Oil markets experienced another volatile week as investors balanced a series of competing supply and demand factors. Tensions in the Middle East escalated once again following further attacks on vessels transiting the Strait of Hormuz, while reports that the US was considering additional military action added to concerns around energy security. At the same time, Hurricane Isiah disrupted more than 70.0% of oil production in the Gulf of Mexico, temporarily removing over one million barrels per day from global supply. Acting in the opposite direction, the International Energy Agency (IEA) signalled the release of a further 100 million barrels of emergency oil and fuel reserves, helping to ease some supply concerns. Despite ending the week relatively close to where it started (Brent Crude recorded a weekly gain of +1.9% to $104 a barrel), the scale of price swings highlighted the fragility of the current backdrop. Looking ahead, volatility appears likely to remain elevated, with renewed Houthi attacks on infrastructure in Saudi Arabia over the weekend and President Trump's surprise proposal to import Russian diesel despite existing sanctions adding further uncertainty to the outlook.
Energy prices were not the only area of financial markets to experience volatility last week. Government bond yields on both sides of the Atlantic moved sharply higher before retracing some of those moves towards the end of the week, while significant share price swings were also evident across parts of the artificial intelligence (AI) value chain. In Europe, concerns around fiscal sustainability continued to intensify, with France increasingly attracting scrutiny over its public finances and prompting renewed calls from the International Monetary Fund (IMF) for action to address its budget deficit. In the UK, yields rose across the curve, with the 30-year gilt yield moving above 6.0% for the first time since 1998. Similar moves were seen in the US, where both 10-year and 30-year Treasury yields briefly reached their highest levels since 2002. While yields eased back somewhat as the week progressed, the broader direction of travel remains clear. The era of ultra-low interest rates now appears firmly behind us.
Against that backdrop, global equity market returns were relatively subdued at the headline level, although performance beneath the surface was far more varied. The S&P 500 gained +1.2% (in dollars), with leadership coming from more defensive sectors such as energy, utilities and consumer staples, while technology stocks lagged following their recent period of outperformance. In Europe, the MSCI Europe ex UK Index slipped -0.3% (in euros) as investors weighed the implications of higher energy costs and rising borrowing costs, while the FTSE 100 added +0.9%, supported by strength amongst its large oil and gas constituents. In Asia, the Nikkei 225 advanced +1.1% (in yen), although much of its earlier momentum faded as AI-related shares pulled back. Meanwhile, the Shanghai Composite declined -0.7% (in renminbi), with weakness across the technology sector proving a notable drag on overall market performance.
Macro Data
| Country | Indicator | Period | Actual | Forecast | Previous |
|---|---|---|---|---|---|
| UK | Construction Purchasing Manager Index | September | 46.10 | 44.80 | 44.30 |
| Final Composite Purchasing Manager Index | September | 52.00 | 51.70 | 51.70 | |
| US | Final Composite Purchasing Manager Index | September | 58.40 | - | 58.40 |
| Europe | Final Composite Purchasing Manager Index | September | 53.10 | 53.10 | 53.10 |
| Producer Price Index Inflation YoY | August | 8.20% | 8.10% | 5.80% | |
| Retail Sales YoY | August | 0.80% | 1.00% | 0.60% | |
| Japan | Final Composite Purchasing Manager Index | September | 52.30 | - | 52.50 |
| China | N/A | - | - | - | - |
| Source: Refinitiv Workspace | |||||