During a week of trading marked by oil prices returning to $100 and inflation expectations resurging, the Fed’s interest rate hike expectations, supply risks in the Middle East, and long-term interest rates emerged as the three key factors driving global asset markets.
This week, the U.S. released its August PPI and CPI data. The PPI rose 5.4% year-over-year, exceeding market expectations of 5.3%; the CPI remained at 3.4% year-over-year—unchanged from July and in line with expectations—but the core CPI rose 0.3% month-over-month, higher than the expected 0.2%.
Following the release of the data, the probability of a Fed rate hike next week in the interest rate swap market quickly rose to about 90%, up from 69% prior to the release. The market has even fully priced in two rate hikes this year.
Expectations of rate hikes are directly weighing on the bond market.The yield on the 10-year U.S. Treasury note rose to around 4.97% this week, touching 4.98% intraday—its highest level since October 2023; the 30-year yield held steady around 5.36%, while the 2-year yield rose to 4.64%, causing the yield curve to flatten slightly.
In the stock market, all three major U.S. indices retreated from their highs over the week. The Dow Jones Industrial Average fell 1.57% for the week, the S&P 500 dropped 0.8%, and the Nasdaq fell 0.66%; however, after the CPI data was released on Friday, all three indices closed up about 1%, ending a four-day losing streak.
In the commodities market, crude oil was one of the strongest assets of the week. Brent crude rose 8.96% for the week to $104.91, while WTI briefly surged past $103 before retreating to around $100.60, still posting a double-digit weekly gain.
Precious metals, however, were weighed down by rising U.S. Treasury yields. Spot gold closed the week at $4,348 per ounce, down 1.87%—marking its second consecutive week of declines; silver fell 2.7% to $64.21.
In the foreign exchange market, the U.S. Dollar Index closed at 99.1, down a marginal 0.07% for the week, with the index starting weak but ending strong. The yen was the strongest non-U.S. currency, appreciating 1.71% this week, driven by rising expectations of a rate hike by the Bank of Japan and the unwinding of carry trades.