Global Markets Weekly Update

U.S.

Major U.S. stock indexes finished the holiday-shortened week lower, as escalating conflict in the Middle East drove oil prices sharply higher, fueled inflation concerns, and put upward pressure on Treasury yields. Of the major indexes, the Russell 2000 and S&P MidCap 400 Indexes fared worst, dropping 2.41% and 1.87%, respectively, while the Nasdaq Composite held up best with a 0.66% decline. U.S. markets were closed Monday in observance of the Labor Day holiday.

Middle East escalation pushes oil prices higher

Geopolitical developments appeared to be a major driver of sentiment during the week. Attacks on Saudi energy infrastructure and continued hostilities involving the U.S. and Iran heightened concerns about disruptions to regional energy supplies and shipping. Oil prices climbed higher, with Brent crude futures rising to nearly USD 110 per barrel before pulling back somewhat on Friday.

U.S. Treasury yields increased alongside oil prices during the week, with the yield on the benchmark 10-year Treasury note rising to about 4.97% and the policy-sensitive two-year Treasury note yield climbing over 4.63%, as investors responded to inflation concerns and shifting monetary policy expectations. Heavy Treasury issuance, a smaller-than-expected buyback operation, and firm inflation data also appeared to put upward pressure on yields.

Inflation data strengthen expectations for a September rate hike

The Bureau of Labor Statistics reported Thursday that headline producer prices rose 0.4% in August, matching consensus expectations but accelerating from July’s 0.1% increase. On a year-over-year basis, producer prices rose 5.4%. Goods prices jumped 1.1%, driven by a 4.2% rise in energy prices, while services prices increased 0.1%. Core producer prices, which exclude food and energy costs, rose a softer-than-expected 0.2%, although the year-over-year figure rose to 4.6% from 4.3% in July. 

Friday morning’s consumer price index (CPI) report provided another signal of persistent inflation heading into the Fed’s upcoming September meeting. Headline consumer inflation was 3.4% year over year in August, unchanged from July and roughly in line with expectations. Core prices rose 0.3% month over month, above consensus expectations for a 0.2% increase and the fastest pace since April. Annual core inflation was 2.4%, generally in line with estimates. By Friday afternoon, the market-implied probability of a September rate hike had climbed to about 87%, up from roughly 70% before the CPI report and 59% at the end of the prior week, according to the CME FedWatch Tool. 

Meanwhile, labor market data provided little evidence of a meaningful deterioration in employment conditions. Initial jobless claims totaled 206,000 for the week ended September 5, little changed from the prior week’s 207,000, while continuing claims were also little changed at 1.774 million. 

Consumer sentiment slides for second consecutive month

The week’s economic calendar wrapped up Friday with a preliminary reading of the University of Michigan’s September Index of Consumer Sentiment, which showed that sentiment deteriorated for the second month in a row. The headline index dropped to 47.8 from 51.7 in August, as “a resurgence in fuel prices and trade tensions” weighed heavily on consumers’ outlook for their personal finances and business conditions. Expectations for inflation in the year ahead jumped to 4.6% from 4.0% in the prior month, reaching the highest level since June.

Europe

The pan-European STOXX Europe 600 Index ended the week down 1.66% in local currency terms. European equities came under pressure as escalating U.S.-Iran tensions and disruption in the Strait of Hormuz drove oil and European natural gas prices sharply higher, stoking inflation concerns and pushing government bond yields upward. The European Central Bank (ECB) raised interest rates. Among major stock indexes, Germany’s DAX closed 1.83% lower, while France’s CAC 40 Index declined 1.20%. Italy’s FTSE MIB gained 0.79%. The UK’s FTSE 100 Index slipped 1.67%.

ECB raises rates as inflation risks persist

As widely expected, the European Central Bank raised interest rates by 25 basis points, taking its key rate to 2.5%. The ECB also raised its inflation projections, reinforcing expectations that monetary policy may need to remain restrictive for longer. ECB President Christine Lagarde noted upside risks to inflation and downside risks to economic growth. 

