The last week of September 2025 delivered one of the strangest paradoxes of the year. The U.S. government shut down, economic data went dark, private payrolls contracted — and yet global markets soared. Wall Street decided that bad news was good news, doubling down on rate-cut bets as investors front-ran what they saw as the next liquidity wave.
Tech and small caps surged. Oil plunged over 7% after OPEC+ signaled higher output. Gold hit a record above $3,900 an ounce while Bitcoin broke $122,000. Europe’s major indices hit all-time highs on U.S. rate optimism, Japan’s bond yields spiked as the BoJ edged closer to another hike, and Chinese markets rallied ahead of Golden Week despite weak fundamentals.
It was a week where risk assets soared while clarity vanished — and markets became addicted once again to the hope of cheaper money.
United States: Bad News Feeds the Rally
U.S. stocks defied logic. The S&P 500 rose 1.09%, the Nasdaq gained 1.32%, and small caps rallied — all on the back of soft labor data and a full government shutdown. The core narrative was simple: weaker data means faster rate cuts.
The catalyst was the ADP private payrolls report, which showed a contraction of 32,000 jobs in September — far below expectations for a 51,000 gain. It was the first real sign of weakness in months, and markets immediately shifted from debating another hike to speculating on how soon the Federal Reserve would have to cut.
But that optimism collided with a dangerous new problem: the data blackout. With the U.S. government shut down, the Bureau of Labor Statistics went silent. No official September jobs report. Possibly no CPI. Roughly 750,000 federal employees were off the job, including those producing critical data. The Fed now faces its next meeting flying blind — forced to make policy decisions with incomplete information.
The result was confusion across Fed communication. Some officials sounded hawkish, warning about sticky services inflation, while others hinted at patience. The lack of consistent data created an information vacuum that markets eagerly filled with speculation — a recipe for volatility.
Meanwhile, commodity markets sent conflicting signals. Oil prices plunged 7% as OPEC+ boosted production, easing inflation fears. Copper jumped 7%, signaling optimism about future growth, while gold hit a new all-time high and Bitcoin rallied 11%. The message was clear: liquidity expectations, not fundamentals, are driving the trade.
Europe: Riding the U.S. Liquidity Wave
Europe’s markets joined the party. The Stoxx Europe 600 gained nearly 3%, hitting an all-time high. But beneath the excitement, local fundamentals painted a more complicated picture.
Eurozone inflation remained sticky. Headline CPI rose slightly to 2.2%, and core inflation held at 2.3%. Unemployment ticked up to 6.3%, and manufacturing remained weak. Still, the European Central Bank signaled confidence that rates were high enough, with Christine Lagarde noting that risks were “well contained.”
In short, the ECB may be done hiking — but not yet ready to talk cuts. That leaves European equities largely dependent on global liquidity hopes, not domestic growth.
Across the Channel, the UK’s housing data was mixed. Mortgage approvals fell, but home prices rose 0.6%. The Bank of England faces the same dilemma: a cooling economy but persistent inflation, leaving little room to maneuver.
Asia: Japan’s Turning Point, China’s Holiday Hopes
Japan remains the quiet epicenter of policy risk. The 10-year JGB yield surged to 1.67% — massive by Japan’s standards — as investors priced in an end to decades of ultra-loose policy. Governor Ueda reinforced that view, reaffirming that rates would rise if conditions evolve as expected. Markets took him at his word.
The yen strengthened to 147.3 per dollar, tightening financial conditions and putting pressure on exporters. Equity indices were mixed, with the Nikkei slightly higher but the Topix down, reflecting unease about the transition to a post-zero-rate world.
In China, optimism returned ahead of the Golden Week holiday. The Hang Seng Index rose nearly 4% on expectations of a spending surge. Yet factory data told a different story. The manufacturing PMI edged up only to 49.8, still in contraction territory, while services slipped to 50.0. The rally remains built on sentiment and liquidity — not on solid economic momentum.
The Week Ahead: October 6–10, 2025
United States
Tuesday: Trade balance, consumer credit
Wednesday: FOMC minutes (if released)
Thursday: Weekly jobless claims
Europe
Monday: Eurozone retail sales
Tuesday: German factory orders
Wednesday: German industrial production
Japan
Tuesday: Household spending
Wednesday: Current account
These reports will be crucial in testing whether last week’s rally has a foundation or was simply a liquidity illusion.
Top Five Risks to Watch
Fed path whiplash amid data blackout. Markets have priced in aggressive rate cuts without hard data. Any hawkish tone in FOMC minutes or stronger-than-expected labor figures could trigger violent reversals.
Energy volatility. Oil’s 7% drop eases inflation but threatens energy sector debt. A rebound would reignite inflation fears.
Eurozone growth disappointment. Weak factory or industrial numbers could puncture the rally in European equities.
China Golden Week underwhelms. If spending fails to meet expectations, pressure will return to commodities and regional markets.
Japan yields spike further. Strong household or current account data could accelerate BoJ tightening and strengthen the yen, shaking Asian equities.
Final Insight: A Rally Built on Fragile Faith
Markets are celebrating weakness, not strength. The rally in risk assets has been fueled by the belief that bad data will force central banks — especially the Fed — to open the liquidity taps. But with the U.S. data pipeline frozen by the shutdown, both policymakers and investors are flying blind.
The central question for the coming weeks is simple: how credible can monetary policy be when the world’s largest economy is missing its own vital signs?
The answer will define whether this rally continues — or collapses under the weight of its own wishful thinking.
Frequently Asked Questions
Why did markets rally during a U.S. government shutdown?
Because investors believe weaker data will accelerate Fed rate cuts, boosting liquidity-sensitive assets like tech and crypto.
Why did oil plunge while gold hit new highs?
OPEC+ increased production, pushing oil down, while investors flocked to gold as a safe haven amid uncertainty.
Is Europe’s rally sustainable?
Not without stronger growth. Inflation remains sticky, and the ECB is holding rates high for now.
Why are Japanese yields surging?
Markets are pricing in an end to the BoJ’s ultra-loose policy, signaling a major shift in global bond dynamics.
Is China’s recovery real?
Not yet. The rally is fueled by sentiment ahead of Golden Week, not by improving fundamentals.
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