Energy

The global equity markets remain under pressure and with oil surging higher again this week, we have even more reason to remain cautious. Already, the S&P and Nasdaq were running support from only a handful of hyperscalers and AI stocks. But even these indices have started to take notice of the deteriorating market breadth and global indices. Still, for me, the ongoing weakness is becoming more evident in the Dow and the small-cap Russell 2000 indices, and as such I will continuing watching these markets closely to provide a more accurate signal about the health of the stock markets.

Brent’s recovery above $100 is reinforcing inflation concerns and pressure on bond yields. Depleted inventories could limit oil’s downside even if a US-Iran deal emerges.

The 10-year Treasury yield is testing a resistance zone respected since the 1920s, as bearish RSI divergence signals fading upside momentum.

Oil prices and the U.S. dollar are both on the front foot as elevated energy costs feed Fed warnings that inflation may prove sticky.

Donald Trump’s speech at the UN seems to have poured cold waters on any hopes of a deal. Crude oil, the US dollar and bond yields all bounced back from their lows, causing fresh pressure on foreign currencies, European indices and to a lesser degree precious metals.

US equity index futures surrendered an earlier midday bounce in London, as investors struggled to look past an increasingly uncomfortable macro backdrop. Higher oil prices and rising government bond yields are combining to put renewed pressure on risk assets, while the absence of a clear catalyst for improvement makes it difficult to see why investors would materially increase equity exposure at current levels.

The ECB’s decision on Thursday comes between two important US inflation releases, leaving EUR/USD forecast exposed to developments on both sides of the Atlantic, as well as the situation in the Strait of Hormuz.

U.S. 10-year and 30-year bond yields have moved higher as markets reopen after the Labor Day weekend, with the producer price index and the consumer price index landing within days of each other. The European Central Bank decision sits between them, where the economic projections and Christine Lagarde's press conference carry more market risk than the rate move itself. The DAX has also broken below its 21-day exponential moving average, a sign that momentum beneath a resilient index is starting to fade.

Following a weak handover from Asia, European markets and US indices were under pressure this morning, as rising oil prices and elevated bond yields once again weighed on risk appetite. Among the major European indices, the German DAX will be in firm focus this week, with the ECB’s rate decision coming up on Thursday. That decision is likely to be a hike, as rising oil prices threaten to re-accelerate inflation.

Crude oil prices are rallying as renewed U.S. and Iran strikes push supply risk back to the front of the market.

Oil prices have surged for a second consecutive day, after the US and Iran traded strikes for the first time in two weeks and re-escalated the tensions. WTI oil was climbing to one-month highs and threatening to break above a key bearish trend line, at the time of writing. The latest leg higher is being driven primarily by the renewed escalation in tensions between the US and Iran, with traders ignoring the controversial US-Venezuela deal for now

Oil slipped despite fresh sanctions because markets are weighing a diplomatic path back to talks, including a reported push from Pakistan to revive stalled negotiations. In Germany, the Ifo Institute business climate index climbed to a one-year high for a fourth straight month, which helps explain why the DAX sits near record levels and why the euro has resisted selling pressure. Attention now turns to U.S. core PCE inflation data and the Jackson Hole symposium, with Treasury yields still elevated and capable of turning on the dollar.