Trade agreements and setbacks in the US

“Geopolitics affects markets”

• Equities once again had a strong quarter, thanks in part to strong corporate earnings in the third quarter. Bonds, on the other hand, fell in value due to rising interest rates.
• The US Congress gave final approval to Trump’s extensive tax and spending bill (the ‘One Big Beautiful Bill Act’). As a result, the US budget deficit is expected to increase by $3,000 billion to $4,000 billion over the next ten years. 
• The US government concluded trade agreements with, among others, Japan and the European Union, which include a 15% import tariff. No agreement was reached with Canada, and tariffs on non-USMCA (United States–Mexico–Canada Agreement) goods were raised from 25% to 35%.
• The US Federal Reserve cut interest rates in September by 25 basis points to 4%-4.25%. For the remainder of 2025, two further interest rate cuts of 25 basis points are expected. The reason is a less robust US labour market than previously anticipated. The US jobs report for July showed that employment in the United States grew by only 73,000 jobs in that month. In addition, the figures for May and June were revised downward by a combined total of 258,000 jobs. In August, only 22,000 jobs were added.
• The European Central Bank (ECB) left interest rates unchanged this quarter. The main policy rate was kept at 2%, marking the end of the series of rate cuts the ECB had initiated since June last year. The ECB indicated that it is in a good position to wait and see what impact the trade tariffs will have on the European economy.
• The Bank of Japan (BoJ) kept its interest rate unchanged at 0.5%. However, the BoJ announced that it intends to gradually reduce its equity-ETF portfolio by selling approximately € 2.1 billion per year.
• Doubts arose about the independence of the US Federal Reserve following actions by President Trump. He fired Lisa Cook (one of the seven governors of the Federal Reserve Board) over alleged mortgage fraud. Cook has asked the Supreme Court to overturn her dismissal and, for the time being, remains in her position.
• France’s political crisis deepened: at the end of August, Prime Minister Bayrou announced a confidence vote in parliament. With this vote, Bayrou sought support for his austerity plans. Ultimately, a majority of the French parliament voted to dismiss Prime Minister Bayrou.
• By the end of the quarter, a US government shutdown had become unavoidable. The Democrats blocked a Republican bill to extend funding for non-essential government services.