Market Watch – Sept. 26, 2025

U.S. equities began the week on a cautious note amid Federal Reserve (Fed) commentary and rising concerns over tariffs and AI valuations. Markets initially found support from dovish remarks by Governor Miran and softening PMIs, but sentiment turned midweek as Fed Chair Powell emphasized persistent inflation risks and GDP revisions pointed to stronger growth, dampening hopes for aggressive easing. In Canada, equities were rangebound as GDP data modestly beat expectations but confirmed sluggish momentum, leaving the BoC’s policy path uncertain. European markets rallied early on upbeat PMIs, particularly in Germany, but reversed course after weak French data and U.S. trade tensions triggered by a selloff in MedTech following President Trump imposition of 100% tariffs on pharmaceutical imports. In China and broader emerging markets, gains were driven by AI-linked optimism and Alibaba’s investment plans, though momentum faded by week’s end.

Highlights:

U.S. equities returned -0.30%¹ as investors weighed dovish Fed commentary against stronger-than-expected GDP and inflation data which tempered expectations for aggressive rate cuts, reigniting concerns over elevated tech valuations and tariff-related inflation pressures.
Canadian equities were down -0.01%², supported by slightly better-than-expected GDP figures but constrained by weak momentum and mixed sector performance, leaving investors uncertain about the BoC’s next moves amid tepid third-quarter growth.
European stocks fell -0.30%³, rallying early on upbeat PMI data, reversing midweek on French output, and ending with a strong Friday rally despite the U.S. announcing 100% tariffs on pharmaceutical imports.
Emerging markets were down -0.19%⁴ despite optimism around AI investment and tech sector momentum, with sentiment fading as export data weakened and global risk appetite softened heading into Friday.

Stronger U.S. data and global trade tensions push yields higher

In the U.S., Treasury yields rose early in the week as stronger-than-expected GDP revisions, durable goods orders, and Personal Consumption Expenditures (PCE) inflation data pointed to economic resilience, tempering expectations for aggressive Fed easing despite dovish commentary from select officials. Canadian rates followed a similar path, climbing on firm July GDP data before easing slightly on Friday as growth momentum appeared to stall. In Europe, sovereign yields moved higher midweek, led by U.K. Gilts, as PMI data and tariff-related risks reinforced inflation concerns, though Friday saw some retracement. In China and emerging markets, credit conditions remained stable, supported by resilient nonfinancial sectors and strong bank fundamentals, while primary issuance surged as borrowers sought to lock in favourable funding terms ahead of potential volatility.

Highlights:

The 2- and 10-year U.S. Treasury yields were up 9 basis points (bps) and 7 bps, respectively. In Canada, the 2- and 10-year yields were up 1 bps and up 4 bps, respectively. Bond yields and prices move inversely to one another.
Yields rose in both Canada and the U.S., particularly at the front end, as stronger U.S. GDP and durable goods data signaled economic resilience, prompting markets to dial back expectations for aggressive rate cuts.
Credit spreads remained firm through week-end after slightly widening on Thursday. Elevated primary supply in high yield (HY) is likely reaching a saturation point, setting September record at $48.4bn USD.

Weekly dashboard

Canada’s GDP rebounds in July after three months of contraction

Canada’s monthly gross domestic product (GDP) rebounded from three months of contraction to grow by 0.2% in July as mining, manufacturing and wholesale trade boosted growth. Canada’s GDP had shrunk in the second quarter by 1.6% annualized. A preliminary estimate showed August would most likely see no growth but avoid a contraction, Statistics Canada (StatCan) said.

Highlights:

The biggest contribution to growth came from mining, quarrying and oil and gas extraction which registered a bump in growth of 1.4%. Manufacturing, which is heavily exposed to U.S. tariffs and contributes up to a tenth of GDP, grew by 0.7%, registering the second fastest growth.
The transportation and warehousing sector, which had contracted by 0.7% in the prior month, was driven by a 2.8% increase in pipeline transportation, marking its largest growth since September 2022, StatCan said.
The biggest drop was seen in retail trade which shrank by 1 % in July after solid growth in the prior month.

U.S. reports stronger-than-expected second-quarter economic growth

The U.S. economy expanded at a surprising 3.8% from April through June, the government reported in a dramatic upgrade of its previous estimate of second-quarter growth. U.S. gross domestic product (GDP) rebounded in the spring from a 0.6% first-quarter drop caused by fallout from U.S. President Donald Trump’s trade wars, the U.S. Commerce Department reported. The department had previously estimated second-quarter growth at 3.3%.

Highlights:

The first-quarter GDP drop was mainly caused by a surge in imports as businesses hurried to bring in foreign goods before sweeping tariffs were imposed. That trend reversed in the second quarter
The GDP report was Commerce Department’s third and final look at second-quarter economic growth. It will release its initial estimate of July-September growth on October 30.
Forecasters surveyed by the data firm FactSet currently expect GDP growth to slow to an annual pace of just 1.5% in the third quarter.

European business activity inches up but impetus remains elusive

Business activity expanded in Europe this month, but at a level that suggests the wider economy is growing only slowly. The composite purchasing managers’ index for the eurozone, a gauge of private-sector activity across the 20 nations that share the euro, rose to 51.2 this month from 51.0 in August, reaching its highest level in 16 months.

Highlights:

In the U.K., activity continued to expand but at a slower pace. The country’s composite PMI fell to 51.0 in September from 53.5 in August, taking it to its lowest level in four months.
In Germany, activity reached its highest level in 16 months, propelled by a resurgent services sector. By contrast, indices of both manufacturing and services fell back in France, where the embattled government is struggling to gain legislative support to trim a wide budget deficit.
Overall, eurozone companies expressed their least optimistic outlook in four months, with sentiment hitting its lowest this year in the factory sector.

^{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

Market Watch – Sept. 26, 2025

Week in review

Weekly dashboard

Canada’s GDP rebounds in July after three months of contraction

U.S. reports stronger-than-expected second-quarter economic growth

European business activity inches up but impetus remains elusive

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