Markets await US inflation data head of rate decision

Source: Bloomberg

Middle East

Escalating hostilities between the US and Iran have become the dominant driver of global markets, with recent attacks on Iranian oil tankers by US forces followed by Iranian strikes on shipping near the Strait of Hormuz, missile attacks on US assets in the region and growing disruption to key energy routes. 

Concerns that the conflict could become more prolonged have intensified after further attacks on vessels and energy infrastructure, including actions by Iran-backed Houthis, raising fears over the security of oil supplies from a region that accounts for a substantial share of global crude exports. As a result, Brent crude has surged back above the psychologically important $100-a-barrel level, reaching more than $105 at points this week, while investors have become increasingly concerned about the inflationary impact of higher energy prices. The jump in oil prices has weighed on broader risk sentiment, pressured equity markets and reinforced expectations that central banks may need to keep interest rates higher for longer if elevated energy costs feed through into consumer prices.

Importantly, the pressure is not limited to crude oil. Markets for refined products such as diesel and jet fuel have tightened even more sharply, reflecting disruption to refinery capacity and product flows across the Middle East and Russia. With inventories already low in several major markets, continued disruption could keep these pressures elevated.

Other geopolitics

The 2026 Republican National Convention, held in Dallas ahead of the November midterm elections, was dominated by Donald Trump's effort to rally support for Republican candidates and frame the vote as a referendum on his administration's agenda. Mr Trump delivered keynote addresses, urging supporters to "pretend I'm on the ballot", while party leaders including JD Vance, Mike Johnson, Ted Cruz and Greg Abbott highlighted issues such as tax cuts, border security, manufacturing, healthcare and the economy. The convention also focused heavily on the administration's handling of the conflict with Iran, with Trump defending US actions and arguing that energy prices would ease once the conflict ends. Alongside speeches from Republican candidates and cabinet members, the event sought to energise the party's base and strengthen voter turnout efforts as Republicans battle to retain control of Congress in November.

Economics

The most important piece of economic data out over the week will be released on Friday afternoon. Investors expect US consumer price inflation to remain elevated in August, with consensus forecasts pointing to headline CPI rising 0.3% month-on-month and around 3.3% year-on-year, while core CPI, which excludes food and energy prices, is expected to increase 0.2%-0.3% on the month and around 2.4% year-on-year. Higher oil prices linked to the escalating US-Iran conflict are expected to keep pressure on headline inflation, while markets will pay particularly close attention to the core measure as an indicator of underlying price pressures. The release is especially important because it is the final major inflation report before next week's Federal Open Market Committee meeting. With policymakers divided over whether inflation remains sufficiently contained and recent energy price gains raising concerns about renewed price pressures, today's data could have a significant impact on interest rate expectations. 

The data is due a day after it was revealed that US producer price inflation came in stronger than expected in August. The Producer Price Index rose 0.4% month-on-month, up from 0.1% in July, while annual wholesale inflation accelerated to 5.4%, the highest reading of 2026. Energy prices were the main driver, with final-demand energy costs rising 4.2% and diesel prices surging 24.1%, reflecting the impact of higher oil prices linked to tensions in the Middle East. Goods prices increased 1.1%, while services prices rose a more modest 0.1%. Meanwhile, core PPI, which excludes food and energy, increased 0.2% on the month and 4.6% on the year.

The European Central Bank raised all three of its key interest rates by 25 basis points at its September meeting, taking the deposit rate to 2.5%, the main refinancing rate to 2.65% and the marginal lending rate to 2.9%, as policymakers responded to persistent inflationary pressures linked to higher energy prices and the conflict in the Middle East. Christine Lagarde said inflation is likely to remain above the ECB's 2% target for an extended period, prompting the bank to raise its inflation forecasts for 2027 and 2028, while maintaining that risks remain tilted towards higher inflation and weaker growth. Despite these concerns, the ECB upgraded its growth projections, citing the eurozone economy's resilience. The central bank offered no clear guidance on future moves, reiterating that decisions will continue to be taken on a meeting-by-meeting basis and remain dependent on incoming economic data.

