Well, that is another week done.

And if there was one message coming out of the US economy this week, it was pretty simple: it isn’t slowing down as quickly as some might have hoped.

The September US flash PMI numbers certainly caught the market’s attention.

Manufacturing PMI jumped to 57.0, up from 53.9, while services climbed to 58.7. The combined Composite PMI reached 58.4, its strongest reading since July 2021. Employment also accelerated, while businesses reported renewed pressure on input costs.

In other words, the US economy is still showing plenty of muscle, and unfortunately for those hoping for lower rates, it is doing so alongside stubborn price pressures.

That has fed speculation that the Federal Reserve may have more work to do on interest rates.

And when markets start talking about higher US rates, there is usually another old friend waiting in the wings.

The dollar.

The greenback has strengthened again this week as Treasury yields have climbed and expectations of further Fed tightening have increased.

For investors, it is a familiar equation: stronger economic data, higher yields and a more hawkish Fed outlook can make dollar-denominated assets increasingly attractive.

But just when the market thinks it has found its narrative, geopolitics has a habit of wandering into the room.

Talk of a possible US-Iran agreement has continued, with diplomacy around the conflict and the Strait of Hormuz remaining a major focus.

Any meaningful progress could have important implications for oil, inflation and, ultimately, the interest-rate conversation.

So the market is watching Washington, Tehran and the Fed.

And then, just to make things slightly more complicated, Washington welcomed Chinese President Xi Jinping.

The Trump-Xi meeting has put trade, technology, Iran and artificial intelligence on the same agenda.

And that last one is worth watching.

AI is no longer simply a story about technology companies and semiconductor earnings. It is increasingly becoming part of the wider economic and geopolitical conversation, alongside trade, energy and national security.

So where does that leave the market?

With strong US data pointing towards potentially higher rates.

A stronger dollar responding to those expectations.

The possibility of an Iran deal potentially changing the oil and inflation picture.

And the world’s two biggest economies sitting down to discuss trade, geopolitics and the technology that could shape the next decade.

The market wanted clarity this week.

Instead, it got homework.

And knowing markets, it probably won’t read it until Monday morning.

Anyway, till next week, all of you trade safe.

By James Trescothick
Head of Market Research and Market Analysis

Risk Disclaimer: This information is for educational purposes only and does not constitute investment advice. Financial markets involve risks, and past performance is not indicative of future results. Always conduct your own research and seek professional advice before making investment decisions.