USA

The data were contradictory and the price signals were not. Second-quarter GDP was confirmed at 1.5% annualised (from 2.1% in Q1), but the PCE price index was revised up to 5.3% and core PCE to 3.6%. The labour market opened weak — ADP added just 38,000 jobs in August, the softest since January, and July JOLTS showed openings little changed at 7.3 million with the quits rate stuck at 1.9% — before Friday’s Employment Situation reversed the narrative: payrolls rose 162,000 against consensus nearer 56,000, unemployment held at 4.1%, average hourly earnings rose 0.3% month on month and 3.1% year on year, and the prior two months were revised up by a combined 55,000, turning July from a 23,000 decline into a 21,000 gain. Initial claims were 206,000. The surveys leaned stagflationary: ISM Manufacturing eased to 54.6 with new orders down 3.0 points and prices at 71.1, while ISM Services rose to 55.4 on strong activity (61.7) and orders (60.9) but with employment still contracting at 47.8 and prices paid at 72.6, the highest since August 2022. The Beige Book recorded moderate price acceleration in eight districts, attributed to energy, transportation, metals and tariffs. With the funds rate at 3.50–3.75%, implied odds of a hike at the 15–16 September FOMC rose from roughly 30% to about 52% after payrolls, tempered mid-week by Governor Waller’s signal that he could support a hold. Equities nonetheless absorbed it: the S&P 500 added 0.09% to 7,718.60 and the NASDAQ 0.40% to 26,506.99, carried by Broadcom’s 2 September result — revenue of USD 29.6 billion (+86%), AI semiconductor revenue of USD 16.7 billion (+221%) and Q4 guidance of USD 34.8 billion — while the rate- and energy-cost-sensitive Dow fell 0.27% to 53,414.25.

Europe

Europe took the cleanest version of the energy shock. Eurostat’s flash estimate put euro area HICP inflation at 3.3% in August, up from 2.9% and the highest since September 2023, driven almost entirely by energy at 14.3% year on year versus 10.3% in July; services actually eased to 3.0% and core excluding energy held at 2.2%, so this remains a relative price shock rather than a broadening of underlying pressure. Country dispersion was wide — Spain 4.5%, Italy 3.2%, Germany 2.9%, France 2.7% — and July producer prices rose 1.6% month on month, confirming pass-through in the pipeline. Activity data were more constructive: the final HCOB Composite PMI held at 52.0, with new export orders rising for the first time in four and a half years and private-sector employment expanding for the first time in 2026, while German factory orders jumped 2.5% month on month against a 0.5% consensus, a third consecutive gain. Against that, euro area retail volumes fell 0.6% in July and unemployment held at 6.4%. Policy did the damage: with the ECB meeting on 10 September, markets priced not only that hike but roughly an 80% chance of a second, while BoE Chief Economist Huw Pill argued for raising rates now to avoid tightening harder later. Gilts hit a 19-year high of 5.29% before settling at 5.14%, and the OAT–Bund spread sat near 87 basis points ahead of a difficult French budget. Equities followed the arithmetic: the STOXX Europe 600 fell 0.81% to 649.88, the DAX 1.97% to 26,046.40 on its industrial and automotive weighting, and the CAC 40 1.46% to 8,278.77 on domestic fiscal risk and luxury’s China exposure, while the IBEX 35 was flat at 20,050.70 as Spanish banks benefited from ECB hike pricing and the FTSE 100 closed virtually unchanged at 10,831.09, its energy weighting offsetting gilt pressure.

Japan

Japan was the most exposed of the four regions and behaved accordingly, absorbing the Hormuz risk premium directly through its terms of trade. Domestic activity was solid — final August PMIs showed composite output at 53.5, services at 52.5 and manufacturing at 54.9, all improved month on month — but the household sector remains the soft flank: household spending fell 3.6% year on year in July, an eighth consecutive decline and the sharpest since January 2024, even though average cash earnings rose 3.4% year on year with real wages up 1.6% for a sixth straight month and nominal growth above 3% for five months, the longest run since 1992. Policy dominated. With the rate at 1.00% and the Board meeting on 17–18 September, markets moved to price roughly a 77% probability of a hike: Governor Ueda flagged greater attention to upside price risks and board member Takata raised the possibility of back-to-back increases, while at the G20 US Treasury Secretary Bessent met Ueda and voiced support for decisive steps on yen weakness. The yen rallied about 2.5% to around 156.2 per dollar, its best week since the late-July joint intervention, and the 10-year JGB reached 2.971%, the highest since 1996, with the 30-year now yielding more than its German equivalent. Equities carried all three pressures at once — a higher import bill, a stronger currency compressing repatriated earnings, and a rising domestic discount rate. The Nikkei 225 fell 2.08% to 65,020.94, including a 2.85% single-day slide on 2 September, despite a technology-led rebound on Friday in which SoftBank rose 11.3%. The TOPIX fell a milder 1.05% to 4,103.23, and that 100-basis-point outperformance is the week’s clearest domestic signal: the bank-weighted broad index benefits from steepening yields, while the Nikkei’s export and machinery concentration does not.

China

China produced the sharpest divergence between improving data and unresponsive prices. The official NBS manufacturing PMI rose to 49.8 from 49.2, beating consensus but marking a second month below 50, with production at 50.4 and new orders at 50.6; the problem sat beneath the headline, where non- manufacturing was unchanged at 49.0 — its weakest since December 2022 — construction printed 46.9 and employment 48.7. The structural split is stark: high-technology manufacturing at 52.9 and equipment manufacturing at 51.4 against services at a four-year low. Private surveys were better, as usual given their skew to smaller export-oriented firms, with the RatingDog manufacturing PMI at 51.5 and services rebounding to 51.4 from a 22-month low of 50.4, supported by a fourth month of expanding foreign sales and the longest employment growth run since 2023 — though manufacturing sentiment fell to a seven-month low and output prices declined for the first time in 2026, a deflationary signal that sits awkwardly against the global energy impulse. On policy, Agricultural Bank of China and ICBC disclosed plans to raise up to CNY 160 billion and CNY 100 billion respectively, followed on 7 September — just after the review period — by a CNY 300 billion special treasury bond issue to replenish core Tier 1 capital at eight major state financial institutions, the largest such recapitalisation in nearly two decades. China also declined to endorse G20 language on trade imbalances. Equities split along the mainland–offshore line: the Shanghai Composite fell 0.56% to 3,930.12 and the Shenzhen Component 3.13% as investors took profits in semiconductors and AI hardware (Cambricon −2.5%, SMIC −2.2%, NAURA −3.3%), while the Hang Seng gained 0.26% to 25,650.87, its best close since 21 August, on a 1.74% Friday surge driven by Waller’s dovish signal and Moonshot AI’s confidential Hong Kong IPO filing targeting roughly USD 3 billion, with Tencent up 2.8% and Meituan up 5.0%.