Markets enter the week under pressure from elevated sovereign yields, rising oil prices and growing expectations of monetary tightening. The Fed meets on Wednesday, with the BoE and BoJ also holding meetings, and investors estimate a 67% to 85% probability of a 0.25 percentage point interest rate hike in the US. American and European stock exchanges closed last week down, with the S&P 500, Nasdaq and major European indices such as the Stoxx 600, DAX, CAC and FTSE registering losses between 1.5% and 2%.
On the geopolitical front, the US-Iran conflict dominates attention, with Saudi Arabia's important East-West pipeline having been closed as a precaution following Houthi rebel attacks. Ukraine's attacks on Russian infrastructure reduced Russian exports by 410,000 barrels per day in August. Donald Trump said he asked Zelensky to stop attacks on Russian diesel production, warning that they are causing shortages and driving up prices. Zelensky's chief of staff indicated that Ukraine is prepared to resume negotiations with Russia and the United States in October.
The BRICS Summit took place in India, with leaders calling for restraint amid the escalation in the Middle East and rejecting unilateral sanctions contrary to international law. Vladimir Putin advocated for the expansion of the United Nations Security Council to include representatives from Asia, Africa and Latin America. The BRICS group includes Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Iran, Saudi Arabia, the United Arab Emirates and Indonesia.
The sovereign debt market faces strong pressure, with yields reaching multi-year highs: 10-year US Treasuries hovering around 4.9% to 5%, German Bunds around 3.5%, French OATs between 4.4% and 4.5%, and British Gilts between 5.3% and 5.4%. The ECB has already raised rates by 25 basis points and warned that high oil and gas prices could push inflation projections to higher levels. Natural gas prices in Europe reached their highest level since the end of 2022, and the expectation for Monday is caution and high volatility.
