Global equity markets followed a mixed course this week as inflation data released in the United States and geopolitical developments in the Middle East pushed energy prices higher. Investors turned their focus to the U.S. Federal Reserve’s (Fed) monetary policy decision due next week.
Positive developments in artificial intelligence supported risk appetite through the middle of the week. However, optimism in the markets weakened toward the end of the week as concerns over inflation pushed bond yields higher.
U.S. inflation and Treasury yields
In the United States, the Consumer Price Index (CPI) rose 0.4% month on month and 3.4% year on year in August. Core CPI, which excludes food and energy prices, increased 0.3% month on month and 2.4% year on year.
The decline in annual core inflation to its lowest level since March 2021 indicated that the disinflationary trend was continuing. However, energy prices continued to pressure inflation, and market pricing for a Fed interest-rate hike approached 90%.
The yield on the U.S. 10-year Treasury note approached 5% during the week, testing its highest level since October 2023. The yield rose by about 20 basis points over the week to 4.97%.
The dollar index ended the week at 99.1, down 0.1%, despite stronger expectations of an interest-rate hike, as fiscal concerns in the United States and gains in the Japanese yen weighed on the dollar. Spot gold fell 1.8% to $4,349 as higher interest rates increased the opportunity cost of holding the metal, extending its weekly decline to a third week.
Energy prices and the Middle East agenda
Developments in the Middle East were among the main factors influencing the direction of markets because of risks to oil supplies. News that Iran and the Gulf countries had made progress toward a temporary agreement ensuring passage through the Strait of Hormuz partially eased tensions in the markets.
Oil prices remained elevated despite a limited decline. November-delivery Brent crude traded at $104.5 per barrel, up 8.5% on the week.
U.S. stocks end the week lower
On a weekly basis, the S&P 500 fell 0.80%, the Nasdaq declined 0.66% and the Dow Jones dropped 1.57%. The University of Michigan’s consumer sentiment index fell to 47.8 in September, below expectations.
Consumers’ short-term inflation expectations rose from 4% to 4.6% over the same period. The federal government’s budget deficit fell 52% in August from the same month a year earlier to $167 billion.
The U.S. Treasury Department announced that it would buy back up to $6 billion of Treasury securities with maturities of 10 to 20 years. Market assessments said the operation was smaller than expected to counter selling pressure in the long-term bond market.
Outlook for European and Asian markets
European markets were influenced by the European Central Bank’s decision to raise its three key policy rates by 25 basis points each, in line with expectations, as well as rising energy costs. ECB President Christine Lagarde warned that inflation would remain well above target for an extended period.
The eurozone economy grew 0.6% in the second quarter from the previous quarter. Industrial production in Germany fell 1.1% in July, while exports declined 0.8% month on month. Germany’s annual inflation rose to 2.9% in August, its highest level in 2.5 years.
On a weekly basis, the FTSE 100 in the United Kingdom fell 1.67%, Germany’s DAX declined 1.88% and France’s CAC 40 lost 1.20%. Italy’s MIB 30, meanwhile, rose 0.79%.
Although optimism surrounding artificial intelligence supported Asian markets, developments related to interest rates and energy prices put pressure on riskier assets. The dollar-yen exchange rate fell as low as 152.8, its lowest level in about seven months, and ended the week at 153.5, down 1.6%.
Japan’s economy grew 1.4% in the second quarter. The country posted a current-account surplus of approximately 2.99 trillion yen in July. Producer prices in Japan rose 7.6% year on year in August but fell 0.2% month on month.
China’s trade surplus stood at $119.09 billion in August. The country’s exports rose 25% year on year and 28.2% month on month. On a weekly basis, South Korea’s Kospi gained 3.33%, while Hong Kong’s Hang Seng fell 3.30%, Japan’s Nikkei 225 declined 1.55% and China’s Shanghai Composite Index dropped 1.07%.
Borsa Istanbul rises in Turkish markets
The BIST 100 index on Borsa Istanbul closed at 14,467.25 points, up 3.25% on the week. The Central Bank of the Republic of Türkiye (CBRT) kept its policy rate unchanged at 37%.
The CBRT left its overnight lending rate at 40% and its borrowing rate at 35.5%. The bank said recent inflation data and leading indicators pointed to a decline in the underlying trend of inflation.
In its assessment, the CBRT said weak domestic demand had continued and that the pass-through of supply shocks to domestic prices had remained limited. It added that elevated energy prices driven by geopolitical developments posed an upside risk to the inflation outlook.
CBRT Governor Fatih Karahan said in a presentation in Istanbul that recent inflation data and leading indicators pointed to a slowdown in the underlying trend of inflation. Treasury and Finance Minister Mehmet Şimşek also announced that Türkiye was determined to combat terrorist financing, illicit financing, money laundering, sanctions evasion and illegal trade.
The current-account balance posted a surplus of $36 million in July. This was the first current-account surplus recorded since October 2025. The dollar/Turkish lira exchange rate ended the week at 48.5120, up 0.2% from the previous weekly close.
Next week’s agenda
In the United States, markets will follow the Fed’s interest-rate decision, retail sales, building permits, pending home sales, housing starts, weekly jobless claims, industrial production and capacity utilization data next week.
In Europe, markets will track the Bank of England’s interest-rate decision, eurozone inflation and industrial production, as well as Germany’s producer prices. In Asia, the Bank of Japan’s interest-rate decision, Japan’s inflation and foreign trade data, and China’s retail sales and industrial production figures will be released.
In Türkiye, the budget balance, the house price index, the summary of the CBRT Monetary Policy Committee meeting and housing sales data will be on the agenda next week.
