2026 Weekly Update

Market update

The S&P 500 closed the week at 7’650.5, -0.08% lower. The Dow Jones closed at 51’682.64, -1.69%, with the Nasdaq higher by +0.72%. The volatility index VIX closed the week at 14.81, down from 15.84. The Euro Stoxx 600 fell -0.57%.

The 10-year UST closed at 5%, up from 4.97% a week before. The yield curve is upward sloping with the yield spread between the 3-month and 10-year UST at 91bps. US Corporate Bond spreads: Investment Grade spreads narrowed -1bp at 80bps and High Yield spreads narrowed -1bp at 307bps. German 10-year Bunds yield closed at +3.52% up from +3.50% a week before. In Europe, Corporate Investment Grade spreads widened 3bps at 96bps and High Yield widened 5bps at 314bps. 

The US Dollar Index (DXY) appreciated +1.11% last week and closed at 100.22. The Euro closed at 1.1486 (-0.97%); the Yen depreciated -2.13%, closing at 156.88 and the Swiss Franc depreciated -0.72%, closing at 0.8224. Gold closed at $4’378.63, appreciating +0.68%. Oil was mixed, Brent closed at $103.87 (-0.71%) and WTI at $100.3 (+0.25%).

Macroeconomy

The Fed

The FOMC raised the fed funds rate by 25bps to 3.75-4.00% as expected, with the unanimous decision accompanied by a more-hawkish-than-expected shift in the Fed’s dot plot. This showed a strong consensus around another hike this year, with 16 out of 18 officials anticipating additional tightening, while 2027 projections showed most officials split between 50bps and 75bps of total tightening. While still below market pricing, this was visibly above the economists’ consensus that had expected the 2027 dot at the 3.75%-4.00% level, so only reflecting yesterday’s hike. The FOMC framed the hike as supporting “a timelier return” to the 2% inflation target. Tolerance for above-target inflation has declined amid a more optimistic view on growth and the labor market that was also reiterated by Warsh in the press conference. The Fed Chair also framed the hike as removing “a dose of accommodation" as financial conditions showed little sign of being restrictive. Warsh noted that this view on financial conditions is “widely shared across the Committee”, a potential shift given some Fed officials had previously described the policy stance as mildly restrictive. In all, this left a clear sense of the Fed being at the likely start of a moderate tightening cycle rather than delivering a one-off hike. This would mark only the fourth Fed hiking cycle this century and the 15th since the mid-1950s. Meanwhile, President Trump called for lower interest rates following the decision, posting that US rates “should be 1%, or less, because we are the Best Credit in the World”, though he did not call out Warsh or the Fed directly.

Bank of Japan

The Bank of Japan (BoJ) also raised rates by 25bps, taking the overnight rate to 1.25%, but the communication has been less hawkish than markets wanted. Two members dissented in favor of staying on hold. The statement still described financial conditions as accommodative even though the policy rate is now close to the estimated neutral range of roughly 1% to 2.5%. The tightening bias remains intact, but the meeting did not provide the forceful signal that would justify an immediate repricing toward back-to-back moves. Inflation risks are still judged to be on the upside because of energy, AI-related demand and yen weakness, and there is explicit concern that inflation could remain above target. However, timing remains uncertain because the BoJ wants more visibility from surveys and hard data, notably the Tankan and PMIs due at the end of September. The BOJ decision came just hours after the release of August inflation data, which showed price pressures remaining broadly stable and close to the central bank’s target. Core CPI, which excludes volatile fresh food prices, rose 1.7% y-o-y in August, slightly below market expectations of 1.8% and down marginally from the previous reading. Meanwhile, core-core CPI, a key measure of underlying inflation closely monitored by the BOJ, remained unchanged at 1.9%. Headline CPI also increased 1.9% y-o-y, matching the pace recorded in the previous month and reinforcing the view that inflation remains relatively stable.

Bank of England

The Bank of England (BoE) voted 6–3 to keep policy on hold at 3.75%. The statements acknowledge that there has so far been limited effect on price and wage setting from higher energy prices. The Bank mentioned, however, that the longer high energy prices last, the bigger the impact on inflation will be, implying a higher chance of a hike(s), as soon as November. That said, the BoE does not appear willing to embark on a long, shallow hiking cycle, making current market pricing of almost four hikes look too aggressive. The MPC also decided to unwind QT (quantitative tightening) at an annual average pace of GBP 46bn until 2034, through annual active sales of GBP 20bn, with the remainder coming from maturing gilts. In addition to ease the pressure at the long-end of the curve, £120bn of long-dated gilts from 2049 will be held to maturity and matched with future banknotes issuance. Before the meeting, UK data releases showed headline inflation rising in line with expectations to 3.1% y-o-y, driven mainly by higher fuel prices, while core inflation was unchanged at 2.6% y-o-y. The labor market also remained soft, with further declines in payrolled employees and vacancies, and private wage growth holding at a level broadly consistent with an inflation target of 2%.

