, however, it was up from €8 billion. A drop in exports of chemicals and related products was the biggest drag on the July y/y result. The m/m result, however, benefited from larger surpluses for chemicals and related products, which increased from €15.4 billion to €17.4 billion and machinery & vehicles, which rose from €13.7 billion to €18.5 billion.

And Policymaker Says Inflation Risk is Balanced

European Central Bank Governing Council member Martin Kocher told Bloomberg this morning that he believes inflation risks in the euro area are balanced. The central bank recently decided to leave its key interest rate unchanged as inflation is close to the organization’s 2% goal.