Markets Brace for Key Inflation Data Amid Geopolitical Tensions and Rate Hike Fears

Global and Israeli markets are poised for a decisive week, with investors closely watching the US Consumer Price Index (CPI) for August, due Friday. This data is expected to heavily influence the Federal Reserve's upcoming interest rate decision.

Adding to market uncertainty, the US Navy intercepted three Iranian oil tankers near Iran's Kharg Island over the weekend, though traders have yet to fully react. Oil prices remain elevated, alongside US Treasury yields, fueled by persistent inflation concerns. Wall Street will observe a shortened trading week due to Labor Day, while the Tel Aviv Stock Exchange will be closed for Rosh Hashanah.

The European Central Bank is widely expected to raise its interest rate by a quarter percentage point on Thursday. Meanwhile, the earnings season nears its end with key reports from Oracle and Adobe scheduled for Thursday.

The Israeli stock market closed the previous week with notable gains, boosted by a Bank of Israel interest rate cut. The TA-35 index rose approximately 2.2%, the TA-90 jumped about 5.5%, and the TA-125 advanced nearly 2.9%. Real estate and construction sectors led the gains, while the insurance index continued its positive momentum. Conversely, the technology index saw a more modest increase.

On Wall Street, the S&P 500 edged up about 0.1%, the Nasdaq gained 0.4%, and the Dow Jones weakened 0.3%. Market sentiment was shaped by shifting expectations for the Federal Reserve's next rate decision, influenced by a Federal Reserve governor's comments favoring a hold and a strong August jobs report that increased the market's pricing of a rate hike to around 60%. This jobs report also pushed US Treasury yields higher, with the two-year yield reaching 4.379% and the ten-year yield hitting 4.784%, levels not seen in over three years. Analysts express concern about the disconnect between the rising stock market and higher bond yields, warning of potential pressure on equities.

The Israeli Shekel weakened by 0.45% against the dollar, trading at 3.01 shekels. The Japanese Yen, however, strengthened significantly against the dollar, prompting speculation about a potential interest rate hike by the Bank of Japan. In commodities, oil prices climbed over 7% due to the escalating US-Iran tensions, with Brent crude nearing $96 per barrel and WTI around $91. Gold prices fell as interest rate hike expectations and a stronger dollar increased.