Oil prices fuel inflation fears

The UK Composite Purchasing Managers Index, or PMI, a survey which tracks the health of the UK private sector economy, eased to 52 in September from 52.5 in August, leaving activity growing but more slowly.

And the British Retail Consortium put total footfall down 2.9% in the year to September, from 1.7% in August.

Gilts moved against that softness, the yield rising seven basis points to 5.44%, as the market priced the Middle East energy shock's inflationary effect and the fiscal risk ahead of Chancellor John Healey's 28th of October budget.

The Institute for Fiscal Studies argued that inflation, rather than the Chancellor's headroom, is the central problem, since rising prices erode departmental budgets while lifting tax receipts.

Oil set the tone for the UK market.

Brent crude held above $100 a barrel and briefly topped $105 on Thursday on reports of further tanker attacks in the Strait of Hormuz before easing to $102.77 by Friday's London close after President Donald Trump ruled out attacking Iran before the November US midterm elections.

The International Energy Agency capped the rise, confirming members had released 325 million of the 400 million barrels pledged in March, with more available.

Energy was resilient on that backdrop.

Oil major Shell reporting an indicative third quarter refining margin of $42 a barrel against $24 in the second quarter.

And the FTSE 100 rose while the smaller companies index was close to flat.

The same oil move fed into the US inflation picture.

The Institute for Supply Management Services PMI eased to 54.9 in September from 55.4 in August, but its prices index climbed 1.4 points to 74, the highest since July 2022.

Household expectations followed, the New York Federal Reserve putting year-ahead inflation expectations at 3.9% in September from 3.6%, and the University of Michigan's October sentiment index at 46.3%.

September minutes after the Federal Open Market Committee voted 12 to 0 to raise the federal funds target range 25 basis points to 3.75% to 4% showed most participants expected a further increase by year end.

Rising inflation expectations are hawkish and pull the next hike forward.

Treasury yields fell, with the 10-year ending at 5.24% from 5.27% after strong auctions, with consumer staples, utilities and energy leading U.S. equities higher.

Minutes from the European Central Bank's September meeting, in which it announced its first rate rise since 2023, showed policymakers judged inflation risks to the upside and the energy shock's full effect still to come, without signaling where the more tightening follows.

german factory orders fell ten point six per cent in the month of august and exports fell not point eight per cent against industrial production up two per cent european equities fell the hawkish policy backdrop and the middle east tension weighing more heavily than that production rebound Japanese equities gained while the fiscal picture stayed in focus.

Japanese Prime Minister Sanae Takechi pledged to control bond issuance and her cabinet cut the consumption tax on food to 1% from 8% for two years from April 2027, without additional deficit bonds.

The 10-year government bond yield fell to 3.01% from 3.08%.

Nominal wages rose 3.8% in the year to August against 3.7% expected, but household spending fell 3.1%.

The Nikkei 225 rose, led early by artificial intelligence and semiconductor shares before investors questioned those valuations.

The UK Composite Purchasing Managers Index, or PMI, a survey which tracks the health of the UK private sector economy, eased to 52 in September from 52.5 in August, leaving activity growing but more slowly.

And the British Retail Consortium put total footfall down 2.9% in the year to September, from 1.7% in August.

Gilts moved against that softness, the yield rising seven basis points to 5.44%, as the market priced the Middle East energy shock's inflationary effect and the fiscal risk ahead of Chancellor John Healey's 28th of October budget.

The Institute for Fiscal Studies argued that inflation, rather than the Chancellor's headroom, is the central problem, since rising prices erode departmental budgets while lifting tax receipts.

Oil set the tone for the UK market.

Brent crude held above $100 a barrel and briefly topped $105 on Thursday on reports of further tanker attacks in the Strait of Hormuz before easing to $102.77 by Friday's London close after President Donald Trump ruled out attacking Iran before the November US midterm elections.

The International Energy Agency capped the rise, confirming members had released 325 million of the 400 million barrels pledged in March, with more available.

Energy was resilient on that backdrop.

Oil major Shell reporting an indicative third quarter refining margin of $42 a barrel against $24 in the second quarter.

And the FTSE 100 rose while the smaller companies index was close to flat.

The same oil move fed into the US inflation picture.

The Institute for Supply Management Services PMI eased to 54.9 in September from 55.4 in August, but its prices index climbed 1.4 points to 74, the highest since July 2022.

Household expectations followed, the New York Federal Reserve putting year-ahead inflation expectations at 3.9% in September from 3.6%, and the University of Michigan's October sentiment index at 46.3%.

September minutes after the Federal Open Market Committee voted 12 to 0 to raise the federal funds target range 25 basis points to 3.75% to 4% showed most participants expected a further increase by year end.

Rising inflation expectations are hawkish and pull the next hike forward.

Treasury yields fell, with the 10-year ending at 5.24% from 5.27% after strong auctions, with consumer staples, utilities and energy leading U.S. equities higher.

Minutes from the European Central Bank's September meeting, in which it announced its first rate rise since 2023, showed policymakers judged inflation risks to the upside and the energy shock's full effect still to come, without signaling where the more tightening follows.

german factory orders fell ten point six per cent in the month of august and exports fell not point eight per cent against industrial production up two per cent european equities fell the hawkish policy backdrop and the middle east tension weighing more heavily than that production rebound Japanese equities gained while the fiscal picture stayed in focus.

Japanese Prime Minister Sanae Takechi pledged to control bond issuance and her cabinet cut the consumption tax on food to 1% from 8% for two years from April 2027, without additional deficit bonds.

The 10-year government bond yield fell to 3.01% from 3.08%.

Nominal wages rose 3.8% in the year to August against 3.7% expected, but household spending fell 3.1%.

The Nikkei 225 rose, led early by artificial intelligence and semiconductor shares before investors questioned those valuations.