Weekly Market Recap: Oil, Inflation and a Global Bond Selloff Set the Stage for the Fed
Markets spent most of the shortened week moving in one direction: stocks lower, Treasury prices lower, yields higher and oil sharply higher.
The catalyst was a combination of renewed energy-supply concerns, stubborn inflation and growing expectations that the Federal Reserve will raise rates at its September meeting. The S&P 500 and Nasdaq recovered sharply Friday, but not enough to erase the week’s losses. The more dramatic move was in fixed income, where the selloff pushed the 10-year Treasury yield to roughly 5% and produced a pronounced bear flattening of the curve.
Markets at a Glance
U.S. Equities
| Index | Weekly Move |
|---|---|
| S&P 500 | -0.80% |
| Nasdaq Composite | -0.66% |
| Dow Jones Industrial Average | -1.57% |
| Russell 2000 | -2.41% |
Friday’s rebound was substantial — S&P +0.9%, Nasdaq +1.0% and Dow +1.0% — but came after four consecutive down sessions. Small caps were the clear laggard as rising borrowing costs weighed particularly heavily on rate-sensitive companies.
Major Non-U.S. Equity Markets
| Index | Weekly Move |
|---|---|
| Nikkei 225 | -1.55% |
| Hang Seng | -3.3% |
| DAX | -1.83% |
| FTSE 100 | -1.67% |
| Shanghai Composite | -1.07% |
The weakness was global rather than exclusively American. European equities were pressured by higher rates and the ECB’s rate hike, while Hong Kong suffered the largest decline among the major markets. Chinese equities also weakened as expectations for tighter U.S. monetary policy and fading liquidity weighed on risk appetite.
Currencies
The dollar’s performance was more complicated than the move in U.S. yields might suggest.
| Currency vs. USD | Weekly Move |
|---|---|
| EUR | -0.26% |
| GBP | -0.12% |
| JPY | +0.98% |
| CAD | about -0.3% |
| AUD | -0.51% |
| NZD | -1.14% |
| CHF | about -0.7% |
| U.S. Dollar Index | roughly flat (-0.1%) |
The standout was the Japanese yen. USD/JPY fell from roughly 156.11 to 154.59 during the week, translating into approximately a 1% gain for the yen. Expectations that the Bank of Japan could tighten policy again, along with intervention concerns, outweighed the rise in U.S. yields.
EUR/USD slipped from approximately 1.1622 to 1.1592 despite the ECB raising rates. GBP was nearly unchanged, while the commodity currencies generally weakened. AUD/USD fell roughly 0.5%, and NZD/USD declined about 1.1%.
The interesting takeaway is that a major rise in Treasury yields failed to generate a comparable dollar rally. That divergence deserves attention heading into this week’s Fed meeting.
Treasuries: The Biggest Macro Move of the Week
The Treasury complex sold off hard.
| Treasury | Futures Price Move | Yield Move |
|---|---|---|
| 2-Year | -0.48% | +25 bp to ~4.62% |
| 5-Year | -0.94% | +21 bp to ~4.76% |
| 10-Year | -1.06% | +16–19 bp to ~4.95–4.97% |
| 30-Year | -1.7% | +10 bp to ~5.34% |
Treasury futures returns are calculated from September 4 to September 11 closes. Two-year futures fell from approximately 102.56 to 102.07, five-year futures from 105.54 to 104.55, 10-year futures from roughly 107.47 to 106.33, and the long-bond contract from roughly 108.69 to 106.88.
The curve bear-flattened. Two-year yields rose roughly 25 basis points while 30-year yields increased only around 10 basis points. That is a classic indication that the market was aggressively repricing near-term monetary policy rather than simply demanding a larger long-term term premium.
Still, the absolute level of long rates matters. The 10-year approached 5%, while the 30-year moved above 5.3%. Those levels increase discount rates for equities, mortgage rates, corporate borrowing costs and the hurdle rate facing virtually every long-duration asset.
Oil Was the Other Major Story
WTI finished near $100 after beginning the week around $91.50, a gain of roughly 9%–10%. Brent briefly reached almost $110 before retreating Friday and still finished the week more than 8% higher.
Escalating Middle East tensions and disruptions to Gulf shipping drove the move.
That matters well beyond the energy market.
Higher oil → higher gasoline and transportation costs → higher inflation expectations → higher expected policy rates → higher Treasury yields → lower equity valuations.
That chain reaction explains much of the week’s cross-asset price action.
Inflation Isn’t Going Away
Thursday’s Producer Price Index strengthened the inflation argument.
August PPI rose 0.4% month-over-month and 5.4% year-over-year, with energy prices jumping 4.2% during the month.
Friday’s CPI provided only limited relief.
Headline CPI increased 0.4% MoM and 3.4% YoY. Core CPI rose 0.3% MoM and 2.4% YoY. The headline figures were broadly in line with expectations, but the combination of firm underlying inflation and another energy shock made it increasingly difficult for the Fed to ignore renewed price pressure.
Consumers are noticing.
The preliminary University of Michigan Consumer Sentiment Index dropped to 47.8 from 51.7, well below expectations. More concerning for policymakers, one-year inflation expectations jumped from 4.0% to 4.6%, while longer-run expectations edged up to 3.4%.
