Back
Global markets have spent much of the past decade shaped by central bank forward guidance, gradual rate adjustments, and flexible inflation targets. That era, however, is rapidly coming to an end. As central bankers prepare for the annual economic symposium in Jackson Hole, Wyoming next week, the global macro conversation has shifted from cyclical rate forecasts to the broader framework of modern monetary policy.
Federal Reserve (Fed) Chair Kevin Warsh, who took office in May, has made it clear that he intends to use his upcoming keynote to reshape the Fed’s approach, arguing that persistent inflation is a “choice” rather than an unavoidable external condition. Warsh’s emerging framework combines pragmatic management of short-term rates with aggressive quantitative tightening (QT) aimed at steadily reducing the Fed’s multi-trillion-dollar balance sheet.
By signalling to institutional investors that the central bank is “not constrained by market prices,” Warsh is challenging the assumption that rate cuts will automatically follow a slowdown in growth. Instead, policymakers across major economies are increasingly taking a more disciplined approach, forcing credit and fixed-income markets to reset their baseline expectations for interest rates.
The sticky side of inflation
This shift comes at a critical time as geopolitical developments push back against the optimism around peace seen earlier in the summer. The standoff between Washington and Tehran over the Strait of Hormuz has entered a more complicated phase. With United States (US) naval enforcement becoming firmer and diplomatic talks producing little progress on maritime access, the geopolitical risk premium has returned to energy markets.
The immediate effect is familiar, with higher transportation costs that could disrupt the disinflation process. Even as US headline inflation provides some short-term relief, central bankers remain aware that supply bottlenecks can take months to work through industrial supply chains. For policymakers, treating inflation as a structural choice means resisting rate cuts until supply-chain volatility has fully worked its way out of domestic pricing behaviour.
MARKETS IN A NUTSHELL
Bonds
The US bond market saw some significant moves over the past week. A synchronised sell-off in long-dated debt on Tuesday pushed the 30-year Treasury yield to a 19-year high of around 5.34%, while the 10-year reached a 20-month high near 4.75%. Renewed Iran-related energy risks, elevated term premia from heavy Treasury issuance, wider fiscal deficits and increased Treasury supply all contributed to the move. Yields subsequently eased, with the 10-year falling back toward 4.64% and the 30-year slipping below 5.20% by Wednesday, helped by the Treasury stepping up its liquidity-support buyback operations to support the long end. The two-year, which is more closely tied to monetary policy, held around 4.17%.
The European Central Bank (ECB) remains the clearest hawk among developed-market central banks. With the deposit rate at 2.25% since June, money markets are now pricing in roughly a 90% chance of a hike at the September meeting and expect the deposit rate to reach around 2.75% by early 2027, implying two further increases. The ECB is tightening policy as the economy slows to prevent energy-driven inflation from becoming embedded in wages and services. This was reflected in the bond market, with the 10-year German bund yield rising above 3.25% this week, its highest level since 2011.
Equities
Wall Street traded cautiously this week, easing slightly from recent highs as investors avoided taking strong directional positions ahead of next week’s central bank symposium. Renewed concerns around oil, inflation and interest rates have weighed on sentiment, particularly across technology and other large-cap growth stocks. Markets remain sensitive to changes in the inflation and rate outlook, while cyclical and consumer stocks have come under pressure from higher short-term borrowing costs.
European equities were subdued, with the STOXX 50 and STOXX 600 hovering around flat levels. Rising energy prices and renewed inflation concerns have weighed on sentiment, while expectations of higher-for-longer interest rates have created a less supportive backdrop. The FTSE 100 has been relatively resilient, supported by its bias towards more defensive sectors and its commodity exposure. Gold miners have benefited from higher bullion prices, although elevated inflation and borrowing costs continue to weigh on broader sentiment.
Commodities
Brent crude recorded a four-session winning streak, rising toward $93/barrel. The move has been driven mainly by renewed geopolitical risks and continued uncertainty around oil flows through the Strait of Hormuz, following the expiry of the 60-day US-Iran memorandum of understanding without a broader agreement. This was compounded by attacks on energy infrastructure and tankers linked to the Russia-Ukraine conflict. With Hormuz traffic still well below pre-war levels and diplomatic efforts with Iran stalled, the continued rise in crude prices suggests supply risks are becoming more persistent rather than simply reflecting a short-term geopolitical premium.
Gold prices consolidated around $4,400/ounce, briefly breaking above $4,500 this week to reach their highest level since early June. The move was triggered by the US Treasury’s 19 August announcement that it would double purchases of longer-dated government bonds, pushing Treasury yields and the dollar lower. Some profit-taking has followed, but the broader backdrop remains supportive, with safe-haven demand from geopolitical and fiscal uncertainty complemented by continued central bank buying.
Currencies
The US Dollar Index fell to around 98.7 from approximately 99.5, its lowest level since late May. The move followed a series of softer US data, strengthening expectations that the Fed will hold rates in September and weighing on the dollar against its major counterparts. The weakness was then reinforced by the US Treasury’s announcement that it would expand its liquidity-support buyback operations, which pushed bond yields lower and removed another source of support for the dollar.
The euro remained around $1.168/€, struggling to build meaningful momentum against the dollar amid weak eurozone manufacturing activity and elevated regional energy costs. Sterling rose to around $1.359/£, remaining close to a three-month high. The move was mainly driven by the weaker dollar, while the latest United Kingdom inflation and labour market data reduced some of sterling’s domestic support by lowering expectations of another rate hike.
*Please note that all information is at the time of writing.
Key indicators:
GBP/USD: 1.3629
GBP/EUR: 1.1667
GBP/ZAR: 21.99
BRENT CRUDE: $93.46
GOLD: $4,518
Sources: Bloomberg, Daily Investor, Riviera Wealth Management, Statistics South Africa, Trading South Africa, Trading Economics and US Energy Information Administration.
Written by Citadel Equity Analyst, Liam Roubach.
© Peregrine Wealth Ltd
This publication has been compiled for information purposes only and does not take into account the needs or circumstances of any person or constitute advice of any kind. It is not an offer to sell or an invitation to invest. The information and opinions in this publication have been recorded by Peregrine Wealth Ltd in good faith from sources believed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness or correctness. Peregrine Wealth Ltd accepts no liability whatsoever for any direct, indirect or consequential loss arising from the use of this publication or its contents. Peregrine Wealth Ltd (registration number 39538) is licensed by the Guernsey Financial Services Commission.