Market Perspectives
Drones launched from southern Iraq struck Saudi Arabia's East-West pipeline on Friday and Riyadh shut it. The line had been carrying four to five million barrels a day and exists to move crude without passing the Strait of Hormuz, where Kpler counted only ten transiting ships a day, the fewest since May. WTI closed above $100 for a second consecutive weekly gain of about 10% and US diesel reached an all-time high. August CPI held at 3.4% with gasoline supplying more than a third of the monthly increase, even as core fell to 2.4%, the lowest since March 2021, and Michigan's year-ahead inflation expectations jumped to 4.6%. The ECB raised all three rates by 25 basis points in Berlin, lifting the deposit rate to 2.50% and raising its own inflation forecasts. The German 10-year reached 3.451%, its highest since 2011, and the US 10-year closed at 4.974%, a 52-week high, with the Fed roughly 90% priced to hike on 16 September.
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BONDS & MACROECONOMICS
Government bond yields rose worldwide as the tightening turned synchronised. The ECB lifted all three policy rates by 25 basis points, taking the deposit rate to 2.50%, and raised its inflation projections to 3.0% for 2026, 2.5% for 2027 and 2.1% for 2028, warning that inflation will remain well above target for an extended period because of Middle East energy disruption. Euro-area inflation reached a three-year high of 3.3% in August with energy up 14.3%. The German 10-year Bund closed at 3.451%, its highest since 2011, and the US 10-year finished at 4.974%, a 52-week high and 19 basis points up on the week. August US CPI was 0.4% on the month and 3.4% on the year, with core at 0.3% against 0.2% expected but the annual core rate falling to 2.4%. Michigan's preliminary September sentiment fell to 47.8 with year-ahead inflation expectations at 4.6%, and markets moved to price roughly a 90% chance of a Federal Reserve hike on 16 September, with the Bank of England and Bank of Japan deciding in the same window.
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