07 September 2026
Key events this week include the ECB’s rate decision (Thu) and China (Wed) and US inflation data (Thu and Fri). Today, eurozone GDP will be in focus, while US markets are closed for Labor Day. China trade data will garner attention on Tuesday, followed by US consumer credit. Canada’s retaliatory tariffs on approximately $20bn of US imports are also due to take effect. In the UK, BoE officials Bailey, Ramsden, Greene and Taylor will testify before the Treasury Committee. China CPI and PPI are due on Wednesday, while the US Treasury is expected to begin its “Treasury Twist” programme. We will also hear from ECB President Lagarde ahead of Thursday’s policy decision, with a 25bps hike widely expected, followed by her press conference. Japan PPI, UK industrial production and trade balance, and the US CPI and University of Michigan sentiment figures will be closely followed on Friday.
Last week, global financial markets were dominated by a hawkish shift in interest rate expectations following unexpectedly robust US employment data, paired with ongoing political pressure on monetary policy and renewed volatility in commodity markets. Equity markets struggled for directional momentum, leaving the S&P Index only marginally higher on the week after a 0.4% Friday dip as investors weighed stronger-than-expected underlying economic activity against the prospect of elevated borrowing costs. The US 10-year Treasury yield rose 6bps to 4.78%, while short-term yields rose more aggressively, driving the 2-year yield to 4.37%, as markets rapidly repriced the Feds rate trajectory. The dollar, DXY Index closed the week down 0.53%. Meanwhile, energy prices surged, with Brent crude closing the week 0.41% higher at $90.49pb amid rising US-Iran tensions.
The key US macro catalyst was Friday’s August nonfarm payrolls report, which showed 162,000 jobs added, almost three times consensus expectations, while the unemployment rate held at 4.1%, and annual hourly earnings growth moderated to 3.1%. The strength of the report prompted a sharp repricing in Fed expectations, with futures markets moving to price a ~ 60% probability of a 25bps rate hike at the September FOMC meeting. Fed officials have offered differing perspectives on the path ahead: Williams highlighted confidence that inflation should continue to moderate as the impact of tariffs fades, while Waller emphasised the importance of the upcoming CPI data, noting that he would favour holding rates if inflation continues to improve but would consider a hike if the inflation print comes in materially stronger.
Across the Pacific, the rise in US yields pushed the US–China 10-year yield differential towards record levels. The People’s Bank of China responded with strong daily fixing guidance to stabilise the renminbi and limit capital-outflow pressures, while maintaining targeted domestic monetary easing. Meanwhile, the Japanese yen was the standout performer in FX, strengthening sharply to around 156 per dollar. The yen’s rally was driven by increasingly hawkish commentary from Bank of Japan policymakers, raising the prospect of larger or back-to-back rate hikes, alongside heightened speculation and reports of official rate -check activity signalling the potential for currency intervention.