Weekly Market Commentary

Higher energy prices unsettle markets

Global markets came under pressure last week as escalating tensions between the US and Iran revived concerns about inflation. With no progress towards reopening the Strait of Hormuz, Brent crude rose +7.8% to $96.28 per barrel, while European natural gas prices gained +7.4%. Government bond yields climbed as investors considered whether higher energy costs could force central banks to keep interest rates elevated for longer. European and Japanese equities declined, although US equities proved more resilient and edged slightly higher.

Inflation fears revived

Europe appears particularly exposed to the latest energy shock because of its dependence on imported fuel and relatively low gas inventories. European natural gas prices are now around 140% above their pre-conflict levels, increasing the risk of renewed pressure on household bills, business costs and corporate profit margins. Germany’s 10-year government bond yield reached its highest level since 2011 during the week, reflecting both higher inflation expectations and the prospect of tighter monetary policy.

Strong US jobs data keeps rate fears alive

Last Friday’s US employment report added to the upward pressure on bond yields. The economy created 162,000 jobs in August, comfortably ahead of expectations, while employment growth in the previous two months was revised higher by a combined 55,000. The unemployment rate also remained at 4.1%, reinforcing the view that the US economy remains resilient despite elevated borrowing costs. Markets subsequently increased the implied probability of a Federal Reserve rate rise in September to around 62%. Stronger growth is supportive for corporate earnings, but it also gives the Fed less reason to overlook persistent inflation, particularly when rising oil prices are adding to near-term price pressures.

The week ahead

Attention now turns to Thursday’s European Central Bank meeting and Friday’s US inflation report, both of which could shape the near-term outlook for interest rates. The ECB must assess whether higher energy prices warrant a more restrictive policy stance, while US inflation data will arrive just days before the Federal Reserve’s September decision. A stronger-than-expected reading could push bond yields higher and create further challenges for risk assets, whereas softer data may provide some relief. The economic backdrop remains resilient, but geopolitical uncertainty and renewed inflation risks are likely to keep markets volatile.