Markets Update September 2025 – Optimism prevails in the markets despite monetary policy uncertainty

After a lengthy pause, the Fed has lowered its key interest rate as expected and signaled to market participants that there will be two further interest rate cuts this year. The world's leading central bank is thus continuing its previously paused cycle of interest rate cuts and creating a more favorable monetary policy environment for investors at the end of the year. The chances of a positive end to the year are therefore very good. For the coming year, however, the Fed is forecasting significantly fewer interest rate cuts than market participants had recently expected. This did not dampen the positive mood on the stock markets, however, as a new central bank chief is expected to take the helm in May 2026. He is likely to be more dovish than the current incumbent, Jerome Powell.

Market participants were also largely unimpressed by the political crisis in France. Once again, a head of government in France has failed to steer the country onto a more sustainable fiscal policy path. The country now has its fifth head of government since 2022 and is increasingly becoming the problem child of the eurozone. In absolute terms, France has the highest debt in the monetary union, while serious austerity measures and reforms are virtually impossible to implement, both politically and socially. In the event of a genuine debt crisis and loss of access to the bond market, other EU countries would be virtually unable to put together a rescue package for France – the sums required would simply be too large. Ultimately, only direct intervention by the European Central Bank would be an option. Unsurprisingly, risk premiums on French government bonds are now among the highest in the eurozone.

However, there are still few signs of a full-blown crisis in the eurozone. Overall, risk premiums on eurozone government bonds remain at historically low levels despite partial increases. The latest auctions of French and other European government bonds went smoothly. The stock markets in Europe have also coped well with the political turmoil so far. However, if France does not implement substantial reforms, the markets' patience is likely to wear thin sooner or later and investors will discipline the country with significantly higher spreads.

Gold price continues upward trend

The price of gold was one of the main beneficiaries of recent events. In addition to the political crisis in France and the associated concerns about the stability of public finances in the eurozone, the Fed's interest rate cut, accompanied by repeated attacks on the independence of the central bank, also contributed to the recent rise in the price of gold. With a performance of over 40 percent since the beginning of the year, the precious metal has significantly outperformed the global financial markets. In the short term, gold is overbought and the price increase is unlikely to continue at the same pace. However, the fundamental environment remains favorable for gold: ongoing doubts about the Fed's independence and the resulting erosion of confidence in the US dollar, high global government debt, and rising geopolitical tensions in the long term argue against a fundamental reversal of the trend in the price of gold.