Overview
Global financial markets in September 2025 were shaped by a complex mix of macroeconomic, tariffs, and geopolitical developments. Investors’ sentiment fluctuated as central banks, particularly the U.S. Federal Reserve turned to easy monetary policy amid weakening labour markets, despite inflation being sticky and above targets. The U.S.–China tariff truce remained fragile, with renewed tensions over technology exports and supply-chain security adding uncertainty to global trade flows. Meanwhile, Middle East as well as Russia-Ukraine tensions and energy-price volatility heightened investors’ worries, while slowing growth in Europe and China fuelled concerns about global demand.
Looking at the performance of major asset classes in September 2025, global financial markets staged a robust rally, with leading stock indices posting notable gains and ending the month on solid ground. Japan’s Nikkei 225 index stood out as the top performer, surging by 6.5% amid a backdrop of easing inflation and growing expectations for the Bank of Japan to adopt a more accommodative monetary stance. Investor sentiment in Japan was further buoyed by positive corporate earnings and improved economic outlook, encouraging flows into equities.
Across Europe, the Euronext 100 advanced by approximately 4.2%. This resilience came despite a patchwork of inflation and growth data across the continent, with some economies showing signs of moderation while others grappled with persistent price pressures and sluggish expansion. The strong equity performance reflected optimism around potential policy support and hopes for a gradual recovery in the euro area.
In the United States, the S&P 500 index rose by 3.65% over the month, fuelled by a combination of robust corporate earnings, solid GDP growth, and the Federal Reserve’s decision to cut interest rates in September. The rate cut, the first since December of the previous year, provided a tailwind for risk assets, reinforcing investor confidence in the economic outlook and supporting further gains in the equity market.
The DJ Islamic Markets Index also delivered a healthy return of 4.2%, underscoring the broad-based nature of the rally across both conventional and Sharia-compliant investments. Meanwhile, the UK’s FTSE 100 climbed 1.7%, supported by relatively stable domestic conditions, though gains were somewhat tempered by ongoing inflationary pressures and a cautious monetary policy stance from the Bank of England.
China’s Shanghai Composite Index finished the month largely unchanged, maintaining flat performance following a strong showing in August. This stability reflected a balance between ongoing economic challenges and targeted support measures from Chinese policymakers, with investors adopting a wait-and-see approach amid mixed signals.
Gold continued its ascent, recording a substantial 11% rise for the month. The precious metal benefited from heightened safe-haven demand, as persistent geopolitical risks, including tensions in Eastern Europe and the Middle East, prompted investors to seek shelter in traditional stores of value. The surge in gold prices highlighted growing caution despite the rally in risk assets.
On the fixed income side, the DJ Sukuk Index rose by 0.81%, as bond yields eased following the September rate cut by the Federal Reserve. This move supported global fixed income markets, particularly for Sharia-compliant instruments, providing a modest boost to returns for income-focused investors.
The following snapshot provides a detailed breakdown of the performance of different asset classes in September 2025, as well as their progress year-to-date, offering a comprehensive overview of market dynamics during a period marked by both optimism and lingering uncertainty.
Market Snapshot
News & Key Events in September
UK
• The UK’s annual inflation rate held steady at 3.8% in August 2025, unchanged from July and remaining near the highs last seen in January 2024, in line with expectations. This persistent inflation continues to be driven by elevated energy and food costs, alongside ongoing supply chain pressures, which have kept consumer prices at elevated levels despite some moderation in other sectors. The lack of movement in the inflation rate underscores the challenges faced by policymakers in bringing inflation back towards the Bank of England’s 2% target.
• In response to the inflation outlook, the Bank of England’s Monetary Policy Committee (MPC) voted 7–2 to keep the Bank Rate unchanged at 4%. This decision reflects a cautious stance, with the majority of policymakers opting to hold rates steady rather than risk undermining fragile economic growth. However, two members of the committee advocated for a 25-basis-point cut to 3.75%, highlighting a split within the MPC over the best approach to balancing inflation control with support for the broader economy. In addition, the MPC voted 7–2 to slow the pace of quantitative tightening, agreeing to reduce gilt holdings by £70 billion over the coming year, bringing the total to £488 billion. This adjustment aims to provide some stability to financial markets while continuing the gradual withdrawal of monetary stimulus.
