Global Markets Weekly Update

U.S.

The major U.S. stock indexes finished mixed in a week that featured the Federal Reserve’s first rate increase since 2023 and volatile oil prices resulting from escalation in the Middle East conflict. Artificial intelligence (AI)-related stocks largely shrugged off the warnings about safety risks from high-profile AI leaders over the previous weekend, supporting the technology-heavy Nasdaq Composite Index, which outperformed. Growth stocks also outpaced value in the large-cap Russell 1000 Index universe, while the small-cap Russell 2000 Index lagged.    

Fed raises rates with no policymaker dissents  

The Fed hiked the federal funds target rate by 25 basis points (bps) to a range of 3.75% to 4.00% in a widely expected decision on Wednesday. (A basis point is 0.01 percentage point.) The move surprisingly received unanimous support from members of the Federal Open Market Committee (FOMC); many Fed observers had expected one or two dovish dissents in favor of holding rates steady. The FOMC’s summary of economic projections showed that policymakers anticipate one more hike of 25 bps by the end of 2026.   

Earlier in the week, the 10-year Treasury yield had reached 5.04%, its highest level since 2007. Investors seemed to gain confidence in the central bank’s inflation-fighting credibility as the yield on the 10-year note decreased to 4.94% on Thursday before rising again on Friday.   

The rapidly evolving conflict in the Middle East drove crude oil prices significantly higher at the beginning of the week following attacks on pipeline infrastructure in Saudi Arabia. Diesel fuel prices in the U.S. continued to push to record highs, raising investor fears about inflation that the Fed’s rate hike only partially assuaged. However, on Wednesday, West Texas Intermediate crude, the U.S. oil benchmark, fell over 3% in its largest daily decline in six weeks following reports that the pipeline damage might not be as severe as initially thought.   

AI industries recover from safety jitters  

On September 12, Anthropic CEO Dario Amodei published an essay calling for AI companies to slow development of their most advanced models to better address societal safety risks. Sam Altman, CEO of OpenAI, and Elon Musk, founder of xAI, soon publicly agreed with Amodei. When trading opened on Monday, most stocks in AI-related industries—including semiconductors, memory equipment, and energy infrastructure—suffered. However, the stocks largely stabilized on Tuesday following supportive comments from NVIDIA CEO Jensen Huang and others, and they steadily made up ground later in the week.     

Investment-grade corporates hold up better than high yield bonds  

Investment-grade corporate bonds performed better than Treasuries for most of the week. Credit markets rallied following the Fed’s rate hike announcement. New investment-grade corporate issues were generally oversubscribed, reflecting strong underlying investor demand. The high yield bond market was under pressure for much of the week as increasing Treasury yields, oil-driven inflation concerns, and expectations for additional rate hikes heightened stress on lower-quality credit

 

Europe

The pan-European STOXX Europe 600 Index ended the week down 0.57% in local currency terms. European equities were volatile as escalating Middle East tensions drove oil and natural gas prices higher early in the week, reinforcing inflation concerns and putting upward pressure on bond yields. A sharp rotation out of AI-related stocks also weighed on sentiment before tech stocks rebounded as concerns about infrastructure spending moderated. Markets subsequently stabilized as oil prices retreated from their highs and investors digested monetary policy decisions in the U.S., Japan, and the UK Among major stock indexes, Germany’s DAX closed 1.03% lower, France’s CAC 40 Index declined 1.40%, and Italy’s FTSE MIB fell 1.84%. The UK’s FTSE 100 Index was broadly flat, nudging up 0.08%.  

Energy shock drives early-week risk aversion  

The oil price remained high early in the week following attacks on Saudi energy infrastructure and the closure of the East-West pipeline, adding to concerns around disruption in the Strait of Hormuz. Higher energy costs particularly challenged industrial and consumer-oriented stocks. The oil price retreated toward the end of the week on hopes for an end to the conflict.  

Inflation remains elevated across the eurozone

Final data showed eurozone inflation accelerated to 3.2% in August, up from 2.9% in July, reflecting a sharp increase in energy costs, although core inflation came in at 2.4%. Across the European Union as a whole, inflation was particularly elevated in Romania, Lithuania, and Cyprus; the lowest rate of change in consumer prices was seen in Sweden and Estonia. Meanwhile, Germany’s ZEW survey showed that sentiment around current economic conditions improved in September. Nevertheless, expectations fell short of forecasts, suggesting that confidence in the recovery remains cautious.

Bank of England holds rates as UK inflation rises  

As generally expected, the Bank of England kept interest rates on hold at 3.75% by a 6–3 vote, with three policymakers favoring an immediate increase. Policymakers warned that rates may need to rise if the energy shock generates more persistent inflationary pressures, while a slower pace of balance-sheet reduction provided some relief to gilt markets.    

The decision followed the release of data which showed that UK inflation increased to 3.1% in August from 2.9% in July, largely reflecting higher fuel costs. The country’s unemployment rate was unchanged at 4.9% in the three months to July 2026, marginally lower than the 5.0% that had been expected. 