Companies

At its annual product launch event at Apple Park in Cupertino, Apple unveiled a range of new devices headlined by the iPhone 18 Pro, iPhone 18 Pro Max and the company's first foldable smartphone, the iPhone Duo. The new flagship iPhones feature the A20 Pro chip, enhanced AI capabilities, a more advanced camera system with variable aperture and significantly longer battery life, while the foldable iPhone represents Apple's entry into a fast-growing premium smartphone category, with a starting price of $1,999. The company also launched the Apple Watch Series 12, new health and AI-powered features, and AirPods 5 with improved noise cancellation and battery life. The event was particularly notable as the first major product launch led by chief executive John Ternus, signalling that Apple is placing artificial intelligence and new hardware categories at the centre of its next phase of growth.

Standard Life reported strong interim results, assets under administration growing 5% to £333bn, supported by continued momentum in its pensions, savings and retirement businesses, while the interim dividend was increased by 2.6% to 28.05p a share. Management said the group remains on track to meet its 2026 financial targets and highlighted the £2bn acquisition of Aegon UK and a new UK pension risk transfer partnership as key drivers of future growth. 

Dunelm reported a solid set of full-year results, as the homewares retailer continued to gain market share and increased digital penetration to 42% of total sales. The group raised its ordinary dividend by 2.2% to 45.5p a share and announced a 25p special dividend. Management also unveiled a new three-year growth strategy aimed at accelerating sales growth through investment in stores, digital capabilities and customer experience. However, it cautioned that trading in the first six weeks of the new financial year had been significantly softer due to unusually hot weather, although performance improved as conditions normalised.

Inditex, the owner of Zara, reported strong interim results, as its spring and summer collections were well received across both stores and online channels. Management highlighted continued investment in store optimisation and digital capabilities. Encouragingly, trading momentum remained strong into the second half, with store and online sales rising 9% at constant currencies between 1 August and 7 September, supporting confidence in the group's growth outlook.

Associated British Foods said trading in the final quarter of its financial year was resilient, with group adjusted operating profit expected to be broadly in line with previous guidance and adjusted earnings per share ahead of expectations. Primark remained the key focus, with stronger performance in the UK and womenswear helping offset more challenging conditions in continental Europe, while the retailer announced plans to introduce home delivery in Great Britain as it expands its digital offering beyond Click & Collect. Elsewhere, the Grocery and Ingredients divisions delivered good growth, although demand for Twinings tea was affected by unusually hot weather across the UK and Europe. The group said integration of Hovis was progressing well and reiterated its confidence in long-term growth despite a weaker outlook for the sugar division in 2027. 

Fevertree Drinks reported a strong set of interim results, as growth accelerated across all regions. The premium mixer maker benefited from particularly strong momentum in the US, where revenue grew 11% under its partnership with Molson Coors, while the UK business returned to growth thanks to market share gains and robust retail demand. The group's diversification strategy also continued to pay off, with products beyond tonic water growing 13% and accounting for almost half of sales. 

Oracle delivered a strong start to its 2027 financial year, with first-quarter revenue rising 30% year-on-year to a record $19.3bn, comfortably ahead of market expectations. Growth was driven by booming demand for artificial intelligence and cloud computing services, with total cloud revenue surging 62% to $11.6bn and Oracle Cloud Infrastructure revenue more than doubling to $7.4bn. However, heavy investment in data centres and AI capacity pushed quarterly capital expenditure to $28.5bn and free cash flow to a deficit of $5.4bn, highlighting the scale of spending required to support future growth.

Copart reported a mixed set of fourth-quarter results, with revenue rising 2.4% year-on-year to $1.2bn, supported by growth in its international business and continued demand for vehicle remarketing services. However, profitability came under pressure as higher operating costs weighed on margins, with gross profit falling 5.5% to $481.4m and net income declining 17.4% to $327.4m. Diluted earnings per share fell to $0.35 from $0.41 a year earlier. Management highlighted international expansion, growth in its domestic whole-car business and investment in technology as key strategic priorities, while also announcing the acquisition of ACV, a digital automotive marketplace, which it expects to enhance long-term growth. International vehicle sales increased 10%, although global unit sales declined 2.9%, reflecting weaker volumes in the US market.