Mixed US Data and Hawkish Central Banks Shape Global Markets

Global markets faced a challenging week as central banks adopted a hawkish stance against a backdrop of mixed US economic data. The Federal Reserve hinted at potential further rate hikes due to persistent inflation, while strong August consumption and core PCE inflation supported this view. However, a weaker-than-expected September payrolls report briefly tempered market expectations for tighter policy.

The tightening trend was not limited to the US. The Reserve Bank of Australia raised rates to 4.60%, and hawkish remarks from the Bank of England pressured developed-market bonds. European equities suffered, with the Stoxx 600 and FTSE 100 down 1.1% and 2.1%, respectively. In contrast, Asian markets performed better, buoyed by Chinese policy-support announcements, with the Nikkei gaining 3.7%. The US dollar strengthened, pushing EUR/USD to a 52-week low, while crude oil prices dipped on hopes of reduced disruption in the Hormuz region.

Friday's payrolls report revealed significant misses across all major metrics, with August data revised downward and July showing a net loss of jobs. This initially sparked a market rally, with higher equity prices and lower Treasury yields, but the momentum faded. Traders remained cautious, interpreting the data as a moderation in labor-market momentum rather than a shift in the Fed's policy path.

The upcoming FOMC meeting minutes on Wednesday will provide deeper insights into the Fed's September rate hike decision. Market participants will scrutinize discussions on inflation, economic conditions, and future policy preferences. The minutes could influence market expectations and drive movements in interest rates and currencies. Additionally, global bond yields continue to climb, reaching multi-decade highs, with the US 10Y Treasury yield briefly hitting 5.34%. These yield movements remain a key focus for assessing broader financial-market sentiment.