Risk Assets Rebound as PCE Signals Steady Inflation, Limited Tariff Impact: Sep. 26, 2025

Stocks are recovering from a three-day slide as the Fed’s preferred inflation gauge reflected a steady pace last month. Treasuries are slipping further though, albeit at the margins, because the print was accompanied by the second-strongest consumption figure of 2025, and that’s bolstering economic growth prospects. But optimism for a few rate cuts before Christmas remain intact since annualized price trends are remaining constant and led by services, as tariff-fueled cost upticks have yet to materialize. The buoyancy of the cycle is being driven by thriving household demand, which is providing servicers with charging power, terrific for corporate earnings; however, it is not conducive to the Fed’s 2% target at this juncture. Meanwhile, a separate report from UMich depicted lightening expectations for future price increases across survey respondents for both the 1- and 5-year time periods. All major equity benchmarks are now advancing amidst broad participation throughout sectors and sub-components after a morning which featured weakness in technology shares. Additionally catching bids is the commodity complex minus copper on statistics depicting re-accelerating activity, while bitcoin and forecast contracts also benefit from the rebound in investor enthusiasm as a result.

Strong Growth, Some Inflation, Limited Tariff Impact

This morning’s Personal Income and Outlays report from the Bureau of Economic Analysis depicted reaccelerating economic growth amidst steady price pressures. August consumer spending accelerated its progress to 0.6% month over month (m/m), exceeding the median estimate for 0.5%, which would’ve matched July’s result. Shoppers expanded their volumes of durable and non-durable products by 0.9% and 0.5%, respectively, while services experienced a 0.2% m/m uptick. Households did put away less dough, however, as the gains in income were less than expenditure increases, subduing the the personal savings rate from 4.8% to 4.6% during the period. Inflationary forces were well behaved, with overall prices rising 0.3% m/m and 2.7% year over year (y/y), exactly as expected but picking up by a tenth of a percent from the prior interval on both fronts. Core figures, which exclude food and energy due to their volatile characteristics, climbed 0.2% m/m and 2.9% y/y, in-line with projections and unchanged from July. Service and nondurables charges rose 0.3% m/m and 0.2% m/m while durables descended 0.1%, reflecting subdued tariff impacts. On a y/y basis, services are up 3.6% while goods are higher by just 0.9%.

Government Shutdown To Become Top of Mind

As we approach October, a significant lurking risk is the potential for a government shutdown beginning this Wednesday. With political officials across both sides of the aisle failing to reach some kind of consensus on the road ahead for funding, it’s a situation that is probably going to become top of mind for investors soon. But since these negotiations typically go down to the wire, when the pressure is the greatest, traders have learned to ignore bipartisan grappling until the time is nearer. Another important consideration, however, is that short closures aren’t generally harmful to markets from a historical perspective; the same isn’t true for a prolonged one, meanwhile. Elsewhere, economists will be analyzing a heavy batch of labor data next week assuming the release schedule remains in-tact. Job openings, ADP-employment, unemployment claims and nonfarm payrolls are on deck and bulls will look for cool figures that support rate cuts but not ice cold numbers that threaten the buoyancy of corporate earnings. Hot statistics, meanwhile, are likely to generate selloffs in Treasuries and equities alike, propping up growth projections while extending the Fed’s walk down the monetary policy stairs as it heads towards neutral.

International Roundup

Pharmaceutical Sector Pulls Down Singapore Output

A steep drop in pharmaceutical manufacturing caused Singapore’s industrial production to fall 9.7% m/m and 7.8% y/y in August following 8.8% and 7.7% gains in the preceding month, according to the Ministry of Trade and Industry. Economists anticipated declines of 4.6% m/m and 2.5% y/y. The m/m and y/y prints were the worst results since April 2024, when the metrics sank 16.1% and 9.2%, respectively.

The island nation’s biomedical sector led the August y/y contraction, dropping 37.3%. Within this category, export demand for medical devices caused health care technology output to climb 3.5%, but a change in the mix of ingredients produced caused pharmaceutical output to drop 59.3%. In other matters, the general manufacturing, electronics, and precision engineering categories declined of 13.9%, 4.8% and 1.7%. Conversely, the transport engineering and chemicals groups jumped 18.9% and 3.5%.

Canada Economy and Wholesaling Weaken

Canada produced no economic growth and wholesaling transactions sank during August, according to Statistics Canada. Gross domestic product (GDP) was unchanged m/m in August, according to a preliminary print. In a separate release, Canada reported that August wholesale trade excluding various hydrocarbon and linseed products slipped 1.3% m/m in August. It grew 1.2% in July.

Canada also revised its July m/m GDP growth estimate of 0.1% m/m to 0.2%, the first expansion in four months. According to today’s release, 11 of 20 industrial sectors contributed to the positive result with the mining, quarrying, and oil and gas extraction sector climbing 1.4%, manufacturing rising 0.7% and wholesaling gaining 0.6%. Retail sales, however, sank 1%.

Sentiment Weakens in South Korea

South Korea’s Economic Sentiment Index (ESI), a composite of the Business Sentiment Index and the Consumer Survey Index, dropped from 94.6 in August to 91.3 for this month, according to the Bank of Korea. A reading below 100 implies that the more survey respondents are pessimistic than optimistic.

The Business Sentiment component, however, strengthened from 91 to 91.6 despite the outlook for October declining by 3.3 points to 88.5. Within this gauge, manufacturing fell 0.1 point to 93.4. Business conditions and new orders, with scores of 68 and 73, were the weakest, and the October outlook fell 2.7 points to 89.4. The non-manufacturing component also strengthened, moving from 89.4 to 90.5. Business conditions and sales remained negative with scores of 67 and 74. Additionally, the outlook for next month slipped 3.6 points to 87.9.