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WEEKLY SUMMARY : The week when oil re-wrote Warsh's Playbook
U.S. stocks ended the holiday-shortened week lower as escalating Middle East tensions pushed oil prices toward $110 per barrel, reviving inflation concerns and driving Treasury yields higher. Small and mid-caps suffered most: the Russell 2000 fell 2.4% and the S&P Mid-Cap 400 lost 1.9%, while the Nasdaq declined just 0.7%.The 10-year Treasury yield approached 5%, pressured by higher energy prices, persistent inflation, heavy government issuance and a smaller-than-expected Treasury buyback. August data reinforced expectations of a September Fed rate hike. Producer prices rose 5.4% year-on-year, while core consumer prices increased 0.3% month-on-month—slightly above forecasts. Markets subsequently raised the probability of a September hike to 87%. Meanwhile, jobless claims remained stable, suggesting continued labour-market resilience. Consumer sentiment weakened sharply, however, as rising fuel prices and trade tensions pushed one-year inflation expectations to 4.6%. Outside the US, the pan-European STOXX Europe 600 Index ended the week down 1.66% as ECB hiked rates. We note that European natural gas prices sharply higher, stoking inflation concerns and pushing government bond yields upward. Japan’s stock markets fell over the week, with the Nikkei 225 Index declining 1.55% and the broader TOPIX Index down 1.83%. The dollar reached a one-week high as Fed rate expectations firmed. Gold rebounded back above $4400 on Friday, ending about 1% lower for the week.
Have a great weekend.
Charles & Syz Research Lab
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