Eurozone GDP expands in Q2

Seasonally adjusted gross domestic product (GDP) in the eurozone grew 0.6% sequentially in the second quarter of 2026, according to data released by Eurostat. Ireland posted the strongest economic growth over the period, followed by Slovenia and Lithuania. The number of people employed in the euro area rose by 0.1% over the same period.

UK economy surprises to the upside

The UK economy grew 0.4% in July, beating a consensus estimate for no growth and accelerating from the 0.3% expansion in June. Services accounted for much of the growth, while technology-related industries also saw strong activity. Industrial production rose by 0.2% month on month in July, better than the decline of 0.2% that had been expected.

However, elevated energy prices and high gilt yields remained important headwinds to the country’s economy, increasing borrowing costs and adding to fiscal pressures ahead of the government’s Autumn Budget.

Japan

Japan’s stock markets fell over the week, with the Nikkei 225 Index declining 1.55% and the broader TOPIX Index down 1.83%. A stronger yen and growing expectations for near-term Bank of Japan (BoJ) tightening weighed on exporters and highly valued growth stocks, while elevated oil prices added to concerns about import costs and inflation. Artificial intelligence (AI)- and semiconductor-related shares showed pockets of strength midweek, particularly cable and optical-fiber stocks exposed to data center demand, but renewed geopolitical tensions and higher bond yields kept the broader market under pressure.

JGB yield increases amid expectations for a rate hike

The yield on the 10-year Japanese government bond (JGB) rose to 2.98%, from 2.90% at the end of the previous week. Economists surveyed were nearly unanimous in expecting the BoJ to raise its policy rate by 25 basis points to 1.25% at its September 17–18 meeting, while attention increasingly shifted to the potential pace of subsequent tightening. Board member Kazuyuki Masu warned that the BoJ could ultimately need to raise rates more rapidly if inflation accelerated. Renewed increases in oil prices and a broader global bond sell-off added further upward pressure to yields later in the week.

In the currency markets, the yen strengthened sharply early in the week, appreciating toward JPY 153 against the U.S. dollar on Tuesday from around JPY 156 at the end of the prior week, and remained near its strongest level since February for much of the period. The move reflected growing expectations for a near-term BoJ rate hike and the prospect of faster subsequent tightening. U.S. Treasury Secretary Scott Bessent also reinforced expectations for a stronger yen by expressing confidence in the direction of Japanese policy and signaling a willingness to challenge investors betting against the currency. 

GDP growth revised higher

Economic data released during the week showed that Japan’s economy remained resilient while wage and price pressures stayed firm. Second-quarter GDP growth was revised up to an annualized rate of 1.4%, from the preliminary 1.1% estimate, although this remained below the 1.9% pace recorded in the first quarter. Real wages rose 2.4% year over year in July, ahead of consensus expectations for 1.8% and up from a revised 2.2% in June, marking a seventh consecutive monthly increase and reinforcing confidence that wage growth is becoming more durable. Meanwhile, the corporate goods price index rose 7.6% year over year in August, slightly above expectations for a 7.4% increase but easing from a revised 7.7% in July, pointing to continued upstream inflation pressures.

China

China equities declined over the week, with Hong Kong underperforming the mainland. The CSI 300 Index fell 0.83%, the Shanghai Composite Index declined 1.07%, and the Hang Seng Index dropped 3.30% in local currency terms, according to FactSet. Friday’s broad regional sell-off deepened weekly losses as Brent crude remained elevated after moving above USD 100 per barrel midweek, while higher U.S. Treasury yields added to pressure on risk appetite. 

Trading in China technology stocks was volatile and highly selective: Several Hong Kong-listed AI model developers fell sharply over the week amid dilution concerns and intensifying price competition following DeepSeek’s lower-cost V4.1 Flash release, while Tencent-backed Enflame Technology surged by around 179% in its STAR Market debut.

