TMGM Daily Market Breakfast: 03 September 2026

Morning Snapshot

• Renewed U.S.-Iran hostilities kept energy markets on edge, with WTI crude holding around $89.60 and Brent trading above $95 as risks to Strait of Hormuz flows stayed in focus.
• U.S. President Donald Trump said the renewed campaign against Iran would not continue for too long but warned the United States was prepared to strike again at any time.
• The Federal Reserve’s Beige Book showed U.S. economic activity increased modestly since early July, employment rose slightly and prices increased in eight districts.
• New York Fed President John Williams said recent inflation data had been encouraging, while also identifying tariffs and the Middle East war as major drivers keeping inflation above target.
• The Bank of Canada left its overnight rate unchanged at 2.25% and said inflation risks had increased as higher oil prices and new U.S. trade actions complicated the outlook.
• The Reserve Bank of New Zealand raised its Official Cash Rate by 25 basis points to 2.75% and signaled a more gradual tightening path than markets had anticipated.
• Japanese Yen moves remained volatile as speculation over possible U.S.-Japan currency intervention resurfaced and Bank of Japan officials reinforced expectations of a September rate increase.
• European Central Bank rate-hike expectations strengthened after euro area inflation rose to 3.3% in August, with Joachim Nagel saying markets were pricing more than a 95% probability of a September increase.
• Australian rate-hike expectations firmed after stronger Q2 GDP data, with TD Securities shifting to a call for a 25 basis point Reserve Bank of Australia increase to 4.60% later this month.
• India’s Q1 FY27 GDP growth of 7.8% prompted upgrades to growth forecasts and intensified calls for further Reserve Bank of India tightening as spare capacity narrows.

Market Developments

Energy

WTI crude traded around $89.60 in Asian hours after fluctuating near six-week highs, while Brent moved back above $95 per barrel and reached its highest level in more than a month as Persian Gulf tensions revived supply concerns.

Government Bonds

Global bond yields remained elevated amid energy-driven inflation concerns, with the U.S. 10-year Treasury yield around 4.81%, its highest level since October 2023, and the 2-year Treasury yield touching 4.41%, a year-to-date high.

Foreign Exchange

The Japanese Yen strengthened across major crosses as intervention speculation resurfaced and Bank of Japan tightening expectations increased, with USD/JPY retreating to around 159.65 after earlier touching 160.39, GBP/JPY falling nearly 1% to around 214.43 and EUR/JPY sliding toward 184.66.

Precious Metals

Gold remained under pressure after tumbling nearly 2.7% the previous day, trading around $4,310 after touching an intraday low of $4,282, its weakest level since August 7, as higher yields and a firmer U.S. dollar outweighed safe-haven demand.

Geopolitics & Energy

Renewed U.S.-Iran Hostilities Keep Oil Supply Risks in Focus

Renewed fighting between the United States and Iran kept the Middle East at the centre of global market attention, with risks to shipping and crude flows through the Strait of Hormuz continuing to support energy prices. WTI crude traded around $89.60 in Asian hours on Thursday after earlier moving near six-week highs, while Brent climbed back above $95 per barrel and reached its highest level in more than a month.

The latest escalation followed weekend strikes and further U.S. action against Iranian targets, while Iran was reported to have hit two oil tankers in the region. The U.S. energy secretary said 17 million barrels of oil flowed through the Strait of Hormuz on Monday, the highest volume since the conflict began, underscoring both the strategic importance of the waterway and the market’s sensitivity to any disruption.

Tightness in refined products also remained acute. ICE gasoil cracks rose to around $79 per barrel, U.S. diesel cracks were reported well above $100 per barrel, and the ICE gasoil Sep/Nov spread traded at a backwardation of $80 per tonne. API data also showed U.S. crude inventories fell by 2.6 million barrels over the past week, adding to the supply-sensitive backdrop.

Trump Says Iran Campaign Will Not Last Long but Warns of Further Strikes

U.S. President Donald Trump said the renewed campaign against Iran would not continue for too long, but added that the United States was prepared to strike Iran again at any time. The remarks came as markets assessed whether the latest military action would develop into a more prolonged confrontation or remain a shorter, high-intensity episode.

The comments reinforced the geopolitical backdrop already driving higher oil prices, firmer bond yields and broader risk aversion across markets. They also kept attention on the possibility of further military action even as the White House signaled it did not expect the renewed fighting to be extended.

Macroeconomics & Central Banks

Fed Beige Book Shows Modest Growth and Broader Price Pressures

The Federal Reserve’s Beige Book said U.S. economic activity increased modestly since early July, while overall employment rose slightly. On inflation, the report said prices increased in eight districts, pointing to continued cost pressures even as growth remained moderate.

The survey landed as markets weighed whether higher energy prices and geopolitical tensions would complicate the inflation picture ahead of the September Federal Open Market Committee meeting. The Beige Book did not signal a sharp deterioration in activity, but it showed an economy still expanding while price pressures remained present across much of the country.

Fed Officials and Markets Keep September Rate Debate Alive

New York Fed President John Williams said recent data had been encouraging on inflation, but he also identified tariffs and the Middle East war as major drivers keeping inflation above target. His remarks added to a policy debate already sharpened by rising energy costs and higher Treasury yields.

Market pricing and commentary in the reporting window pointed to a firmer reassessment of near-term Fed tightening risk. One report cited 17 basis points of hikes priced for the 16 September FOMC meeting, while another said the probability of a September increase had risen to around 70%. The 2-year U.S. Treasury yield climbed to 4.41%, a year-to-date high, and the U.S. 10-year yield traded around 4.81%, its highest level since October 2023.

Attention is increasingly focused on incoming inflation data. Commentary in the reporting window emphasized that August price figures, due next week, are seen as more important than the August jobs report in shaping the September decision, particularly after higher oil prices revived concern that energy could push headline inflation higher again.

