Markets adopted a subdued tone this week as investors faced a limited flow of economic data. One notable development was news that US–India trade talks may become more complicated by the issue of India’s purchases of Russian oil – an unusual factor, given that such negotiations typically exclude third-party relationships. For India, however, demand is simply too high to contemplate moving away from Russian supply, and imports are in fact rising to meet growing domestic needs. Traders will be watching closely to see how this is addressed in what have otherwise been constructive discussions between President Trump and Prime Minister Modi. Those talks have recently fuelled optimism about the prospects of a deal, despite the current 25% tariff on Russian oil imports.
Over in the Eurozone, composite PMI data came in for the month of September showing an overall expansion in activity at 51.2, slightly up from August’s 51. In relation to PMI, anything below 50 signals a contraction and anything above an expansion. This 16-month high has sparked cautious optimism in markets, though underlying demand remains fragile. Business activity was buoyed by the services sector, but manufacturing continued its pull back as price pressures and input costs persisted in dragging the sector into contractionary territory. While services continue to drive growth, the divergence from manufacturing highlights structural imbalances across the bloc. Policymakers and investors remain alert, as the stalled new orders and persistent cost pressures suggest the recovery may be plateauing rather than accelerating.
In the UK, September’s composite PMI slipped to 51 from 53.5 in August, signalling growth is still in positive territory but losing momentum. The deceleration reflects softer activity in services and a deeper downturn in manufacturing. The survey also pointed to sustained weakness in employment: over the past year firms have steadily reduced headcount, with around 50,000 private-sector jobs disappearing in just the last quarter as companies struggle with higher costs and muted demand.
Meanwhile, U.S. Federal Reserve Chair Jerome Powell highlighted the challenging situation of the U.S. economy during an address made on Tuesday with regards to the task of balancing inflationary pressures with a cooling labour market. While acknowledging the issue, he stressed that interest rates are appropriately positioned to manage both challenges, indicating little urgency to cut rates quickly. In consequence, U.S. markets closed the day lower.
Still to come this week we have U.S. durable goods orders, Tokyo CPI, and U.S. PCE data.
Nicola Tune, Portfolio Specialist