Beijing broadens recapitalization of state financial institutions

China announced plans to provide a combined RMB 360 billion (USD 54 billion) in fresh capital to eight state-owned banks, policy financial institutions, and insurers. The Ministry of Finance is providing RMB 300 billion through special Treasury bonds, with additional capital coming from state tobacco companies. Agricultural Bank of China and Industrial and Commercial Bank of China also announced A-share placements as part of the program. The measures are intended to strengthen core Tier 1 capital, improve financial system resilience, and enhance institutions’ capacity to support the real economy. Several large state-owned banks and insurers weakened following the announcements as markets absorbed the implications of the new equity issuance.

Exports remain a growth engine as domestic momentum stays uneven

China’s exports rose 25.0% year over year in August, accelerating from 23.9% in July, supported by strong shipments of technology products amid the global AI infrastructure build-out. Imports increased by 28.2%, up from 27.5% in July but below market expectations. That put China’s trade surplus at USD 119.1 billion, widening from USD 112.5 billion in July. Separately, domestic passenger-car retail sales fell 24% year over year, underscoring the uneven backdrop for household demand.

Inflation also picked up, although the increase was driven largely by energy and upstream price pressures rather than a broad strengthening in domestic demand. Consumer price inflation rose to 0.8% year over year from 0.5%, while producer prices increased by 3.8%, up from 3.5%, as higher energy, raw material, and selected technology product prices lifted costs. Official data put core consumer inflation, which excludes volatile food and energy prices, at 1.0%, while food prices remained lower year over year. Taken together, the trade and inflation data highlighted continued strength in externally oriented and industrial parts of the economy, alongside a still-uneven domestic recovery.

Other key markets

Saudi Arabia 

Oil disruptions and Red Sea tensions weigh on outlook

Saudi stocks ended the week slightly lower as investors weighed continued weakness in the oil sector and renewed geopolitical risks against signs of improvement elsewhere in the economy. Regional tensions intensified after Iran-backed Houthi forces seized the Yemeni port city of Mocha, strengthening their position near the Bab el-Mandeb Strait, a key route for Saudi oil shipments through the Red Sea and an important alternative to the Strait of Hormuz. On Friday, the Saudi Arabian Energy Ministry announced that it had temporarily shut down a critical cross-country oil pipeline after multiple targeted attacks on Thursday as a precaution. The developments raised concerns about further disruption to Saudi energy exports and contributed to higher oil prices. 

On the economic front, Saudi Arabia’s real GDP contracted 4.7% year over year in the second quarter, according to the General Authority for Statistics, driven by a 24.8% decline in oil activities. More recent data were somewhat more encouraging: Industrial production rose 10.4% in July from June, led by a 19.0% increase in mining and quarrying, although output remained 8.1% below its year-earlier level. 

Brazil 

Markets balance oil shock against cooling inflation

In a volatile week for Brazil, markets were pulled between a more challenging global backdrop and improving domestic inflation dynamics. Higher oil prices increased concerns about inflation and the path for interest rates, while domestic political uncertainty also contributed to volatility in local rates. The government responded to the oil shock by temporarily reducing federal taxes on gasoline and ethanol and subsidizing diesel in an effort to limit the pass-through of higher international energy prices to consumers. 

Markets received some support late in the week from softer-than-expected inflation, reinforcing expectations for further monetary easing. August consumer prices fell 0.32% month over month, while annual inflation slowed to 4.22% from 4.44%, below consensus expectations. The downside surprise, alongside accumulating evidence of softer economic activity, strengthened expectations that the central bank could deliver another rate cut at its upcoming meeting. However, persistent services inflation, a still-tight labor market, elevated oil prices, and uncertainty around the fiscal outlook kept the longer-term rates backdrop more unsettled, leaving Brazilian assets sensitive to both domestic policy developments and the external energy shock.