US data

The weekly initial jobless claims fell to 196k in the week ending September 12 (vs. 207k expected) with the continuing claims for the previous week falling to the lowest since January 2024, at just 1.730m (vs. 1.779m expected). Also, August US retail sales came in ahead of expectations (+1.2% vs +0.8% expected). Retail control saw an even larger upside surprise (+1.4% vs +0.5% expected), confirming that consumer spending has remained resilient despite the energy shock. Following the release, the Atlanta Fed’s GDPNow estimate for Q3 was revised up to +5.1% annualized, with consumer spending seen at +4.1% annualized. One softer piece of the US data came with the NAHB housing market index, which fell to a 12-month low (32 vs 34 expected) in a sign that higher rates are weighing on the US housing market.

European data

The German ZEW survey showed expectations rising to a 7-month high of 34.7 in September, although that was beneath the 40.0 reading expected by the consensus. That said, the current situation component rebounded more than expected, up to its highest since mid-2023 at -47.1 (vs. -52.1 expected). In the UK, jobs data showed the number of payrolled employees was down by -26k in August (vs. -5k expected), although the unemployment rate remained at 4.9% over the three months to July.

Highlights

On oil

Oil markets saw important swings last week, caught between supply disruptions and emerging diplomatic signals. Brent surged to nearly $108 mid-week as drone and missile strikes attributed to Houthi forces damaged three pumping stations along Saudi Arabia's East-West pipeline, forcing a shutdown of crude loadings at Yanbu and the cancellation of some deliveries to Europe, while tanker traffic through the Strait of Hormuz dropped into single digits. However, prices reversed into the weekend, with Brent settling below $104, as two developments eased the worst fears: reports that China had privately requested Iran to help rein in Houthi attacks on Saudi infrastructure, and Saudi Arabia's swift operational response, rerouting crude via Oman and announcing plans to restore half of the pipeline's capacity within days. Into the new week, a regional US commander announced that oil and LNG shipments through the Strait of Hormuz had recovered their highest level in six months, suggesting that naval protection and mine-clearing efforts are bearing fruits. In refined products, the stress remains acute: US total diesel inventories have fallen to their lowest level for this time of year since 1982, with European stocks in the ARA (Amsterdam-Rotterdam-Antwerp) hub standing 16% below the five-year average. The EIA (US Energy Information Administration) forecasts that US distillate inventories will remain below the five-year low through end-2026 and most of 2027.  

On rates

Last week's rates also were a story of two halves, with the initial surge in energy prices pushing the 10-year Treasury yield above 5% for the first time since 2007, touching 5.04% intraday on Tuesday, before a stabilization in oil prices helped reverse much of the move. Despite the partial recovery, yields still ended higher overall, with the 10-year closing the week up 2.9bps at 5.00%. The Fed's first rate hike since 2023 on Wednesday provided some reassurance on the inflation fight, though it was ultimately the energy price pullback rather than the policy decision (that was almost fully priced in) itself that drove the reversal in yields. Looking ahead, Wednesday's Treasury buyback announcement will be closely watched ahead of Thursday's operation. In Europe, the 10-year Bund followed a similar intraday path, peaking at 3.57% before ending the week at 3.52%. French bonds were the notable underperformer: the 10-year OAT-Bund spread closed above 100bps for the first time since 2012, with the 10-year French yield hitting a post-2008 high of 4.56%, reflecting the ongoing political uncertainty that continues to weigh on French assets specifically. In Japan, the BoJ delivered its expected 25bps hike but two members dissented and forward guidance was limited, prompting markets to read the decision in a dovish light, the yen weakened 2.13% against the dollar, its biggest weekly decline since October 2025, while the 10-year JGB ended broadly flat just under 3% as investors reassessed the near-term tightening path.

What to watch

• Monday: South Korea Exports; China Loan Prime Rate
• Tuesday: US ADP Employment; UK Public Finances; Taiwan Exports
• Wednesday: US and Eurozone PMIs
• Thursday: US Initial Jobless Claims; Switzerland, Sweden and Norway Policy Rates, Germany IFO Business Assessment; Australia Employment
• Friday: US Durable Goods Orders, University of Michigan Sentiment; Germany GfK Consumer Confidence