Global Market Sees Increased Odds of September Hike Amid Geopolitical Tensions
The global market experienced a tumultuous week due to conflicting forces of inflation and geopolitical tensions. The Federal Reserve's warning on underlying inflation at Jackson Hole, alongside escalating Gulf region tensions, pushed yields higher and risk appetite in opposite directions.
The combination led to increased odds of a 60% September hike, but Governor Waller's call for patience and softer labor data with ADP payrolls at 38K pulled the 10-year Treasury yield back towards 4.75%. Equities recovered as the S&P 500 rallied 1% on Thursday.
Central banks elsewhere tightened or leaned in that direction, with the RBNZ hiking to 2.75%, the BoC holding at 2.25% while warning tariffs and oil could force its hand, eurozone inflation jumping to a 2026 high of 3.3%, and BoE Chief Economist Pill calling for Bank Rate at 4%. Friday's payrolls report settled the debate, with August adding 162K jobs, three times consensus.
The labor market excuse for Fed restraint is effectively gone, but the greenback ended the week only modestly changed. EUR/USD held around 1.16, sterling stayed around 1.3510, and USD/JPY pushed towards 155.7. Brent climbed toward $97 and WTI to $93 on renewed geopolitical risk premium.