Treasury Yields Top 5% Ahead of Global PMI Test

Week of 21 SEPTEMBER

Central banks dominated the week, with the Federal Reserve and the Bank of Japan both hiking rates and the Bank of England only just holding, as Treasury yields pushed above 5% for the first time since 2023 and oil spiked above $108 a barrel on fresh Middle East supply disruption.

The week ahead is lighter on central bank action but brings the globe's flash PMIs and a Swiss National Bank decision, offering the first broad read on whether growth is holding up as borrowing costs climb.

Week in Review

The Federal Reserve delivered its first hike of the cycle on Wednesday, and Chair Kevin Warsh's language left little doubt about what comes next.

The Fed raised its target range by 25 basis points to 3.75%-4.00% in a unanimous 12-0 vote. Warsh said the move would support a “timelier return” to the Committee's 2% goal, language markets read as hawkish, and the fresh dot plot pencilled in another 50 basis points of hikes before year-end, no cuts through 2027, and core inflation not back at target until 2029. The Dow and S&P 500 both fell on the decision.

The Bank of England held a day earlier, but only just, with the split vote pointing to a hike as soon as November.

The Bank of England kept Bank Rate at 3.75% in a 6-3 vote, with Megan Greene, Catherine Mann and Huw Pill all pushing for an immediate rise to 4%. Mann pointed to energy prices running well above forecast, Pill warned against letting inflationary pressure become ingrained, and Greene argued that waiting for firm evidence of second-round effects would leave policy “behind the curve.” Governor Andrew Bailey struck a conditional tone, saying that if the Middle East conflict drags on and its inflationary spillover builds, “it is likely that policy may have to tighten.” The Committee also confirmed it will run down its gilt holdings to zero through September 2034, selling roughly £20 billion a year, a pace the Bank's own staff estimate has already added 20-30 basis points to long-dated gilt yields.

The Bank of Japan rounded out the week's central bank run on Friday with a hike of its own.

The Bank of Japan raised its policy rate by 25 basis points to 1.25%, a 31-year high and its fastest pace of tightening since 1990, in a split vote with two dissents. The yen fell on the announcement even as Japanese equities jumped.

Equities had a choppy week, unsettled early on by an AI industry warning and later by the Fed's hawkish tone, with UK-listed names also moving on company news.

Chip and AI-linked stocks sold off on Monday after Anthropic CEO Dario Amodei published an essay urging the industry to slow the pace of frontier AI development, a call backed by Sam Altman and Elon Musk; cybersecurity stocks rallied on the same news. Combined with Wednesday's Fed reaction, the Dow ended the week down around 1.9%, the S&P 500 slipped about 0.4%, and the Nasdaq eked out a 0.3% gain. The FTSE 100 swung from a multi-week high on Thursday to a sharp Friday drop, ending the week broadly flat, with banks including Lloyds and HSBC among the weaker performers as the sector slipped. Airtel Africa dropped almost 9% after a report that its Airtel Money unit was considering downsizing its planned London listing, while Softcat fell in the FTSE 250 after agreeing to buy US-based GDT for $1.05 billion.

Oil was the week's other big story, spiking on fresh Middle East supply disruption before easing back.

Brent crude surged above $108 a barrel on Tuesday after Saudi Arabia's East-West Pipeline remained offline and Houthi activity continued to disrupt shipping through the Strait of Hormuz, before easing back to around $104-105 by Friday as Saudi Arabia found workarounds to reroute exports. WTI held closer to $102, up modestly on the week.

Gold and the pound both felt the pressure of a hawkish week for central banks.

Gold slipped to a low near $4,333 on Tuesday as rate-hike bets weighed, before recovering to around $4,389 by Friday. GBP/USD fell for most of the week, touching 1.3358 on Thursday, its lowest level in seven weeks, before steadying to close near 1.3368, as the Bank of England's split hold did little to offset a Fed that keeps signalling further hikes ahead. Bitcoin dipped to $75,584 mid-week on the broader risk-off tone before rallying hard into the weekend to around $80,852, up almost 5% on the week.

Biggest Market Movers

• UKOIL – spiked above $108 intraday Tuesday before easing back near $104

• USOIL – held near $102, up modestly on the week

• XAUUSD – slipped to a low near $4,333 before recovering to $4,389

• US500 – down around 0.4% on the week, whipsawed by the Fed decision

• UK100 – swung from a multi-week high Thursday to a sharp Friday drop, ending broadly flat

• GBPUSD – touched 1.3358, its lowest in seven weeks, before closing near 1.3368

• BTCUSD – jumped almost 5% to $80,852, rallying hard into the weekend

• Airtel Africa (AAF) – dropped almost 9% on a report its Airtel Money unit may downsize its London listing

Top Events in the Week Ahead

After the busiest run of central bank meetings this year, next week is quieter on that front but brings the globe's flash PMIs and a Swiss National Bank decision, plus updates from Beijing, Ottawa and Canberra.

Flash PMIs Test the Post-Hike Growth Story

Wednesday's flash PMI batch from Germany, the Eurozone, the UK and the US will be the week's single biggest data point, offering the first broad read on whether growth is holding up as borrowing costs climb.

Eurozone manufacturing already hit a four-year high of 52.7 in August, and a further improvement would add to the case for the ECB holding steady, while a UK or US miss would sharpen the divide between hawkish central bank rhetoric and the growth backdrop. GBP/USD, already at its lowest in weeks, is the most exposed instrument: a soft UK services print could open the door toward this week's low near 1.3350, while a beat could spark a bounce back toward 1.3450.

SNB Faces a Rate Call of Its Own

The Swiss National Bank's Thursday decision closes out the week, with policymakers weighing a pickup in headline inflation against a currency that remains firmly anchored near zero.

Swiss headline inflation accelerated to 0.8% year-on-year in August from 0.4%, though core inflation held at just 0.4%, keeping the SNB on course to leave its policy rate at 0.00%. Any surprise hawkish shift would show up first in USD/CHF, though a hold in line with expectations is likely to leave the pair tracking broader dollar moves instead.

Other Events and Earnings

The week opens with the People's Bank of China's loan prime rate decision on Monday, expected to hold steady for a 16th straight month, alongside a speech from Bank of Canada Governor Tiff Macklem. Reserve Bank of Australia Governor Michele Bullock speaks on Tuesday, followed by Wednesday's PMI batch, Thursday's SNB decision and Australian employment data. Friday's calendar is quiet.

It's a busier week for UK corporate updates. Kingfisher, Smiths Group and TUI report on Tuesday, JD Sports and Renishaw follow on Wednesday, and Thursday brings Vistry, Halma, CVS Group and Raspberry Pi Holdings, with retail and housebuilding names likely to draw the most attention given the weak consumer backdrop. On US earnings, it's a light week: Costco reports on Thursday, offering a read on US consumer spending heading into the autumn.