Highlights
U.S. equities ended the week with mixed results as investors responded to the Federal Reserve’s first interest rate increase since 2023, sharp swings in oil prices linked to intensifying Middle East tensions, and changing expectations for monetary policy. The S&P 500 slipped 0.08%, while the Dow fell 1.69%, whereas the Nasdaq advanced 0.94%. Technology shares, particularly those tied to artificial intelligence (AI), recovered despite concerns raised by prominent AI executives about potential safety risks. This helped the technology-heavy Nasdaq Composite outperform the broader market. As widely anticipated, the Federal Reserve increased the federal funds target range by 25 basis points (bps) on Wednesday, taking it to 3.75%–4.00%. A basis point equals 0.01 percentage point. The decision was notable because it received unanimous backing from the Federal Open Market Committee (FOMC), despite expectations among some observers that one or two policymakers might dissent in favour of leaving rates unchanged. The FOMC’s latest economic projections indicated that policymakers expect another 25-bps increase before the end of 2026. Oil markets were another major source of volatility. Crude prices jumped at the start of the week after attacks damaged pipeline infrastructure in Saudi Arabia, raising concerns about potential supply disruptions and adding to inflation worries. U.S. diesel prices continued to reach record levels, reinforcing concerns that higher energy costs could complicate the Fed’s efforts to contain inflation. However, oil prices reversed sharply on Wednesday. West Texas Intermediate (WTI), the U.S. benchmark, fell more than 3% in its biggest one-day decline in six weeks after reports suggested that the pipeline damage was less extensive than initially feared. Across the Atlantic, the pan European Euro STOXX 600 declined 1.22% over the week. European markets experienced considerable volatility as escalating Middle East tensions pushed oil and natural gas prices higher at the start of the period, increasing inflation concerns and driving government bond yields upward. Technology shares initially came under heavy pressure amid a sharp rotation away from AI-related stocks, but subsequently recovered as fears surrounding AI infrastructure investment moderated. Meanwhile, final figures showed that inflation across the eurozone increased to 3.2% in August, compared with 2.9% in July. The acceleration was largely attributable to a substantial increase in energy prices. Core inflation, which excludes more volatile components, stood at 2.4%. Separately, the Bank of England maintained its policy rate at 3.75%, as expected, although the decision was not unanimous. The Monetary Policy Committee voted 6–3 to keep rates unchanged, with three members preferring an immediate rate increase. Policymakers indicated that further tightening could become necessary if the energy shock leads to more persistent inflation. Moving along to Asia, Japanese equities advanced during the week, with the Nikkei 225 gaining 1.57% and the broader TOPIX rising 1.56%. Notably, the Bank of Japan delivered the widely anticipated interest rate increase, although the decision was split and policymakers provided little explicit guidance regarding the timing or speed of additional tightening. Finally, Chinese equity markets produced mixed results during the week. The CSI 300 slipped 0.06%, while the Shanghai Composite advanced 0.61%.
Data Highlights
CAD Inflation Rate YoY (Aug) remained unchanged at 3%, in line with expectations. CAD Core Inflation Rate YoY (Aug) rose more than expected, +10bps, from 2.3% to 2.4%, analysts wrongly assumed it would remain the same att 2.3%. USD Fed Interest Rate Decision rose +25bps, from 3.75% to 4%, in line with expectations. GBP Unemployment Rate (Jul) stayed the same at 4.9%, against expectations for an increase to 5.3%. GBP Inflation Rate YoY (Aug) rose +20bps, from 2.9% to 3.1%, in line with expectations. GBP Core Inflation Rate YoY (Aug) stayed the same at 2.6%, in line with consensus. GBP BoE Interest Rate Decision stayed the same at 3.75%, as expected. GBP Retail Sales YoY (Aug) rose +120bps, from 1.2% to 2.4%, expectations were for a softer increase to 1.9%. CNY Unemployment Rate (Aug) rose more than expected, +10bps, from 5.2% to 5.3%, against expectations for an unchanged print. JPY Inflation Rate YoY (Aug) stayed the same at 1.9%, expectations wrongly pencilled in an increase to 2.1%. JPY Core Inflation Rate YoY (Aug) fell -10bps, from 1.8% to 1.7%, against expectations for an unchanged print. JPY BoJ Interest Rate Decision rose +25bps, from 1% to 1.25%, in line with expectations.
Week Ahead
ZAR Inflation Rate YoY (Aug) – Wednesday | AUD Unemployment Rate (Aug), CHF SNB Interest Rate Decision, CAD Retail Sales YoY (Jul) – Thursday
