Week ended Sept 11, 2026: a week to forget for investors
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I suppose it was inevitable that at some point both oil prices and US Treasury yields heading higher would unnerve risk investors. And indeed, this came to pass last week as the price of WTI crude oil rose back above $100/bbl for the first time since mid-May, and the 10-year US Treasury reached its highest closing yield on Thursday since October 2023 (and before that, since 2007). Sooner or later higher oil prices and higher borrowing costs were going to bite risk investors in the backside, and bite they did. The “stocks always go up” narrative was disrupted, even if only temporarily.
Bond investors got hammered too, in a “nowhere to hide” sort of week. The yield on the 2-year US Treasury rose 26bps during the week, closing Friday at 4.63%, suggesting that bond investors believe that the Fed will increase its policy rate next week. The Yen also firmed ahead of the likely BoJ decision to raise its policy rate late next week, with the Japanese government also tilting hawkish in support of the under-pressure currency. Both gold and BTC faded slightly last week as the focus on debasement receded for the moment.
So should you button-down-the-hatches, or view this as one more interruption in a stock market that is saved time and time again by dip buyers? Friday – a decent session for stocks to close the week – might have suggested the latter, but I am afraid that I am still in the camp of the former. Of course, knowing what is next is impossible to say even though my bias remains towards further upheaval and challenging conditions for risk assets in the weeks ahead, and certainly until the mid-term elections in the U.S. in early November are behind us. I listed my reasons that I thought stocks were vulnerable in last week’s update, so there’s no need to repeat them here. The wobble last week did validate some of the concerns that I mentioned.
U.S. inflation: more or less in-line but still hot
From a data perspective, U.S. PPI and CPI for August was more or less in line with expectations, with both trending higher month-over-month. Headline (+3.4% YoY through August) and core CPI (+2.4% YoY through August) remain elevated, well north of the Fed’s target which has been the case now since 1Q2021 The CPI figures released Friday morning were viewed as further fuel on the “need for a rate-hike” fire.
As of press time, the CME FedWatch Tool is expecting with an 85% probability that the Fed will raise its policy rate at the FOMC meeting this coming week. If they do so, the Fed will be following the ECB which raised its policy rates last week, with the “body language” suggesting that the ECB isn’t done yet if inflation remains elevated. Hopefully, the FOMC will behave similarly this coming week – it’s time to nip inflation concerns in the bud. Although counter-intuitive perhaps, I would expect a 25bps increase in the Fed Funds rate next week to have a positive effect on intermediate and long term US Treasury yields, because the Fed would be acknowledging that inflation needs to be snuffed out with action rather than rhetoric. Stocks won’t like it though, certainly not initially. However, in the long term, stock investors benefit from inflation being brought back in line with policy objectives.
Theatrics and the $5,000 “Trump Dividend”: do people really buy this crap?
President Trump suggested at a Republican midterm convention on Wednesday evening in Texas that he would provide every American with $5,000 (a “Trump Dividend”) if the Republicans carry the House and Senate in November. Stop laughing – he really did say this, and you can read it on the official White House website.
Clearly the suggestion knocks on the door of backhanded bribery of the electorate. That aside, it’s such a stupid idea I do wonder if the anyone really believes it given the history of this president and his outlandish statements. I suspect the MAGA faithful will swallow this hook, line and sinker; nothing shakes the faith of this group of voters. However, Mr Trump’s Republican Congress colleagues who are up for re-election will need more than just his unshakeable MAGA support base to fall in line to overcome his – and by association the party’s – sinking popularity in the polls. Through ideas and a healthy dose of gimmickry (exhibit A – the “Trump Dividend”), the president will ultimately need to bring back on side his growing group of doubters, even those in his own Republican Party that have lost confidence in his administration.
Putting the theatrics aside, I have to ask if the U.S. electorate is so gullible (or economically illiterate, or some combination thereof) to believe that $5,000 payments to each and every American – which would add $1.2 trillion to the U.S. debt and undoubtedly fuel another around of inflation – make sense for our country? No, no, no…..tell me please as a reader of my blog that you realise this is totally stupid. How I long for those days when many of our elected officials, especially in the Republican party, would in fact at least pretend to care about the fiscal state of the U.S. rather than constantly adding proverbial fuel to the fire.
Intervention in the U.S. Treasury bond market: it’s not working
I don’t have much else to add that I have not already said about the U.S. Treasury’s intervention in the long end of the U.S. Treasury bond market in an effort to bring yields down. In fact, Mr Bessent’s announced amount of $6 billion of long-dated U.S. Treasuries purchases disappointed investors last week. I’m not sure the headline amount really mattered, because bond investors remain the “adults in the room” who have the ability to bring the U.S. government to its knees should it not like the fiscal direction of travel of the U.S. The combination of increasing government debt, widening deficits, elevated long-term inflationary expectations and supply factors (meaning a lot of new issuance) has spooked bond investors, who are demanding adequate compensation for the growing risk. Mr Bessent’s attempt to manipulate the long end of the curve without addressing the fundamental imbalances and underlying issues will undoubtedly not steady the ship.
Consumer confidence tanked in August: ouch!!
Consumer confidence fell sharply in August according to the survey released on Friday by the University of Michigan.
There’s not much to add to this aside from mentioning that the culprits according to the survey are consumer concerns over tariffs and gasoline prices, or – in other words – overall cost of living.
What’s ahead?
Most focus next week will be on the Fed’s monetary policy meeting, with its decision on Wednesday (expect +25bps increase in the Fed Funds rate). The Bank of England and the Bank of Japan also have monetary policy meetings, with the BoE expected to hold and the BoJ expected to increase its policy rate 25bps. Along with the rate decision on Wednesday, the FOMC will also release its Summary of Economic Projections. I can’t wait to listen to Fed Chair Warsh’s post-FOMC comments, and to see Mr Trump’s reaction should the Fed do the right thing and tighten a bit more to address stuborn .inflation.
As far as economic data that matters this week, August retail sales will be released mid-week for the U.K. and the U.S. We will also get CPI data for the U.K.
Updated market tables
Below are the tables of indices and data updated for the end of the week.
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