• Meanwhile, the United Kingdom’s unemployment rate stood at 4.7% in the three months to July 2025, unchanged from the previous period and in line with market expectations. This steady unemployment rate suggests that the labour market remains relatively resilient despite the broader economic uncertainty. However, the elevated level of joblessness compared to pre-pandemic norms indicates ongoing challenges for job seekers and signals that the recovery in employment has yet to gain significant traction.
US
• The annual inflation rate in the United States accelerated to 2.9% in August 2025, marking the highest level observed since January. This uptick followed a period of stability, with inflation holding steady at 2.7% in both June and July, and came broadly in line with market expectations. The rise in consumer prices was driven predominantly by increased costs in housing, energy, and services, reflecting persistent supply-side constraints and resilient demand. Despite the ongoing efforts to control inflation, the data suggested that price pressures remained a concern for policymakers.
• In response to these inflation dynamics and signs of moderating economic growth, the Federal Reserve opted to cut the federal funds rate by 25 basis points at its September 2025 meeting, lowering the target range to 4.00%–4.25%. This move was widely anticipated by financial markets and marked the first reduction in borrowing costs since December of the previous year. The Fed’s decision aimed to support continued economic expansion and mitigate the risks associated with elevated borrowing costs, while also signalling a cautious approach in the face of ongoing inflationary pressures.
• The US economy demonstrated robust growth in the second quarter of 2025, with annualised GDP expanding by 3.8%. This figure was significantly higher than the 3.3% reported in the second estimate and represented the strongest quarterly performance since the third quarter of 2023. The upward revision was mainly attributed to stronger consumer spending, which continued to underpin economic activity amid a healthy labour market and steady wage gains. The resilience of consumer demand highlighted the underlying strength of the US economy, despite headwinds from higher interest rates and external uncertainties.
• However, the labour market showed some signs of softening, as the US unemployment rate edged up to 4.3% in August 2025, compared to 4.2% in July. This increase brought the joblessness rate to its highest point since October 2021, in line with market forecasts. The modest rise in unemployment reflected a gradual cooling in the pace of hiring across several sectors, suggesting that while the labour market remained relatively healthy, it was beginning to adjust to a more moderate phase of economic growth.
Europe
• Euro area consumer price inflation increased to 2.2% in September 2025, marking a rise from the steady 2.0% rate observed over the preceding three months. This latest figure takes inflation slightly above the European Central Bank’s (ECB) 2.0% mid-point target, as per preliminary estimates. The uptick in inflation suggests that price pressures within the eurozone are persisting, despite recent efforts by policymakers to maintain stability. The modest acceleration in consumer prices can be attributed to higher costs in sectors such as energy and services, which have offset softer trends in other categories. The move above the ECB’s target underscores ongoing challenges in containing inflationary pressures, particularly at a time when other advanced economies are also grappling with similar issues.
• In response, the European Central Bank opted to keep its three key interest rates unchanged, maintaining the deposit facility at 2.00%, the main refinancing rate at 2.15%, and the marginal lending rate at 2.40%. This decision, which was in line with market expectations, reflects the ECB’s cautious approach as it seeks to strike a balance between controlling inflation and supporting economic growth. By holding rates steady, the ECB aims to provide stability for financial markets and households, while continuing to monitor the evolving inflation landscape across member states.
• Turning to economic activity, the Gross Domestic Product (GDP) in the Euro Area expanded by just 0.10% in the second quarter of 2025 compared to the previous quarter. This marginal increase highlights the subdued pace of economic growth across the region, as lingering uncertainty and external headwinds continue to weigh on business investment and consumer spending. The modest expansion suggests that while the eurozone economy has avoided contraction, momentum remains fragile, and policymakers may need to consider additional measures should growth continue to stagnate.
• The labour market also showed signs of softening, as the Euro Area’s seasonally adjusted unemployment rate edged up to 6.3% in August 2025, rising from an all-time low of 6.2% recorded in July. This slight increase ran counter to forecasts that expected unemployment to remain steady, indicating a potential turning point in labour market dynamics. The uptick in joblessness could reflect a combination of slower job creation and greater caution among employers amid an uncertain economic outlook. Nevertheless, the unemployment rate remains historically low by eurozone standards, suggesting that, for now, the region’s labour market is still relatively resilient, albeit facing new pressures as growth moderates.
