US Core Inflation Firms, but Diplomacy Hopes Rise

For the week ending 11 September 2026

As of midday Friday, global equities were modestly lower on the week amid both a backup in global bond yields and also some hope for diplomatic progress on reopening the Strait of Hormuz. The yield on the US 10-year Treasury note rose 15 basis points to 4.92%, nearly reaching 5% Friday morning after firmer core inflation readings before the curve flattened. The price of a barrel of West Texas Intermediate crude oil rose $8 to $98.50 after trading above $100 earlier in the week on rising tensions over the strait. Volatility, as measured by futures contracts on the Cboe Volatility Index (VIX), rose to 16.6 from 16.05 a week ago.

MACRO NEWS

Elevated inflation ups odds of a Fed hike

Friday’s firmer-than-expected August core CPI reading of 0.29% month over month (m/m) — versus expectations of 0.2% — raised the odds of a quarter-point rate hike at next Wednesday’s FOMC meeting to 90% shortly after the data were released. The odds of a hike had previously been about 70%. At the headline level, CPI held steady at an elevated 3.4% year over year. Core services ex housing were particularly firm at 0.5% m/m.

A diplomatic opening in the Mideast after attacks intensified

The conflict between the US and Iran intensified this week as the US’ sanctions and naval blockade continued to cripple Iran’s economy. Iran retaliated by firing missiles at US warships, something it hadn’t done since the early days of the conflict, and again at the US base in Jordan. US forces responded by striking Iranian oil tankers and other maritime targets. Iran’s spokesperson described the war as “existential” and signaled that it is prepared to escalate. Analysts say Iran aims to make the status quo untenable and force the US to change course. Both Brent crude and WTI rose above $100 per barrel as the fighting threatened regional energy supplies and shipping routes before dropping on Friday.

The Wall Street Journal reported Thursday that Mideast officials believe Iran has begun assembling missiles in underground facilities using stockpiled components and is bracing for continued fighting. The conflict spread further as Iranian-linked Houthi forces targeted energy sites, cities, and a military base in Saudi Arabia. The US has reportedly dispatched over 100 military advisors to the kingdom to aid in its defense, providing intelligence and targeting support.

On Friday, the Financial Times reported that Iran will meet with the six countries in the Gulf Cooperation Council on Monday to discuss a temporary deal to manage shipping through the Strait of Hormuz. Oil prices fell back from their highs on the report.

Treasury yields rise as buyback falls short of expectations

The yield on the US 10-year Treasury note reached its highest level since 2023 after the US Treasury announced a $6 billion buyback of securities with maturities between 10 and 20 years as investors had anticipated a larger operation. The lack of improvement in core US inflation readings later in the week added further momentum to the rise in yields.

Treasury Secretary Scott Bessent said the expanded buyback program was intended to calm recent strains in the bond market. He rejected the view that the selloff reflected concern about the scale of US borrowing, noting US yields have recently risen less than other developed markets. He warned market participants that he has an “asymmetric information” advantage and that driving up yields will put them on the wrong side of the trade. Traders so far have failed to heed Bessent’s warnings, pushing yields to new near-term highs.

ECB raises policy rate as inflation persists

The European Central Bank raised its policy rate by 25 basis points to 2.5% on Thursday. The central bank maintained its 2026 inflation forecast at 3% but raised its 2027 forecast to 2.5% from 2.3%, and it said that inflation is likely to remain above target for an extended period.

Inflation risks remain tilted to the upside while growth risks are skewed to the downside, policymakers said. ECB President Christine Lagarde noted that the eurozone economy remains resilient despite the energy shock and the labor market remains robust. The Governing Council did not discuss futures rate moves, Lagarde added. After Thursday’s meeting, Bloomberg reported that the central bank is considering hiking rates again as soon as next month.

QUICK HITS

To mark the 25^th anniversary of the September 11, 2001 terrorist attacks, the New York Stock Exchange observed a moment of silence at 9:20 AM on Friday to honor those who lost their lives that day.

Eurozone investor morale reached a four-year high in September as the Sentix Investor Confidence Index rose to 5.1 from 0.9 in August. Eurozone second-quarter GDP growth was revised up to 0.6%, led by Ireland.

Japan revised second-quarter GDP growth to 1.4% year over year, up from an initial 1.1% reading. Additionally, nominal wages rose at the fastest pace since 1997, reinforcing expectations for further Bank of Japan rate increases beyond an expected hike next Friday.

China will inject roughly $54 billion into state-owned banks and insurers to strengthen financial system capital.

Bank of England Governor Andrew Bailey said market pricing for three rate increases over the next 12 months looked reasonable given upside risks to global inflation.

US July existing home sales fell 2% month over month, while the supply of homes on the market rose to its highest level since 2015.

UK Chancellor John Healey pledged fiscal discipline to restore bond market credibility and support economic growth. Ten-year gilt yields reached 5.34% Thursday, their highest level since 2007.

Canada made good on its threat to raise tariffs on US goods in retaliation for US tariff increases in late August. The new levies range from 15% to 50% on a variety of US goods. President Trump directed the US government to remove Canadian products from certain federal contracts unless Canada restores what he called “full reciprocity.” That move is expected to impact less than 1% of Canadian exports to the US.

Energy Secretary Chris Wright said the US is prioritizing increased domestic oil production and fuel supplies over restrictions on crude exports.

Suez Canal revenue rose 42% as restrictions near the Strait of Hormuz and Houthi threats have redirected shipping through Egypt.

Kuwait’s crude exports have recovered to nearly two-thirds of last year’s average as tankers bypass restrictions in the Strait of Hormuz.

European natural gas prices rose this week to their highest level since 2023.

Spreads on debt rated CCC or lower widened to more than 10.5%, their highest level since the aftermath of the April market selloff.

Capital continued to enter the property and casualty insurance market, putting downward pressure on prices.

Deloitte forecasts that US holiday sales will rise 4.8% from last year.

Germany’s AfD political party won a record 44% of the vote in Saxony-Anhalt, dealing Chancellor Friedrich Merz’s CDU a major setback.

President Trump said he would support a $5,000 “dividend” for adult US citizens if Republicans retain control of Congress in November. The proposal would require congressional approval and comes with a price tag of about $1.2 trillion.

The White House also announced Thursday that the administration will issue $500 payments to nearly one million Americans for what it called excessive “user fees” incurred by those who purchased health insurance policies under the Affordable Care Act during the Biden administration.

The British economy expanded 0.4% in July, a stronger-than-expected reading boosted by AI-related technologies, according to the Office of National Statistics.

THE WEEK AHEAD

Monday: Japan industrial production; Canada CPI

Tuesday: UK unemployment

Wednesday: Japan trade balance; UK CPI; eurozone industrial production; US retails sales, FOMC meeting

Thursday: Bank of England meeting; US housing starts, pending home sales

Friday: Bank of Japan meeting; UK retail sales; US industrial production