Weekly Market Recap

Overview

The week initially looked set to revolve around diplomacy, but a routine economic update ultimately became the dominant market driver. The diplomatic calendar delivered several notable developments, including a cordial meeting between Donald Trump and Xi Jinping in Washington, where the two leaders agreed to extend the existing trade truce by roughly two months.

Energy markets initially reflected hopes of easing tensions in the Middle East, which helped remove part of the geopolitical premium from oil prices despite renewed Houthi attacks on Saudi Arabia.

The biggest surprise arrived on Wednesday. US business activity data, originally expected to provide a straightforward health check on the economy, showed activity expanding at its fastest pace in around three years. Combined with renewed concerns around oil supply, the data pushed the 10 year US Treasury yield to its highest level since 2007 and pressured stocks, gold and Bitcoin.

For another week, the bond market became the main force driving global price action.

1. The Growth Surprise That Changed the Mood

The most closely watched economic release of the week was supposed to be relatively uneventful. Flash business surveys covering the manufacturing and services sectors ask thousands of companies about current activity and provide an early indication of economic momentum.

Instead, the results became one of the biggest market surprises of the week.

US services activity climbed to its strongest level in almost five years, while manufacturing activity returned to levels last seen in May, supported by resilient consumer demand. At the same time, businesses reported increasing cost pressures, with prices rising at their fastest pace since 2022.

For a Federal Reserve already taking a more hawkish position, the combination of strong growth and persistent inflation pressures offered little reassurance.

Bond markets reacted aggressively. The 10 year US Treasury yield moved above 5.2 percent, reaching its highest level since 2007, while longer term borrowing costs climbed to levels not seen since 2004.

Instead of calming markets, the report reinforced the idea that the US economy remains unusually resilient. In the current environment, stronger growth can translate into higher borrowing costs and increased expectations that the Federal Reserve may need to raise rates again.

2. Diplomacy Delivered, but the Fed Remains the Main Focus

Donald Trump and Xi Jinping met in Washington during the week and agreed to extend the current trade truce by approximately two months, pushing it into January 2027.

The tone surrounding the meeting was constructive, but limited progress was made on some of the most sensitive areas, including technology, Taiwan and rare earth supplies. Artificial intelligence regulation was also discussed, although both leaders appeared cautious about introducing significantly tighter restrictions.

The United Nations gathering generated additional geopolitical headlines, but markets saw relatively limited direct reaction.

Attention is therefore returning to the Federal Reserve.

Fed officials emerged from their recent communication blackout with a notably hawkish tone. Market expectations for another rate increase at the October meeting rose from roughly 40 percent a week earlier to around 70 percent.

The next major test will arrive on 30 September, when the August PCE inflation report is released. As the Federal Reserve's preferred inflation measure, the data could play an important role in determining expectations for the next policy decision.

3. Oil Futures Swing Between Supply Fears and Diplomatic Hopes

At the beginning of the week, the oil story appeared relatively straightforward. Expectations of easing geopolitical tensions pointed toward lower energy prices, providing one of the few forces working against rising borrowing costs.

That environment did not last long.

Crude prices declined for four consecutive sessions, moving from around 101 dollars toward 98 dollars, even after Iran backed forces struck the Saudi capital over the weekend. Reports that Saudi Arabia could restart the East West pipeline also helped reduce concerns around potential supply disruptions.

Later in the week, sentiment reversed sharply.

A fresh missile attack targeting the Saudi oil cities of Yanbu and Taif brought supply concerns back into focus. Brent crude responded by rising around 3 percent during the week, briefly reaching approximately 106 dollars.

Prices subsequently eased after reports suggested that the United States and Iran were considering a phased agreement that could eventually reopen the Strait of Hormuz and reduce restrictions affecting Iranian ports.

The result was another volatile week for energy markets, with traders repeatedly shifting between geopolitical risk and expectations of diplomatic progress.

4. Gold, Bitcoin and the US Dollar

Gold spent much of the week trading close to its record level around 4,350 dollars per ounce before falling toward approximately 4,270 dollars.

The metal declined by around 2 percent during the week as rising US borrowing costs reduced the relative appeal of assets that do not generate interest income.

Despite the pullback, the broader trend remained supported by continued central bank demand, including significant purchases from China.

Bitcoin experienced even greater volatility.

The cryptocurrency climbed above 86,000 dollars during the middle of the week, marking its first move above 84,000 dollars since January. The broader cryptocurrency market briefly moved above 3 trillion dollars in total value.

Bitcoin was unable to maintain momentum near 87,000 dollars, however, and the rejection triggered a wave of forced selling that pushed the asset back toward the 84,000 dollar area.

The US dollar was the most consistent performer across markets. It climbed to its highest level in more than three months, supported by rising Treasury yields and expectations that US interest rates could remain elevated for longer.