Market Review 7th September 2026

Everything you need to know, Simplified!

Have bond markets started calling the shots?

Summary

• Rising energy prices and persistent inflation concerns pushed sovereign bond yields higher, as investors demanded greater compensation for mounting fiscal risks and questionable policy credibility

• In the US, attention is focused on whether Federal Reserve (Fed) Chair Kevin Warsh can reinforce the Fed's inflation-fighting credentials, with a failure to tighten policy risking further upward pressure on long-dated Treasury yields (US government bonds)

• Japan's move towards higher interest rates has strengthened the yen and challenged the global carry trade (borrowing in a low-interest-rate currency to invest in a higher-yielding one), reducing a key source of demand for international bond markets

• UK gilt yields rose amid renewed inflation concerns, fiscal constraints and structural vulnerabilities to energy price shocks

• This week's focus is on the European Central Bank (ECB) rate decision and US CPI inflation, both of which could have significant implications for bond markets and the path of interest rates.

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Market Review

ECB rate decision

The ECB is expected to hike rates on Thursday, with markets assigning a 99.5% probability to the move after it was widely signalled by the governing council. The focus will likely be on future guidance with inflation expectations likely higher given the renewed surge in energy prices.

US CPI inflation

US inflation is expected to remain at 3.4% while core inflation (ex-food and energy) is anticipated to slow to 2.4%, its lowest level since early 2021.

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The week ahead

Euro-area CPI inflation

August's preliminary inflation reading, due today, is expected to show a sharp rebound in headline CPI – a measure of inflation that tracks how everyday prices of goods and services change over time – to 3.3% from 2.9% in July, driven largely by higher fuel prices following the Iran conflict. A stronger-than-expected inflation print would reinforce expectations that the ECB will deliver a further interest rate hike at next week's meeting.

US Payrolls report

August's employment report, due on Friday, is expected to show subdued job creation, with hiring over the summer running below the pace needed to stabilise unemployment. Much of the slowdown reflects a pull-forward of hospitality hiring ahead of the World Cup, alongside particularly weak government hiring. However, survey data continues to point to a relatively tight labour market, supporting our view that private-sector employment remains moderately resilient. The unemployment rate is expected to edge up to 4.2%.

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