Strong jobs data reignited inflation concerns and increased rate-hike odds, as escalating US-Iran tensions pushed Treasury, Bund, and gilt yields higher, though September Fed odds held steady at 60%.

Eurozone inflation ticked up on energy costs, but easing core prices are keeping the ECB’s tightening path contained beyond this week’s expected rate hike. Equities stayed resilient, with the US the best-performing region, even as markets await US inflation data, the FOMC, and the ECB decision to shape the path for rates, the dollar, and gold.

Macroeconomics

The US labour market definitely looks solid judging by the sharp rebound in non-farm payrolls (NFP). Employers added 162,000 jobs in August, nearly three times the 55,000 expected, led by a broad gain in goods-producing sectors and a large, if somewhat puzzling, jump in leisure and hospitality. Looking beneath the surface: wage growth cooled to 3.1% y/y from 3.2% in July, while unemployment held steady at 4.1%; this should ease concerns about overheating and let the US Federal Reserve (Fed) focus squarely on the other side of its mandate, namely inflation.

Here, the picture is less reassuring. The ISM services survey’s prices-paid index climbed to 72.6 (from 70.3), a reminder that price pressures are persisting, and that disinflation will take time. The overall index rose to 55.4 (vs. 54.1 expected), reinforcing the sense of resilience, not least via new orders, which jumped to 60.9 from 57.2.

Eurozone headline inflation accelerated to 3.3% y/y in August, as expected, driven by a surge in energy prices (up 14.3% y/y) as renewed disruption in the Strait of Hormuz pushed fuel costs higher. Core inflation, by contrast, eased to 2.4% (from 2.5%), undershooting the 2.5% consensus thanks to a marked slowdown in services (to 3.0% from 3.3%), probably coming from tourism-related items.

Crucially, this suggests that second-round effects remain absent. The data will do little to deter the European Central Bank (ECB) from raising its rates this week, but contained wage-negotiation outcomes and subdued core prices should ease the case for hikes beyond this one. Even so, the ECB will need to watch energy prices and the strength of the business cycle, either of which could yet feed through to core inflation.

This week, US producer price index (PPI) will come out on Thursday, and investors will examine components feeding into core PCE, while Friday’s consumer price index (CPI) print should shape expectations ahead of the FOMC’s meeting on 16 September. The University of Michigan’s sentiment survey and the NFIB small-business index are also due. In the eurozone, the ECB delivers its interest rate decision on Thursday, with a 25-basis-point hike to 2.5% widely expected.

Equities

Global equities were stable over the past week (MSCI ACWI total return +0.1%) as investors digested renewed US-Iran hostilities, rising oil prices, better-than-expected US macro data and shifting Fed monetary policy expectations. Beneath the headlines, performances varied by region, with losses in Europe (STOXX Europe 600 -0.8%), Japan (MSCI Japan -0.9%) and Korea (KOSPI -1.5%) offset by relative strength in the US (S&P 500 +0.1%, Nasdaq +0.4%). The global energy sector led the week’s gains at +2.3% as Brent crude prices rose +7.8% to just over USD 96 per barrel, while cyclical areas of the market fell the most (consumer discretionary -1.9%, industrials -1.3%, materials -1.3%).

Investors are caught in a ‘wait-and-see’ mood in the very near term ahead of US inflation data and the policy rate decision by the Fed. Investors were also unnerved by the increasing odds of a Japanese rate hike which are raising concerns about a potential unwinding of carry trades. While a large-scale liquidation event continues to appear unlikely given the still-wide US-Japan interest-rate gap and Japan’s expansionary fiscal stance, the tail risk adds another layer of instability to equity markets.

As several key events lie ahead (inflation data, central bank rate decisions, geopolitics), we continue to hold a broad exposure to the equity asset class, but with limited concentrated bets other than a continued preference for US equities. Our constructive stance on the asset class remains anchored to fundamentals: strong corporate earnings and a still-resilient global economy. We nevertheless remain mindful that a higher interest rate environment would limit valuation expansion and require further equity market gains to be earnings-driven.

