September 8th, 2025 - Politics are back in focus.

The French parliament will decide today whether to give the vote of confidence to Mr. Bayrou or not. The issue is that he himself asked for this vote, which most likely will lead to the end of his term as the third Prime Minister in about a year, a record usually set by second division football teams who sack their coaches one after the other. His decision to call for this vote might be explainable by PhD holders in Political Science or History, but what matters to us is that some of our beloved French stocks, have again found themselves in the crossfire. Truly international companies such as Veolia, LVMH, Air Liquide, Schneider Electric have corrected and will continue to be under pressure just because they also happen to be "French". It appears that buying opportunities are in the horizon again, especially if the outcome of the confidence vote is a new technocratic government and not a call for general elections by President Macron. The latter will push French stocks deep in correction and especially the domestically focused companies, the smaller capitalization companies and the banks.

Eurozone's August inflation edged up 0.1pp to 2.1% y/y (unrounded 2.05%), in line with consensus expectations. The small increase was driven by the rise in energy inflation, more than offsetting a decline in food inflation. Core inflation remained unchanged at 2.3% y/y, again in line with expectations. Within core, services inflation declined 0.1pp to 3.1% y/y, and goods inflation was unchanged at 0.8% y/y. The data also showed that Germany was a positive contributor to higher inflation, something to keep in mind ahead of the huge fiscal stimulus coming primarily in 2026.

The ECB is meeting on Thursday, and is expected to leave interest rates unchanged at 2%. The central bank's easing cycle seems to have ended, meaning that it will not cut rates further in the foreseeable future. In light of the sizeable fiscal stimulus in support of defense in the Eurozone and as well as infrastructure spending in Germany, the bond market (and the ECB) are increasingly nervous about inflationary pressures to appear by the end of 2026. On Thursday, we would expect Mrs. Lagarde to reiterate that the ECB sees itself "in a good place" with inflation close to 2% and interest rates at 2%, while of course signaling that it will maintain a data-dependent, meeting by meeting approach.

The US labor market data were weak.  The August non-farm payrolls rose by just 22k vs consensus for a 77k increase and June's reading was revised down from +14k to -13k. This is the lowest number since December 2020, which is ten months after the the pandemic broke out. Hence the 3month average now sits at just 29k. The unemployment rate ticked higher from 4.2% to 4.3%, though that was in-line with consensus. The JOLTS Job Openings number was also the lowest since September of last year, at 7.15mn vs 7.40mn of consensus expectations.

The FED meeting next week could be a big market mover, in any direction. The weak labor market data as well as softness in some other second-tier macro data has now prompted the market to believe that a 50bp rate cut might come at the FED meeting next week. If this happens we are not sure that the equity market will react positively, despite the fact that rate cuts is the opium on which US traders hallucinate. A 50bp rate cut could signal panic and a fast deteriorating economy with an equity market at record highs and valuations at the second highest level since the Tech bubble of 2000. Emergency rate cuts usually work nicely for equities when these are depressed. Then again, the rate-cut theme is well programmed in algorithmic strategies which would probably unleash buy orders as a Pavlovian dog.

Bond markets had a positive week, primarily in the US. The US 10yr yield dropped below 4.10% and the 30yr retreated from the crucial 5% level by more than 25bp. The EUR yield curve moved lower by just 4-5bp, with the German 10yr staying above 2.70%. The market's perception on EUR yields has dramatically changed since the German coalition government decided to overlook the constitutionally set debt limit and engage in huge government spending on infrastructure and defense. With the ECB rate pinned at 2% it appears that current levels might be close to the floor for the foreseeable future and capital gains are hard to be envisaged. We would be adding positions in the 4-5 year maturities for holding to maturity.

Global equities were under profit taking, with the exception of Nasdaq which rose 1%, boosted by what appears to be a positive resolution of the US Department of Justice antitrust cases against Alphabet and Apple. In Europe, equities continued to be in rotation mode, this time Swiss stocks earning the prize of the "flavor of the week", with a 1.5% rise as most other indices corrected by 1% on average. Consumer names continued to attract interest but with less conviction than the previous week, as prices have already moved significantly higher from the July lows. This makes people nervous that this against-consensus rally might be close to its end.

Chart of the Week : Is the "laggards rally" sustainable ?

The above chart created by Pictet shows the performance of selected industries for the last three weeks. We should note that during this period the broad European index, Stoxx 600, is marginally down by 0.3%. As can be seen on the left side of this chart the consumer related companies like luxury, consumer products & services, auto parts, personal goods, food & beverage have managed to significantly outperform the index. The common characteristic of these stocks besides their consumer-facing businesses is that they had been among the biggest laggards with respect to performance until recently. Actually as we had mentioned a few weeks ago, this outperformance had started at the end of June , but in the last three weeks it became more pronounced and it caught the eyes of more market participants. On the contrary, the worst performers recently have been the big winners of 2025 so far, namely the banks, utilities, insurance, construction materials which can be found at the far right side of the chart. Many believe that this is a short-term trend and the market will return back to the winners soon. We don't really have a crystal ball to know. What we do know from experience is that high quality companies with strong brands at cheap valuations should be a part of invested portfolios, even if they might have fallen momentarily out of favor.

Disclaimer

• The content of this document has been produced from publicly available information as well as from internal research and rigorous efforts have been made to verify the accuracy and reasonableness of the hypotheses used. Although unlikely, omissions or errors might however happen.

• The data included in this document are based on past performances and do not constitute an indicator or a guarantee of future performances. Performances are not constant over time and can be positive or negative.

• This document is intended for informational purposes only and should not be construed as an offer or solicitation for the purchase or sale of any financial instrument and it should not be considered as investment advice. The market valuations, views, and calculations contained herein are estimates only and are subject to change without notice. Any investment decision needs to be discussed with your advisor and cannot be based only on this document.

• This document is strictly confidential and should not be distributed further without the explicit consent of Kendra Securities House SA.

• Sources: Chart of the Week : Pictet