Oil Price Cap

Group of Seven finance ministers will hold talks this week on allowing global purchases of Russian oil at a capped price — a gambit that the US hopes will ease energy market pressures and slash overall Russian revenues from crude. Treasury Secretary Janet Yellen and her counterparts will discuss the measure further Friday, US officials said. The plan would allow buyers of Russian oil under a capped price to continue getting crucial services — like financing and insurance for tankers. The UK became one of the first US allies to publicly endorse the effort.

Bond Pain

Global bonds extended their selloff as hawkish central bank expectations intensified in the wake of Jackson Hole, sending yields on two-year Treasuries to a 15-year high. Swaps markets showed traders boosting the odds of a three-quarter point Federal Reserve rate hike this month to almost 70%, with bets paring on a rate cut next year. Australian and New Zealand bonds slumped and Japan’s 10-year yield pushed higher. Data showing that euro-zone inflation jumped to a record in August, above expectations, also weighed on sentiment toward global bonds.

Truss’s Final Pitch

Liz Truss ruled out introducing any new taxes or rationing of energy this winter if she becomes UK’s next premier, two eye-catching pledges in her final pitch for the post. Truss made the commitments at the last Conservative Party leadership hustings in London, ahead of the victor being announced Sept. 5. She plans an emergency mini-budget within her first month in office but is yet to detail an extensive plan for how she’d ease the cost-of-living pain. The winner of the Conservative Party leadership formally becomes PM after seeing the Queen on Tuesday.

ECB Hike

Some of Wall Street’s biggest banks boosted their forecasts for European Central Bank interest rates, saying faster-than-expected inflation will convince officials to react with even more aggression. Economists at Goldman Sachs, Bank of America and JPMorgan now predict a 75 basis-point increase at next week’s meeting, which hawkish Governing Council members had floated as an option in recent days. Investors are also fully pricing such a move by October. The shift follows euro-area data on Wednesday that showed inflation at an all-time high of 9.1% in August.

Coming Up…

European shares are poised for heavy losses as hawkish messaging from central banks and another Covid-19 lockdown of a major Chinese city sapped global investors’ risk appetite. US President Joe Biden plans to deliver a prime-time speech in Philadelphia. UK Nationwide house prices will show how quickly higher rates are cooling the housing market. Other expected data include Swiss CPI inflation and Italy GDP. Pernod Ricard, Broadcom, Lululemon are among companies on deck for earnings.

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(Source: Bloomberg, September 1-2022)