China
• China’s consumer prices registered a year-on-year decline of 0.4% in August 2025, marking a notable drop following a flat reading in July. This decrease was sharper than market expectations, which had anticipated a milder 0.2% fall. The August figure represents the fifth occurrence of consumer price deflation in China so far this year, and it is the most pronounced decline since February 2025. The ongoing pattern of deflation points to continued weakness in domestic demand, with falling prices exerting downward pressure on profit margins for producers and retailers alike. It also underscores the challenges facing policymakers as they attempt to revive consumption and restore price stability amidst a sluggish recovery environment.
• In response to these persistent deflationary pressures, the People’s Bank of China (PBOC) opted to maintain its key lending rates at record lows for the fourth consecutive month in September 2025, a move that was widely anticipated by market participants. By keeping borrowing costs at historically low levels, the PBOC aims to encourage lending and investment activity, while also supporting households and businesses struggling with subdued price growth. This ongoing accommodative stance reflects the central bank’s commitment to sustaining economic momentum and countering the risks posed by weak consumer and producer prices.
• Despite a challenging price environment, China’s economy demonstrated resilience in the second quarter of 2025. Gross Domestic Product (GDP) expanded by a seasonally adjusted 1.1% compared to the previous quarter, outperforming market forecasts of 0.9%. Although this represented a modest slowdown from the 1.2% growth recorded in the first quarter, the result highlights the effectiveness of a series of policy support measures rolled out by Beijing. These included interest rate reductions and increased liquidity injections, both intended to offset the negative impact of trade tariffs and to stimulate economic activity. The stronger-than-expected GDP growth suggests that these interventions have provided a meaningful boost to output, even as broader structural headwinds persist.
• However, not all economic indicators were positive. China’s surveyed unemployment rate ticked up to 5.3% in August 2025, compared to both the previous month’s reading and market expectations of 5.2%. This increase brought the joblessness rate to its highest level since February, signalling some ongoing softness in the labour market. The rise in unemployment may reflect continued uncertainty in the economic outlook, with employers remaining cautious about expanding their workforce amid an uneven recovery. Together, these trends illustrate the complex landscape confronting Chinese policymakers as they seek to balance growth, employment, and price stability in the months ahead.
Others
• Japan’s annual inflation rate moderated to 2.7% in August 2025, easing from 3.1% in July and representing the lowest level recorded since October 2024. This decline suggests that price pressures in the Japanese economy are gradually receding, possibly owing to a combination of stabilising energy prices and cautious consumer spending. Despite this softening in inflation, the Bank of Japan (BoJ) opted to leave its benchmark short-term interest rate unchanged at 0.5% during its September 2025 policy meeting. This decision keeps borrowing costs at their highest point since 2008, maintaining a more restrictive stance that aligns with market expectations. The BoJ’s approach signals its continued vigilance against inflationary risks, even as headline inflation trends lower.
• Meanwhile, in Canada, the annual inflation rate edged up to 1.9% in August 2025 from 1.7% in the prior month. Although this marks a slight acceleration, the figure still came in below both the expected 2% and the Bank of Canada’s (BoC) 2% midpoint target for the fifth consecutive month. The persistently subdued inflation environment prompted the BoC to resume its monetary policy easing, cutting its benchmark interest rate by 25 basis points to 2.5% at its September 2025 meeting. This move, widely anticipated by financial markets, follows three straight policy holds and reflects the central bank’s efforts to support economic growth amid mild price pressures.
• Turning to Russia, the annual inflation rate continued its downward trajectory, falling for the fifth month in a row to 8.1% in August, compared with 8.8% in July. This marks the lowest reading since April 2024, indicating some success in efforts to bring inflation under control. In response, the Bank of Russia implemented another reduction in its benchmark interest rate, lowering it by 100 basis points to 17% in its September 2025 decision. Although this is the third consecutive rate cut, the reduction was less aggressive than market participants had anticipated, as many expected a sharper 200 basis point cut. The central bank’s cautious approach reflects ongoing concerns about underlying inflationary pressures and broader economic uncertainties.
• In the cryptocurrency markets, significant volatility persisted throughout September. Bitcoin experienced sharp price fluctuations, ultimately ending the month at $114,600 per token. This closing price reflects a notable rebound following a rapid surge late in the month. Nevertheless, Bitcoin remains well below its mid-August peak of $122,800, underscoring the continued sensitivity of digital asset markets to shifts in investor sentiment and broader risk appetite. The ongoing turbulence highlights both the opportunities and risks present in the cryptocurrency space as market participants respond to global economic developments and regulatory signals.
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