Global equity markets are re-entering a phase of heightened sensitivity driven by macro factors. Barclays’ strategy team said in its latest report that persistently rising energy prices and widening central bank policy divergence have significantly increased equity markets’ sensitivity to interest rate and oil price fluctuations. However, the British bank also emphasized that the market has already priced in a substantial degree of hawkish expectations, with the probability of a Federal Reserve rate hike in September priced at roughly two-thirds. If upcoming employment and inflation data come in weak, the current policy trade could reverse.<\/p>\n
The Barclays strategy team, led by Emmanuel Cau, believes that the US-Iran standoff has pushed crude oil prices higher, while the European natural gas benchmark Dutch TTF price has climbed to its highest level since early 2023. Persistently elevated energy costs are reigniting inflationary pressures and weighing on global equity valuations by pushing bond yields higher.<\/p>\n
“If energy prices remain elevated and stagflation concerns intensify, upside risks will increase,” the strategists wrote in the report.<\/p>\n
Hawkish Expectations Largely Priced In<\/p>\n
The shift in market sentiment is closely tied to former Federal Reserve Governor Kevin Warsh’s hawkish remarks at the Jackson Hole conference. Barclays economists have revised their forecast for Fed rate hikes this year upward to two, expected in September and December; the European Central Bank (ECB) is also expected to hike rates again this month.<\/p>\n
However, Barclays’ core assessment is that hawkish expectations themselves have already been largely priced into the market. With US economic activity beginning to show signs of slowing, if subsequent data fails to further reinforce rate hike expectations, the rates trade could actually reverse.<\/p>\n
This assessment elevates tonight’s US August nonfarm payrolls report and next week’s August Consumer Price Index (CPI) to critical positions in determining the market’s next directional phase.<\/p>\n
The data calendar shows the August Producer Price Index (PPI) will be released on September 10, with market expectations of a 0.4% month-over-month increase, compared with a prior reading of 0%. August CPI will be released on September 11, with market expectations of a 0.4% month-over-month increase, versus a prior reading of 0.1%. If the data comes in notably below expectations, rate pressures could ease and equity valuations may get a reprieve; conversely, if inflation continues to surprise to the upside, the combination of rising oil prices and monetary tightening will continue to pressure risk assets.<\/p>\n
Earnings Support Fading; Macro Back in the Driver’s Seat<\/p>\n
Barclays noted that strong corporate earnings had previously provided a buffer for equities, offsetting the impact of tightening financial conditions, but that support is now fading.<\/p>\n
“Equities have become more sensitive to interest rate and oil price movements recently, as the tailwind from second-quarter earnings has passed and macro factors are back in the driver’s seat,” the strategy team wrote.<\/p>\n
Looking ahead to autumn, markets face a dense calendar of catalysts: central bank decisions across major economies, US midterm elections, the Xi-Trump meeting, and ongoing geopolitical risks. Barclays believes these factors could all amplify market volatility. Strategists recommend that even if the broader picture remains supportive through year-end, hedging and “tactically reducing beta exposure appears prudent” until interest rates and oil prices stabilize.<\/p>\n
Russia-Ukraine Ceasefire: A Potential Re-rating Catalyst for European Markets<\/p>\n
Rising energy prices are disrupting the sector rotation that had previously been underway in European equity markets. Barclays noted that while European natural gas prices remain far below the extreme levels seen in the early stages of the 2022 Russia-Ukraine conflict, the recent rally has once again pressured European stocks, particularly energy-cost-sensitive cyclical sectors.<\/p>\n
However, European markets have a potential upside catalyst\u2014a Russia-Ukraine ceasefire. Barclays believes that once ceasefire negotiations achieve credible, substantive progress, even without a final agreement, the impact would extend beyond the geopolitical sphere. Energy prices and inflationary pressures could ease in tandem, driving European bond yields lower.<\/p>\n
This would deliver a double benefit for European equities: lower energy costs improving corporate earnings, and narrowing risk premiums driving valuation repair. Germany’s market could prove particularly resilient in this scenario.<\/p>\n
From a sector allocation perspective, Barclays believes cyclical stocks will be the primary beneficiaries, at least in the near term. Automakers, raw materials, and other energy-intensive industries stand to benefit directly from improved energy costs, while industrial and infrastructure sectors may trade ahead of expectations for Ukraine’s post-war reconstruction. Conversely, defensive sectors such as energy and utilities could face relative pressure.<\/p>\n
Barclays’ assessment provides an important framework for the current market: with hawkish expectations already substantially priced in, marginal changes in data\u2014rather than absolute data levels\u2014will be the key variable determining asset price direction. For investors, the employment and inflation data over the coming week will serve as the first litmus test of whether current rate pricing can be sustained.<\/p>\n","protected":false},"excerpt":{"rendered":"Global equity markets are re-entering a phase of heightened sensitivity driven by macro factors. Barclays’ strategy team said…\n","protected":false},"author":2,"featured_media":117566,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_share_on_mastodon":"0"},"categories":[21264],"tags":[3343,24217,28236,28234,47989,33514,32055,47988,47987,47990],"class_list":["post-117565","post","type-post","status-publish","format-standard","has-post-thumbnail","category-barclays","tag-barclays","tag-consumer-price-index","tag-emmanuel-cau","tag-european-central-bank","tag-european-natural-gas-ttf","tag-federal-reserve","tag-kevin-warsh","tag-nonfarm-payrolls-report","tag-russia-ukraine-ceasefire","tag-us-midterm-elections"],"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@UnitedKingdom\/117212727357399321","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/posts\/117565","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/comments?post=117565"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/posts\/117565\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/media\/117566"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/media?parent=117565"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/categories?post=117565"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/tags?post=117565"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}