Financial Markets Come Out of Summer in a Foreboding Mood – Currency Thoughts
Financial Markets Come Out of Summer in a Foreboding Mood
September 2, 2025
On this first U.S. business day of September, the dollar rallied strongly but only because of a wave of risk aversion sweeping through world financial markets. Overnight dollar gains include advances of 1.4% against sterling, 1.1% relative to the yen, 1.0% versus the kiwi, 0.9% vis-a-vis the Aussie dollar, 0.7% against the euro and 0.5% versus the Swiss franc.
Ten-year sovereign debt yields spiked up eight basis points in Italy, seven basis points in the United States, Great Britain, six basis points in Spain and five basis points in Germany. The British 30-year gilt touched its highest point since the Asian debt crisis in 1998, while the U.S. 30-year Treasury yield touched 5.00% for the first time since early 2008.
Risk aversion has depressed U.S. stock futures, with the four major indices showing declines that range from -0.9% to -1.5% at this writing. Share prices in Europe have dropped so far by 1.7% in Germany, 1.6% in Spain, and 1.3% in Italy. In Asia, by contrast, stock markets closed up 0.9% in Indonesia and South Korea and 0.3% in Australia, while only down by 0.5% in China and Hong Kong.
The price of gold hit a new all-time peak of $3,578 per ounce, and WTI oil has rebounded 2.7%.
These are foreboding times. The Trump Administration is angry about the show of solidarity by China, Russia and India at the weekend conference of the SCO hosted by China and by the latest court challenges against generalized tariff hikes and deportations without due process. The preliminary Euroland consumer price data arrived a tad higher than expected, creating some doubts about whether the European Central Bank will cut interest rates at this month’s policy review. Comments overnight by the Bank of Japan Deputy Governor Himino imply a readiness to hike that bank’s interest rate soon. Meanwhile, concern is mounting about the over-stretched fiscal positions of many governments from the fall-out of President Trump’s big, beautiful bill to the ramp-up of defense spending in Europe. The verdict of France’s parliamentary vote of no confidence set for the 8th this month could go either way, introducing an inconvenient element of political uncertainty in the EU’s effort to present a united front. Attempts to end the wars in Ukraine and Gaza have failed.
And then there is this cautionary financial market tale from 96 years ago. After peaking at 381.2 on September 3, 1929, the Dow Jones Industrial Average collapsed to 41 by July 1933 and did not recover all those losses until November 1954. So much for the universally held faith that equities always rise in the long run. For those wanting a second example casting a shadow on equity optimism, Japan’s Nikkei did not overtake its end-1989 high of 38,916 until February 2024.
Three of Euroland’s four largest economies (Germany, Italy and Spain) experienced higher overall consumer price inflation in August 2025 than in August 2024. Average CPI inflation for the whole common currency bloc printed at 2.1% last month versus 2.0% in July, a low of 1.7% in September 2024 and a prior cyclical high of 10.6% in October 2022. Core inflation that excludes food and energy, however, held steady for a fourth consecutive month at 2.3%, representing its lowest level since January 2022.
Italian producer price inflation receded in July to a 7-month low of 1.6%, but Romanian PPI inflation that month swung to 2.7% from -0.3% experienced in June.
Croatian CPI inflation in August matched July’s 16-month high of 4.1%. Austrian consumer prices also increased 4.1% over the twelve months through August.
In South Korea, consumer prices in August dipped 0.1% month-on-month and slowed to a 9-month inflation low of 1.7% on a year-on-year basis from 2.1% in July and a 5-month high of 2.2% in June.
Brazilian real GDP growth slowed last quarter but not quite as much as was predicted. A 0.4% rise from the first quarter resulted in the smallest year-on-year advance (2.2%) in 13 quarters.
Cyprus confirmed a flash estimate of GDP growth there, +0.5% on quarter and +3.3% versus the second quarter of 2024.
In Hungary, a country about which U.S. President Trump has spoken admiringly, real GDP went up 0.4% on quarter in 2Q but just 0.1% compared to the second quarter of 2024. In 2023 and 2024, Hungarian GDP had respectively contracted 0.9% and then rebounded just 0.5%.
Malaysia’s manufacturing PMI rose 0.2 points to a 14-month high in August.
Just in: the U.S. S&P Global-compiled manufacturing purchasing managers index climbed by a sharp 3.2 points to 53.0 in August. While indicating the fastest improvement of operating conditions amid stronger sales and inventory building, this figure was slightly less robust than the preliminary estimate of 53.3 reported on August 21.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Brazilian GDP, Euroland CPI, French vote of confidence, Hungary GDP, U.S manufacturing PMI
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