Inflation Under Control = Rate Cut

Market Recap: 8-12 September 2025

Financial Markets

US Stock Market

This week the main US stock market indices were positive, fueled by lower than expected producer price index, which increases the chances of a FED rate cut. The S&P500 and the NASDAQ 100 gained 1.6% and 1.9%, respectively. The small cap index (Russel 2000) climbed 0.2% and is reaching the historic maximum. Trading volumes were slightly higher than average.

COMMODITIES

Precious metals got a boost this week. Gold and silver gained 1.6% and 2.9%, respectively. Gold is at a new all-time high. Silver continues strong and might have some resistance around 43$.

WTI crude oil rose to 62.6$/bbl. In the short term, the trading range should be 60-67$ and in the medium term 55-77$/bbl

Bitcoin recovered another 4.2% and is currently trading around 116k$. The all-time-high (119k) should show some resistance but if bitcoin falls, 100k$ and 93k$ should act as short term supports for the cryptocurrency.

US DOLLAR, MONEY SUPPLY

The relative strength of the US dollar (DXY) was essentially unchanged, at ~97.6. The EUR/USD is around 1.173$, the GBP/USD is at 1.356$, and the USD/JPY is at 147.68 JPY.

US M2 money supply at the date of 28th July 2025 was up by 0.43%, showing a continuous increase in the money supply since December 2023. Banks didn’t stop lending so far – if the money supply was going down, it would be a warning sign for the economy and equities.

The national financial conditions index (NFCI) released on 1st September 2025 loosened by 0.23%. Note that this indicator is delayed by two weeks. Positive numbers in the NFCI mean tighter financial conditions, while negative numbers indicate looser financial conditions.

BONDS AND OPTIONS

US bond yields were little changed this week. Yields now sit at 3.562% for the 2-year and 4.068% for the 10-year. The yield curve has uninverted since a year ago, likely as a consequence of low growth, low inflation, and short-term interest rate cuts. Long-term growth and inflation expectations are at ~4.7%.

The VIX fell slightly to ~14.8, showing investor complacency and optimism. The overall market remains quite expensive and options premiums are not very attractive at this moment – option sellers need to be patient and particularly selective regarding which contracts to sell.

Comment Section

This week the producer prices (PPI) in the US unexpectedly fell 0.1% month-over-month in August 2025, following a downwardly revised 0.7% rise in July and well below forecasts of a 0.3% increase. It is the first decline in producer prices in four months, with cost for services falling 0.2%, the largest drop since April.

Later, the inflation numbers (CPI) were released and came within expectations. The US annual inflation rate accelerated to 2.9% in August 2025, the highest since January, after holding at 2.7% in both June and July. Prices rose at a faster pace for food (3.2% vs 2.9% in July), used cars and trucks (6% vs 4.8%), and new vehicles (0.7% vs 0.4%). Also, energy cost increased for the first time in seven months (0.2% vs -1.6%). Prices for gasoline (-6.6% vs -9.5%) and fuel oil (-0.5% vs -2.9%) decreased less and the rise for natural gas prices remained elevated (13.8% vs 13.8%). Meanwhile, inflation steadied for transportation services (3.5% vs 3.5%) and slowed slightly for shelter (3.6% vs 3.7%).

Core consumer prices in the US, which exclude food and energy, rose by 0.3% from the previous month in August of 2025, the same pace as in July, in line with market forecasts. Indexes that increased over the month include airline fares, used cars and trucks, apparel, and new vehicles. The indexes for medical care, recreation, and communication were among the few major indexes that decreased in August. On a yearly basis, core consumer prices advanced by 3.1% in August, matching July’s pace and aligning with market estimates.

Next week, it is likely that a wave of optimism pushes markets to slightly new highs as the FED makes another interest rate cut. But the FED rate cut is probably already baked into the current prices, so a correction later in September-October wouldn’t be a surprise. The economy is still relatively strong, but the jobs numbers last week tell a story of slowing hiring, which could evolve into mass layoffs and a recession.

Have a nice weekend, and good luck!!!