Japan

Japan’s stock markets rose over the week, with the Nikkei 225 Index gaining 1.57% and the broader TOPIX Index up 1.56%. AI-related shares recovered from a sharp early-week sell-off, while sentiment improved later in the week as oil prices retreated from earlier highs on easing concerns about immediate Middle East supply disruptions. The Bank of Japan’s (BoJ) widely expected rate hike was accompanied by a split vote and an absence of explicit guidance on the pace of further tightening. Meanwhile, the yen weakened past JPY 157 against the U.S. dollar, from 153 at the end of the previous week, supporting exporters and helping lift the market into the end of the week.  

BoJ delivers expected rate increase  

The BoJ raised its policy rate by 25 basis points to 1.25%, its highest level since 1995, in a move widely anticipated by investors and almost fully priced into markets. The decision passed by a 7–2 vote, with board members Toichiro Asada and Ayano Sato preferring to leave rates unchanged, indicating less consensus within the Policy Board than expected. Governor Kazuo Ueda said that underlying inflation was approaching the BoJ’s 2% target and warned that an overshoot could have a negative impact on Japan’s economy. Ueda stressed that future policy decisions would be taken on a meeting-by-meeting basis, with no predetermined pace of tightening, while noting that the BoJ could accelerate rate hikes if inflationary pressures intensified. The 10-year Japanese government bond yield was broadly flat over the week at just under 3%, having briefly moved lower after the BoJ decision as the split vote and limited forward guidance prompted some reassessment of the near-term tightening path.   

Imports jump amid higher energy costs  

Economic data released during the week painted a mixed picture. Nationwide core consumer inflation eased to 1.7% year over year in August, slightly below expectations and down from 1.8% in July, although inflation excluding fresh food and energy remained firmer at 1.9%. Trade data highlighted the impact of elevated energy costs, with imports rising 28.0% year over year and outpacing a 19.3% increase in exports. Meanwhile, core machinery orders fell 3.7% month over month in July following a 9.7% increase in June, suggesting some unevenness in business investment.  

China

China equities were mixed over the week, with mainland shares outperforming Hong Kong following a technology-led rebound on Friday. The CSI 300 Index edged down 0.06%, while the Shanghai Composite Index rose 0.61% and the Hang Seng Index declined 0.22% week over week in local currency terms, according to FactSet. Early weakness was concentrated in AI-related shares and other growth stocks amid a regional technology sell-off, higher oil prices, and softer domestic demand and credit data, but losses narrowed later in the week as semiconductors and other technology shares rebounded sharply. Friday’s recovery broadened across mainland and Hong Kong technology shares, with semiconductors and other AI-related names leading, while the renminbi strengthened to its highest level in more than four years.  

Domestic demand remains weak despite firmer industrial production  

China’s August activity data highlighted a widening divide between relatively resilient industrial production and subdued domestic demand. Industrial production rose 5.2% year over year, ahead of expectations and up from 4.5% in July, supported by higher-value-added manufacturing, while retail sales increased just 0.4%, slowing from a 0.6% gain in July. Fixed asset investment declined 7.2% in the first eight months from the same period last year, while real estate investment fell 19.9%.  

Credit data reinforced the same pattern. Banks extended only RMB 60 billion (USD 8.95 billion) of new loans in August, well below the RMB 400 billion consensus estimate, while household borrowing contracted for a sixth consecutive month. Outstanding total social financing, a broad measure of economy-wide financing, rose 7.2% in August year over year, down from 7.4% in July. The weak consumption, property, and credit readings contrasted with continued strength in technology-related manufacturing, reinforcing the highly differentiated backdrop across the equity market.  

Other key markets

Türkiye  

Regulatory intervention follows Turkish fund turmoil  

Turkish equities fell sharply over the week as liquidity strains at several investment funds triggered heavy redemptions, forced asset sales, and broader concerns about market spillovers. Selling intensified through midweek, culminating in a sharp Wednesday decline that triggered a market-wide circuit breaker before equities rebounded on Thursday after authorities announced support measures. Pressure was particularly severe among smaller, less liquid shares tied to funds with concentrated holdings, where recent regulatory changes had prompted managers to reduce positions and intensified redemption pressures.   

Authorities responded with a broad package aimed at containing the disruption. The Capital Markets Board ordered the liquidation of 131 funds managed by seven portfolio companies, representing more than TRY 890 billion, or about USD 18 billion, in assets, with Türkiye İş Bankası and Ziraat Bankası appointed to oversee the process. The central bank also said it would increase one-week repo funding when needed, revise banks’ borrowing limits, and reduce collateral haircuts to support liquidity. Separately, regulators pursued investigations into alleged market manipulation, imposing trading restrictions and detaining or arresting several fund and financial executives.   

Brazil 

Easing continues amid election uncertainty  

Brazilian markets were volatile as investors balanced further monetary easing and signs of cooling economic activity against renewed fiscal and election-related uncertainty. The Central Bank of Brazil unanimously cut the Selic rate by 25 basis points to 13.75%, its fifth consecutive reduction, while maintaining a cautious stance on further easing. Recent data supported the case for lower rates, with the central bank’s IBC-Br economic activity index falling 0.2% in July, more than expected, as agriculture and industry contracted.  

Fiscal concerns intensified after the government announced a 15% increase in benefits under the country’s social welfare program, Bolsa Família. Officials said that the additional spending could be accommodated within existing budget allocations, but the move nevertheless appeared to weigh on investor sentiment ahead of October’s presidential election. Higher global diesel prices also remained a potential inflation risk, widening the gap between international prices and those charged domestically by Petrobras and reducing incentives for private fuel imports.