We favour US equities, staying constructive on strong earnings and economic resilience, though higher rates mean gains must be earnings-driven, not valuation-led

Fixed income

Yields continued to drift higher, with 10-year yields up around 6 basis points (bps) on the week. Treasuries closed at 4.78%, Bunds at 3.34% and gilts at 5.13%, with moves explained by the labour market refusing to cooperate with the disinflation story and the conflict in Iran yet again escalating. August payrolls came in significantly above consensus, with June and July both being revised upwards, while unemployment held steady at 4.1%. On the announcement, 2-year Treasuries reached their highest since January 2025. With the FOMC on 16 September and odds of a hike at 60%, the market will be paying close attention to the PPI data published on 10 September and CPI coming out the following day.

Oil prices continued to put upward pressure on rates. Brent crude gained 8% to settle at USD 96 per barrel, with US diesel prices reaching a record high as refining margins tripled year-to-date. The US-Iran conflict escalated during the weekend, with the US striking three Iranian tankers in retaliation for ballistic missiles attacks on US warships (including an aircraft carrier), and Iran hitting US-linked vessels and a drone boat. Shipping through the Strait of Hormuz is at its lowest level since May.

Fed Chair Warsh used the G20 in North Carolina to downplay the global savings glut, while Bessent said the US could grow its way out of its USD 40 trillion debt. The US Treasury’s scheduled, and now enhanced, buyback of 10–30-year Treasuries starts on Wednesday this week and will continue over the next three months.

With Bunds at a 15-year high, driven by European natural gas at a 3-year high of above EUR 70/MWh, the ECB is expected to deliver their second rate hike this year on Thursday; markets are pricing in an 85% probability of another hike by December, followed by another one by end of 2027.

Spreads remain largely unaffected, barely budging over the past few weeks. August set a record for investment-grade supply at USD 163 billion, with Alphabet accounting for another USD 25 billion. In emerging markets, corporate bonds (as measured by JPM’s CEMBI index) have been held in a 13-bp range since early May. Excluding China, the eight-month supply total of USD 329 billion is a record.

US bond yields rose as strong jobs data and Iran tensions rekindled price pressures, with markets focused on upcoming inflation data and the Fed meeting

Forex and Commodities

Last week, the USD fell modestly against most G10 currencies. The markets’ expectations of a 25-bp September FOMC rate hike were largely unchanged at 60% following NFP data surprising on the upside. The main event in the coming week is the publication of US CPI data, which are expected to print at 3.4% y/y (headline) and 2.4% y/y (core). The data should show a modest deceleration from the July data, meaning that there is scope for USD weakness on any print that comes in below expectations.

The USD/JPY continued to fall last week on concerns that the Bank of Japan (BoJ) could move to raise rates aggressively in the coming months. This resulted in modest position squaring amid ongoing hawkish commentary from several BoJ speakers. We are doubtful of the BoJ’s ability to raise rates at consecutive meetings, or to undertake a ‘jumbo’ 50-bp rate hike. There are few domestic data releases over the coming week, giving scope for the JPY to trade as a function of risk sentiment once again. Aggressive JPY appreciation is unlikely to be sustained, given high external yields at all points along the curve.

The EUR faces upside risks this week, with the ECB’s rate meeting in focus. The ECB is highly likely to raise rates by 25 bps, taking the deposit rate to 2.50%. The eurozone’s growth backdrop has been surprisingly resilient, and markets will focus on ECB President Lagarde’s stance on inflation and potential for further rate hikes. Markets maintain a small, short EUR position, which could be a risk if investors deem the ECB as being likely to raise rates again in the coming months.

Gold is trading at levels of around USD 4,400 per oz, and the main event is the publication of US CPI data. We note that investor inflows into ETFs have surged in recent weeks, showing that investor sentiment towards the precious metal space has improved. A lower-than-expected US CPI print could cement the case for the Fed leaving rates where they are, presenting upside risks for gold over the week. We are sticking with our December forecast of USD 4,800 per oz.

Softening US inflation and a steady Fed point to modest USD weakness going into Q4, while ECB tightening and resilient eurozone growth support EUR upside

The opinions expressed herein are correct as at 7 September 2026 and are subject to change without notice. This information should not be relied upon by the reader as research or investment advice regarding any particular fund, strategy or security. Past performance is not a guide to current or future results. Any forecast, projection or target, where provided, is indicative only and is not guaranteed in any way.