Market Watch – Sept. 19, 2025

U.S. equities began the week supported by strong retail sales and resilient consumption, but momentum shifted midweek as the Fed delivered a widely expected 25 bps rate cut, with mixed signals on future easing and a hawkish dissent from Governor Miran. Markets briefly swung lower before gapping higher during Chair Powell’s press conference, rallying on expectations of further cuts. Canadian markets traced a similar path, with markets relatively flat until mid-week when they were buoyed by a Bank of Canada (BoC) rate cut and strong manufacturing data despite weak retail sales indicating softening domestic demand. European equities were steady early in the week before slipping midweek on renewed U.S. tariff concerns and a BoE rate hold that offered little policy clarity. Sentiment rebounded sharply into Thursday, supported by dovish global central bank signals and positive corporate developments, though the index still ended the week lower. Chinese and broader EM equities outperformed despite weak August activity data, while Japan’s BoJ hold and ETF offloading plans pressured local stocks at the end of the week.

Highlights:

U.S. equities returned 1.25%¹, starting on a strong footing following robust retail data, but mid-week volatility followed the Fed’s rate cut and mixed guidance, before a late-week rally driven by expectations of continued monetary easing.
Canadian equities were up 1.75%², rising midweek as the BoC delivered a rate cut amid soft inflation and labour data, with strong manufacturing offsetting weak retail sales and supporting sentiment.
European stocks fell -0.17%³, holding steady through Tuesday, dipping midweek on tariff concerns and a cautious BoE decision, finally clawing back some losses as central bank dovishness and corporate news flow reignited investor appetite.
Emerging markets were up 0.35%⁴ despite facing pressure throughout the week as soft Chinese activity data and a limited policy response deepened concerns over growth momentum and the effectiveness of recent stimulus efforts.

Corporate bonds rally on easing signals and investor appetite

In the U.S., Treasury yields were choppy, initially drifting lower ahead of the Fed’s rate cut before reversing higher as investors digested the 25 bps move alongside mixed forward guidance and a hawkish dissent, with easing expectations supporting curve demand. Canadian rates moved lower early in the week on soft CPI data and firmed slightly post-BoC cut as markets priced in additional easing amid weak growth and labour trends. European bond markets saw modest gains early on, only to give them up into week-end following the BoE’s rate hold. In Japan, yields rose modestly after the BoJ held rates but signaled a gradual path toward normalization, including plans to unwind ETF holdings, while EM debt traded firm on global easing momentum despite weak Chinese macro data. Credit spreads continued to grind tighter across regions, reflecting strong demand for corporate paper amid a broader shift toward risk assets.

Highlights:

The 2- and 10-year U.S. Treasury yields were up 2 basis points (bps) and 8 bps, respectively. In Canada, the 2- and 10-year yields were down 2 bps and up 2 bps, respectively. Bond yields and prices move inversely to one another.
U.S. Treasuries sold off following the FOMC meeting on Wednesday, with yields finishing slightly higher for the week. The broader risk-on trade seems to be back, generating inflows into riskier asset and out of U.S. Treasuries.
Credit spreads continue to grind tighter, back at historically low levels. Investment grade premiums traded at the lowest levels in three decades on Thursday, with high yield not far behind, moving close to 2007 lows.

Weekly dashboard

Bank of Canada cuts interest rate by quarter-point to 2.5%

The Bank of Canada cut its benchmark interest rate by a quarter-point, lowering borrowing costs for the first time since March as U.S. tariffs continue to batter the Canadian economy. As widely expected, the bank’s governing council voted to lower the policy rate to 2.5% from 2.75%. This follows three consecutive rate decisions where the central bank remained on hold.

Highlights:

The bank has been reluctant to ease monetary policy amid a trade war with the U.S., given the possibility that U.S. tariffs and Canadian counter-tariffs could push up consumer prices and reignite inflation. But that calculus has shifted as unemployment has risen, exports have decreased and inflation has remained relatively benign.
“Considerable uncertainty remains. But with a weaker economy and less upside risk to inflation, governing council judged that a reduction in the policy rate was appropriate to better balance the risks going forward,” Bank of Canada Governor Tiff Macklem said.
The central bank gave no guidance about its plans for its October 29 rate decision, or where interest rates might go from here.

U.S. Federal Reserve lowers rates by quarter-point, signals more cuts are likely

The U.S. Federal Reserve (Fed) approved a quarter-point interest rate cut, the first in nine months, with officials judging that recent labour-market softness outweighed setbacks on inflation. A narrow majority of officials penciled in at least two additional cuts this year, implying consecutive moves at the Fed’s two remaining meetings in October and December.

Highlights:

The rate cut will reduce the benchmark federal-funds rate to a range between 4% and 4.25%, the lowest level in almost three years.
The cut should provide some immediate relief to consumers with credit-card balances and small businesses with variable-rate debt. Mortgage rates and other long-term borrowing costs are less sensitive to individual Fed moves but have declined in recent weeks as investors anticipate a modest sequence of additional cuts.
The Fed’s carefully drafted post meeting statement described the labour market as “no longer solid” and said the rate cut was justified “in light of the shift in the balance of risks.”

Japan’s exports struggle under weight of U.S. tariffs

The negative impact of higher tariffs on Japan has become more apparent, with the country’s exports staying weak in August as U.S.-bound shipments fell further. Exports to the U.S. fell nearly 14% from a year earlier due to weak demand for autos and chip-making machines, finance ministry data showed. That compared with July’s 10.1% fall and marked a fifth straight month of decline.

Highlights:

Japan’s trade surplus with the U.S. also contracted, tumbling 50.5% from a year ago.
The volume of U.S.-bound car shipments dropped 9.5% in August from a year earlier, while the value dropped 28.4%.
Overall, Japan’s exports shrank 0.1% from a year earlier. That marked a fourth consecutive month of decline but was better than July’s 2.6% drop and economists’ expectations for a 1.9% contraction.

^{1 S&P 500 Index USD}
^{2 S&P/TSX Composite Index USD}
^{3 Bloomberg Developed Markets ex N. America Large & Mid Cap Price Return Index USD}
^{4 Bloomberg EM Large & Mid Cap Price Return Index USD}

by Scotia Wealth Management - The Zukiwsky Group

Market Watch – Sept. 19, 2025

Week in review

Central bank moves drive midweek volatility, end-of-week rebound

Corporate bonds rally on easing signals and investor appetite

Weekly dashboard

Bank of Canada cuts interest rate by quarter-point to 2.5%

U.S. Federal Reserve lowers rates by quarter-point, signals more cuts are likely

Japan’s exports struggle under weight of U.S. tariffs

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