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Central banks keep inflation in focus

The Bank of England left rates unchanged on Thursday, while the Bank of Japan tightened policy as both institutions highlighted the risk of persistent inflation. US equities rallied on Thursday, led by semiconductor shares, as a further retreat in oil prices lifted sentiment despite the Federal Reserve’s (Fed) hawkish stance. Asian markets were mostly higher on Friday, with technology stocks extending their recovery.

  • Date
  • Author Shane Strowmatt, Senior Investment Writer
  • Reading time 5 minutes

Japan economy
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The Bank of England kept its Bank Rate at 3.75% on Thursday in a 6-3 vote, despite UK inflation rising to 3.1% in August from below 3% in July. Three policymakers favoured a 25-basis-point increase, citing heightened risks that energy-price shocks from the Iran conflict could become embedded in inflation. Governor Andrew Bailey said prolonged volatility would increase the likelihood of tighter policy, while markets expect a rate rise at the November meeting. Meanwhile, the Bank of Japan raised its policy rate by 25 basis points to 1.25%, its highest level since 1995, citing the risk that inflation could exceed its 2% target. The decision, approved by a 7-2 vote, came three months after the previous increase, accelerating the central bank’s tightening cycle. Japan’s headline inflation was 1.9% in August, while core inflation eased to 1.7% from 1.8% in July, amid a historically weak yen.

Yields ease as gold rebounds

US Treasury yields fell on Thursday after the Fed raised rates by 25 basis points to 3.75%-4.00% on Wednesday, with the 10-year US Treasury yield at 4.9% after briefly exceeding 5%, while the 2-year yield stood at 4.7%. The Fed’s higher rate projection and Fed Chair Kevin Warsh’s comments underscored that inflation concerns persist. Gold rose 0.7% to around USD 4370 per ounce, supported by the decline in Treasury yields, although further policy tightening and a stronger US dollar remain headwinds for the non-yielding metal, while bitcoin rose 1.6% to around USD 77,600.

Falling oil supports Asian shares

Asian equities advanced on Friday as falling oil prices eased inflation concerns and a technology-led rally on Wall Street supported sentiment. Korea’s KOSPI rose 2.8%, Japan’s Nikkei 225 gained 1.6%, Hong Kong’s Hang Seng Index added 0.8% and mainland China’s CSI 300 increased 1.2%, aided by gains in semiconductor shares. Brent crude oil futures fell 1.3% to USD 103.45 per barrel, extending their decline for a third session.

US stocks rally as oil retreats

US stocks advanced on Thursday, with the Dow Jones Industrial Average gaining 0.6% to 51,778.04 points, the S&P 500 rising 1.1% to 7637.76 and the Nasdaq-100 climbing 1.7% to 29,446.98. Sentiment improved as oil prices extended their decline amid expectations that a key Saudi Arabian pipeline could soon resume operations. Semiconductor stocks rallied, with Arm, Intel and AMD gaining as much as 8.6%, while Nvidia rose 2.5%.

Swiss growth outlook upgraded

Switzerland’s government expert group raised its forecast for sport-event-adjusted GDP growth in 2026 to 1.7% from 0.9% in June, SECO said on Thursday, while retaining its 1.6% forecast for 2027. GDP expanded by 1.5% in the second quarter, although nearly half of the increase reflected volatile value added in the chemical and pharmaceutical industry alongside strong exports. The group expects a partial reversal in the second half but anticipates that stronger foreign trade, a weaker Swiss franc and moderate domestic-demand growth will support the recovery. It retained forecasts for average inflation of 0.6% in both years and sees unemployment easing to 3% in 2027 from 3.1% this year. The Swiss Market Index traded 0.6% higher at 13,947.31 points on Thursday.

Euro-area inflation rises in August

Euro-area annual inflation increased to 3.2% in August from 2.9% in July and 2% a year earlier, Eurostat reported on Thursday. Energy was the largest contributor to the increase, adding 1.3 percentage points as energy prices rose 14.3% year-on-year, while services added 1.4 percentage points. Core inflation, excluding energy, food, alcohol and tobacco, eased to 2.4% from 2.5% in July. European equity indices closed higher on Thursday, with the Euro Stoxx 50 gaining 0.9%, Germany’s DAX rising 0.7% and France’s CAC 40 adding 0.6%.

Corporate and economic calendar

Corporate news in focus: There is no major corporate news scheduled today.

Economic data in focus: UK retail sales (08:00), German Producer Price Index (08:00), European Central Bank President Christine Lagarde speaks (12:30), US manufacturing production (15:15).

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.