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MENAFN- Mid-East Info)
Nick Spencer-Skeen, Senior Executive Officer, Lunaro Markets Limited
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Friday Closing Prices
S&P 500 7,650 (+0.17%)
Nasdaq 26,522 (+0.39%)
Gold $4,378 (+0.84%)
Brent Crude Oil $103.09 (-0.87%)
Last week was dominated by a renewed global tightening cycle, with a host of major central bank meetings. The most significant was the Federal Reserve's first rate hike since July 20231. The Fed raised rates by 25bps, with Chair Kevin Warsh signalling that at least one further increase remains possible this year as inflation continues to run above target across a broad range of categories1.
The Bank of Japan (BoJ) also tightened policy, although a split vote and Governor Ueda's more cautious guidance limited the yen's response2. The Bank of England (BoE), meanwhile, held rates at 3.75% but warned that the energy shock could reinforce wage and price pressures3.
That energy shock remained central to European markets. The Iran conflict has driven a sharp repricing of inflation and monetary policy expectations, with markets now pricing four further European Central Bank (ECB) hikes and five from the BoE over the next year4.
Cross-asset performance week-on-week was mixed. The Nasdaq 100 gained 1.8%, and Nikkei 225 rose 2.4%, while European equities lagged4. The US Dollar strengthened 0.84%, while gold gained just under 1% on geopolitical and inflation concerns4.
One and Not Done
The Fed's decision on Wednesday was unanimous, with all 12 FOMC voters backing the move1. More than that, updated projections showed 16 of 18 policymakers expecting at least one further hike before year-end5. Chair Kevin Warsh reinforced the hawkish message, stressing that restoring price stability remains the Fed's priority and signalling that policy may need to remain restrictive for longer.
Traders initially took the widely expected hike in stride, but risk assets sold off as Warsh's press conference reinforced the prospect of further tightening. The S&P 500, Nasdaq and Dow Jones all finished Wednesday in the red4. In the rates space, the policy-sensitive 2-year Treasury yield rose 7bps to 4.73%4. The 10-year yield moved above 5% (another notable story of the week), while the US Dollar index gained around 0.6%4.
Ultimately, the reaction reflected a clear message that the Fed is not treating September as a one-off adjustment.
Trump Meets Xi
President Trump meets his Chinese counterpart, Xi, on Thursday6. Plenty of topics are on the agenda that matter to traders, including trade, tech and the Iran conflict. The immediate focus will be whether Washington and Beijing can extend their existing tariff truce, or if either side escalates with aggressive rhetoric.
For traders, an extension of the tariff truce, alongside agreements covering agriculture and energy, would likely reduce the geopolitical risk premium around Chinese assets. Broader risk sentiment towards Chinese assets could also improve if commitments to increase purchases are agreed.
The downside risk is that negotiations stall over tech restrictions or co-operation on AI advancements. This remains a sensitive area and, in our view, could weigh on broader risk sentiment if headlines point to a lack of progress in these areas.
However, with Washington reportedly delaying additional tariffs until after the summit, markets enter Thursday expecting both sides to seek to preserve the current détente.
Oil's Shipping Problem
Oil's next constraint may be less about the availability of crude and more about the ships needed to move it. A Bloomberg report from the weekend provided evidence that the global market is running increasingly short of supertankers7.
The disruption around Hormuz and the Red Sea is forcing longer voyages and greater reliance on Atlantic Basin supply. Moving a cargo from the US to Asia now adds about $26 a barrel (roughly a quarter of the price of WTI futures)7.
For oil prices, in our view, this pressure likely creates a near-term floor. Even where physical supply remains available, higher transport costs and reduced tanker capacity make marginal barrels more expensive to deliver, particularly into Asia.
The result should keep Brent supported, alongside the current sizeable geopolitical premium. Until any ease in Hormuz traffic happens, tanker logistics is fast becoming an increasingly important constraint on oil prices falling.
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