That creates an uncomfortable combination:
weaker consumer confidence + higher inflation expectations.
The ECB Hikes Again
The European Central Bank raised rates 25 basis points, its second hike of the year, citing the renewed inflation threat created in part by higher energy prices.
Interestingly, the euro weakened after the decision.
That suggests the hike itself was already largely discounted and traders were more interested in the relative outlook between the ECB, Fed and other major central banks.
Individual Stocks: AI Spending Still Has a Pulse
The broader market struggled, but AI infrastructure remained an important pocket of strength.
Oracle gained roughly 6% Friday following strong results and accelerating cloud-infrastructure growth. Its results helped reinforce the idea that enormous AI capital spending is translating into actual revenue rather than simply promises.
That read-through produced even bigger moves elsewhere.
Dell jumped about 12% Friday and Hewlett Packard Enterprise surged 12.4%, with both reaching record closing levels as investors extrapolated Oracle’s cloud demand into stronger demand for servers, storage and networking equipment.
Apple gained roughly 4% for the week following its product announcements, while Meta rose about 5% amid enthusiasm surrounding its new AI offering.
On the other side, Nvidia fell roughly 5.2% for the week, showing that the AI trade is increasingly becoming differentiated rather than simply lifting every semiconductor and technology company together.
That distinction may become increasingly important: investors appear willing to reward companies demonstrating tangible AI revenue, orders or backlog while becoming less forgiving of valuation alone.
The Week Ahead: Central Banks Take Over
The coming week could be significantly more important than the one just completed.
Three major central banks — the Federal Reserve, Bank of England and Bank of Japan — are scheduled to make policy decisions.
Wednesday: Federal Reserve
The FOMC meets September 15–16.
Following the inflation data, futures markets moved toward a high probability of a 25-basis-point rate increase. By the weekend, markets were assigning roughly an 85%–90% probability to a hike.
The rate decision itself may therefore be less important than the message accompanying it.
The critical question is whether the Fed views a September hike as an insurance move against renewed inflation or the beginning of a new tightening cycle.
A hawkish Fed could push the two-year yield above recent highs, strengthen the dollar and place additional pressure on high-duration technology stocks and small caps.
A hike accompanied by a relatively cautious message could produce the opposite reaction: Treasury yields could retreat, the curve could steepen and equities could rally on the idea that the Fed is not embarking on a sustained tightening campaign.
The most interesting market may actually be FX. If the Fed hikes and the dollar still cannot rally materially, that would be a meaningful signal that monetary-policy divergence is no longer providing the USD with the support it normally would.
U.S. Retail Sales
August retail sales arrive Wednesday before the Fed decision.
Current expectations center around another solid increase.
A strong number combined with elevated CPI and PPI would reinforce the argument that the Fed has room — and potentially a need — to tighten.
That combination would likely be:
USD bullish
Treasury bearish
Small-cap bearish
Long-duration growth-stock bearish
A surprisingly weak report would complicate the Fed’s decision by putting deteriorating consumption against rising inflation.
Thursday: Bank of England
The Bank of England is expected to hold rates around 3.75%, but UK inflation data arrive Wednesday before the decision.
A hotter CPI combined with hawkish BoE language could support sterling, particularly if the Fed is less hawkish than expected.
Conversely, softer inflation and a cautious BoE could send GBP/USD lower.
Friday: Bank of Japan
This may be the week’s most underappreciated event.
Markets see a meaningful probability that the BOJ raises rates another 25 basis points.
The yen has already strengthened significantly in anticipation.
A BOJ hike accompanied by a hawkish message could push USD/JPY lower again and potentially accelerate the unwinding of yen-funded carry trades.
That would have consequences beyond FX.
For years, cheap Japanese funding has supported leveraged positions across global equities, credit and other risk assets. Higher Japanese rates reduce the attractiveness of those trades.
A surprise BOJ hold, however, could produce a sharp reversal in the yen.
China and Europe
China releases industrial production and retail-sales data Tuesday. Europe follows with industrial production Wednesday and final inflation data Thursday.
Weak Chinese numbers would reinforce concerns about global growth and could pressure industrials, materials and companies with substantial Chinese revenue exposure.
Stronger numbers could instead support commodities and cyclical equities.
European inflation will determine whether last week’s ECB hike is viewed as sufficient or merely another step in a renewed tightening cycle.
What Matters Most
Three variables should dominate trading this week:
1. The Fed’s reaction function.
A 25-bp hike is increasingly discounted. The bigger question is whether another hike is coming.
2. Oil.
With crude around $100 and geopolitical risk still elevated, energy is effectively functioning as another monetary-policy variable. Another oil spike could send inflation expectations and yields higher regardless of what the Fed says.
3. The 10-year Treasury yield.
The 5% area has become an important psychological and valuation threshold. A sustained break above it would raise the discount rate applied to equities and could disproportionately hurt expensive growth stocks and small caps.
The market therefore enters the week in an unusual position: inflation is rising, oil is near $100, the Fed may hike, the ECB has already tightened, the BOJ may tighten, and yet the dollar has struggled to generate a major breakout.
That divergence between rates and FX — along with the increasingly selective performance within the AI trade — may provide the clearest signals about where the next major market move is developing.
