Global markets spent the past week positioning for an increasingly certain Federal Reserve rate cut, though conviction about the magnitude and pace of easing began to waver as stronger U.S. economic data emerged mid-week.

The Australian dollar emerged as a standout performer, climbing 1.4% over the week and over 3% over the last month to breach 66.7 U.S. cents – its highest level year-to-date. This strength came despite Australian 10-year yields bucking the global trend, falling over 10 basis points while German Bunds rose 5 basis points. The divergence highlights Australia's increasingly distinct monetary path, with the RBA maintaining its patient stance as Sarah Hunter noted the economy remains "close to full employment" with inflation within target range.

U.S. inflation data sent mixed signals — softer producer prices but stickier consumer prices — initially reinforcing expectations for a September cut. But stronger retail sales and industrial output later in the week showed consumer resilience, prompting markets to trim bets from a potential 50 bp move to a more measured 25 bp cut. By week’s end, around 75 basis points of easing was priced in through December.

China's economic challenges intensified with August activity data disappointing across the board. Retail sales, industrial production, and fixed asset investment all undershot forecasts, while unemployment ticked higher. However, the PBOC's liquidity provisions seem to be getting traction in markets even if credit growth continues got look a bit soft and banks and borrowers remain cautious. Iron ore prices holding above $100 provided some offset for Australian sentiment.

European markets struggled with political and economic uncertainty. The ECB held rates at 2% despite forecasting below-target inflation by 2027, puzzling observers about their reaction function. Growth projections remained anaemic at just 1% for 2026, raising questions about Europe's structural challenges. The euro nonetheless surged 0.9% to a four-year high, breaking above 1.18 against the dollar on Fed-cut expectations rather than euro-area fundamentals. Markets were also robust until falling by a percent or so overnight.

Technology stocks continued their relentless advance, with Oracle surging 36% on AI-related contract wins before retreating. The Nasdaq hit new all-time highs above 22,000, while Apple rejoined the $3 trillion club alongside Nvidia and Microsoft. This tech strength occurred despite growing concerns about quarterly earnings pressure and Trump's push to reduce corporate reporting frequency.

Gold reached another record high above $3,700 per ounce, up 39% year-to-date, reflecting persistent uncertainty about inflation dynamics and geopolitical tensions. Oil prices gained modestly, with Brent holding above $67 per barrel.

Looking ahead, markets face a concentrated week of central bank decisions beyond the Fed, including the Bank of Canada, Bank of England, and Bank of Japan. The key question is probably not how much the Fed cuts, but whether Chair Powell's messaging and updated dot plots validate market expectations for an extended easing cycle or suggest a more cautious approach given sticky services inflation and resilient consumer spending.