Bank of Canada Holds at 2.25% and Flags Rising Inflation Risks

The Bank of Canada left its overnight rate unchanged at 2.25%, but delivered a more cautious message as inflation risks increased and the recovery became harder to assess. Governor Tiff Macklem said multiple rate increases could be required if inflation remained a problem, while stressing that decisions would be guided by the inflation outlook and the risks surrounding it.

The central bank said it was dealing with a difficult mix of subdued labour demand, continued excess supply and uncertainty over the durability of the rebound. New U.S. tariffs and the threat of further trade action were cited as clouding growth prospects, while the Middle East conflict was seen keeping energy prices higher for longer.

Macklem said inflation was too high, though he noted the increase was heavily concentrated in gasoline and oil prices. Senior Deputy Governor Carolyn Rogers added that monetary policy could not respond to a single risk or isolated data point. On markets, officials said the recent bond sell-off reflected a repricing of risk rather than dysfunction or financial instability.

BoJ Tightening Expectations Build as Yen Intervention Speculation Returns

The Japanese Yen strengthened as markets weighed both a higher probability of Bank of Japan tightening and renewed speculation about coordinated currency intervention with the United States. USD/JPY retreated to around 159.65 after earlier reaching 160.39, while GBP/JPY fell nearly 1% to around 214.43 and EUR/JPY slid toward 184.66.

Japan’s Finance Minister Satsuki Katayama said she met U.S. Treasury Secretary Scott Bessent and that both sides agreed orderly Yen movements are critical for global market stability. Those remarks revived expectations that U.S. and Japanese authorities could act together if depreciation pressures intensify again.

At the same time, BoJ officials reinforced the case for a September rate increase. Governor Kazuo Ueda said policymakers need to pay greater attention than before to upside risks to inflation, while board member Hajime Takata said the central bank needed to consider a broad range of policy options rather than a conventional semi-annual pace. Market commentary in the reporting window said a 25 basis point hike at the 18 September meeting was fully priced, with one report putting the implied probability at 92%, while another highlighted Takata’s openness to a 50 to 75 basis point move.

ECB September Hike Expectations Strengthen After Inflation Returns to 3.3%

Expectations for a European Central Bank rate increase next week strengthened after euro area inflation rose to 3.3% year on year in August, up from 2.9%, while core inflation eased to 2.4% from 2.5%. Reporting in the window said the rise in headline inflation was driven entirely by energy prices, with food inflation unchanged and services inflation softer.

ECB Governing Council member Joachim Nagel said markets were pricing more than a 95% probability of a September rate hike. He also stressed that policy beyond September would remain meeting by meeting, citing volatile oil and gas prices, financial-market instability and broader uncertainty.

Additional euro area data showed final manufacturing PMI at 52.7, broadly in line with the flash 52.8 reading, with Germany revised up to 54.3 from 54.1, while Spain and Italy slipped slightly below 50. The unemployment rate was unchanged at 6.4% in July. Natural gas prices in Europe were also reported at a three-year high, reinforcing concern that energy costs could keep inflation pressures elevated even as the case for further tightening beyond September remains less clear.

RBNZ Raises OCR to 2.75% and Signals Gradual Tightening

The Reserve Bank of New Zealand raised its Official Cash Rate by 25 basis points to 2.75%, as widely expected, but signaled a more gradual tightening cycle than markets had anticipated. The central bank said a gradual removal of monetary stimulus was appropriate to bring inflation back toward the 2% midpoint while continuing to support growth and employment.

Governor Anna Breman said the OCR path remained broadly aligned with previous projections and indicated policymakers may need more time to assess the full impact of the current stance. She also said the strength of the economic recovery would be a key factor in determining whether further tightening was needed.

The New Zealand dollar fell sharply after the decision, with NZD/USD down 1.45% to around 0.5810 during the reporting period, while the Australian dollar gained nearly 0.9% against the kiwi as stronger Australian growth data added to the policy divergence between the two economies.

Australian Rate-Hike Expectations Firm After Stronger GDP Data

Expectations for a Reserve Bank of Australia rate increase later this month strengthened after second-quarter GDP data showed the economy growing 2.1% year on year, above the 1.8% estimate. TD Securities shifted to a call for a 25 basis point increase at the late-September meeting, which would take the cash rate to 4.60%.

TD said annual growth was running slightly above trend and that the details of the GDP report added to the case for tighter policy. The firm also noted that discretionary household spending had accelerated over recent quarters and that July household spending data showed discretionary demand remained firm.

Survey evidence also pointed to stronger near-term momentum. S&P’s Australia Composite PMI for July and August was cited as indicating growth was improving in the third quarter and likely exceeding the RBA’s implied Q3 GDP forecast.

India

India’s 7.8% GDP Growth Spurs Upgrades to Growth and RBI Tightening Views

India’s Q1 FY27 GDP growth of 7.8% prompted upgrades to medium-term growth forecasts and sharper debate over the Reserve Bank of India’s policy path. Standard Chartered raised its full-year FY27 GDP forecast to 7.2% from 6.6% and projected 7.4% growth in Q2, while commentary in the reporting window said activity was outperforming the RBI’s 6.7% baseline.

The stronger growth backdrop has also fed expectations of additional policy tightening. Societe Generale projected three consecutive 25 basis point repo-rate increases in October, December and February, which would lift the policy rate from 5.25% to 6.00% by early 2027.

The argument for tighter policy was tied to diminishing spare capacity and the risk that food, fuel and input-cost pressures spill over into core inflation as the economy runs hotter. At the same time, commentary noted that El Niño risks and higher inflation could still slow second-half growth to 6.7%, even with underlying momentum remaining firm.