Markets wobbled to start the week as investors digested a storm of political and legal flashpoints. President Donald Trump stayed firm on trade, rebuffing South Korea’s request to ease tariffs during a summit with President Lee Jae Myung, despite broad talk of cooperation on security and North Korea.
On the domestic front, Trump signed a controversial executive order expanding the National Guard’s potential role in civilian law enforcement, a move that’s fueling criticism over increasing militarization ahead of the 2026 elections.
In a dramatic shakeup at the Federal Reserve, Trump abruptly moved to fire Governor Lisa Cook over allegations of mortgage fraud, raising alarms about the central bank’s independence. The news lands just weeks ahead of the Fed’s next policy meeting on September 16–17, a critical window as officials weigh their next steps on and balance sheet reduction. Dallas Fed President Lorie Logan warned of possible liquidity strains at quarter-end, but suggested the Fed still has room to continue trimming its $3.3 trillion in reserves.
Adding to the uncertainty, Elon Musk launched a sweeping lawsuit against and OpenAI, accusing them of crushing competition by embedding ChatGPT into the iPhone’s operating system. Musk’s AI firm xAI is seeking billions in damages, claiming the integration marginalizes rival technologies and harms consumers, a legal clash that’s set to intensify the spotlight on tech regulation.
U.S. in July came in slightly above expectations at 652,000 units, compared to a forecast of 635,000, though still down from June’s 656,000. Month-over-month sales dipped by 0.6%, reversing the prior month’s 4.1% increase.
U.S. equities pulled back as rate cut optimism faded, with the retreating and Treasury yields climbing, led by a drop in short-term bonds ahead of upcoming auctions. The dollar strengthened notably, posting its largest gain in nearly a month and putting pressure on G-10 currencies.
In contrast, Chinese concept stocks advanced, with Yum China and NetEase leading the Golden Dragon China Index higher. In Europe, stocks slipped and French government bonds led declines amid growing political uncertainty, while the wind energy sector faced fresh pressure from U.S. regulatory headwinds.
Oil prices pushed through a key technical level, extending gains on Fed rate cut signals, while gold prices hovered in a tight range as traders awaited key U.S. data. The London Metal Exchange remained closed for a holiday.
European markets drifted lower as political and economic pressures mounted across the region. In France, Prime Minister François Bayrou faces a make-or-break confidence vote on September 8, with opposition parties lining up against his controversial austerity plans. The prospect of a government collapse weighed on French bonds and added fresh uncertainty to the eurozone’s fiscal outlook.
Meanwhile, German sportswear maker saw its shares surge after reports that the Pinault family, its largest shareholder, has begun testing market interest in a sale. Potential suitors include Chinese giants Anta and Li Ning, as well as U.S. firms and Middle Eastern sovereign funds, setting the stage for a potential high-profile cross-border deal.
On the monetary front, ECB President Christine Lagarde struck a measured tone, noting that across the eurozone is showing signs of normalization and remains broadly in line with the bank’s targets. However, across the Channel, the UK continues to buck that trend.
Grocery prices there rose 4.2% in August, the sharpest increase since early 2024 highlighting the country’s persistent inflation problem. Retailers now warn that food inflation could climb as high as 6% by year-end, keeping pressure on households and the Bank of England alike.
Asia-Pacific markets delivered a mixed performance as China’s stimulus push offered temporary relief, though economic headwinds remain formidable. E-commerce powerhouse PDD beat estimates on the back of consumer-boosting policies, yet slowing revenue growth hinted at intensifying competition. In real estate, Shanghai eased homebuying restrictions in a bid to stem the country’s protracted housing slump, while fresh investments flowed into Chinese ETFs, signaling a cautious return of investor confidence.
Down under, Australia’s posted a sharp drop in annual profit and warned of continued weakness in the U.S. housing market, hammering its stock price. In the resources sector, and both posted disappointing results amid commodity price pressures lithium remains in a prolonged slump, while iron ore struggles with China’s softening demand.
However, the region’s credit markets saw a bright spot. Data center operator AirTrunk closed a record A$16 billion sustainability-linked refinancing deal and is now eyeing a rare securitization, potentially opening new doors for data infrastructure finance in Asia. Meanwhile, New Zealand’s central bank proposed looser capital requirements for banks, aiming to support lending without compromising financial stability.