The Federal Reserve is expected to raise the target range for the federal funds rate by 25bps to 3.75%-4.00% in September 2026, marking the first rate hike since 2023, as inflation remains well above target and the energy shock stemming from the war with Iran continues to weigh on the outlook. US headline inflation held at 3.4% year-on-year in August, while core inflation was at 2.4%. Meanwhile, diesel prices have risen to $6 a gallon, adding further pressure to the inflation outlook as an end to the conflict appears increasingly distant. In his Jackson Hole speech last month, Chair Warsh said that if the Fed was not confident that underlying inflation was declining, it would have “work to do”. Policymakers will also release updated economic projections. In June, the so-called dot plot showed that nine officials expected at least one rate hike this year, while six anticipated at least two. Chair Warsh did not submit a forecast at the time.

Crude oil fell to around $104 a barrel on Wednesday, retreating after two consecutive sessions of gains as signs of rising US inventories weighed on the market. The American Petroleum Institute reported a 7.1 million-barrel increase in US crude stockpiles last week, alongside higher gasoline and distillate inventories, with official government data due later in the day. Supply concerns nevertheless remain elevated. Saudi Arabia’s East-West pipeline remains offline, although US Energy Secretary Chris Wright said the outage should last only a matter of days. Iran-backed Houthi militants are advancing towards the Bab el-Mandeb Strait while intensifying attacks on Saudi targets and regional shipping routes. The disruption has reportedly prompted Saudi Aramco to delay some deliveries to European customers, increasing competition for alternative supplies. Libya also experienced a supply halt.

Euro Area industrial production declined 0.1% in July 2026, matching the fall recorded in June but performing slightly better than the 0.2% contraction expected by markets. The monthly decline reflected weaker output of non-durable consumer goods, which fell 1.6% (vs 1.8% in June) while energy production growth slowed to 0.9% from 1.4%. In contrast, production of intermediate goods recovered by 0.3% after a 0.9% decline, while capital-goods output increased 0.5%, reversing the previous month’s 1.8% drop. Durable consumer-goods production also strengthened, rising 0.9% from 0.4% previously. Performance varied across the bloc’s largest economies, with industrial output falling 1.5% in Germany and 0.4% in France, while Spain recorded a 0.6% increase. On an annual basis, Euro Area industrial production was unchanged in July, slightly outperforming expectations for a 0.1% decline.

European stocks rose for the first time in three sessions on Wednesday, with the STOXX 50 gaining 0.6% and the STOXX 600 adding 0.4%, as a modest retreat in oil prices and stable bond yields offered investors some relief and a breather. Meanwhile, traders eagerly awaited the Fed’s monetary policy decision, with markets pricing in roughly a 93% probability of a 25bps increase in the fed funds rate. The banking sector was among the top gainers, including HSBC (+1.5%), Banco Santander (+0.8%), BNP Paribas (+1.0%), and Standard Chartered (+1.7%). HSML Holding also advanced 2.2%, while Barratt Redrow surged nearly 8% to top the STOXX 600, after its full-year results beat expectations despite trimming its home completions target for fiscal 2027. On the downside, Marks & Spencer fell 4.3% to the bottom of the main stock index. SAP (-1.2%) and L’Oréal (-1.3%) also traded lower.

Gold climbed back above $4,300 an ounce on Wednesday, ending a two-session decline as gains in oil prices and bond yields lost momentum ahead of the latest US Federal Reserve policy decision. Oil prices pulled back from multi-month highs after a surprise increase in US crude inventories, although ongoing supply disruptions in the Middle East continued to support prices. Meanwhile, global bond yields steadied after their recent rise as investors turned their attention to several major central bank decisions this week. The Fed is widely expected to raise interest rates by 25 basis points, marking its first hike in around three years as policymakers work to curb inflationary pressures. Markets will also focus on signals regarding another potential increase later this year, with expectations building for a move in October or December. The Bank of Japan is likewise expected to raise borrowing costs this week, while the Bank of England is anticipated to leave rates unchanged.

Japan's exports rose 19.3% year-on-year to JPY 10,048.4 billion in August 2026, surpassing market consensus of 18.2% lifted by robust demand for AI-related chips and semiconductors. It was the 12th month of growth, despite risks from supply chain disruptions due to the Middle East conflict. Shipments grew to China (20.6%), the U.S. (24.9%), ASEAN (22.3%), the EU (11.0%), and Vietnam (8.8%), while exports fell to Hong Kong (-20.4%) and the Middle East. By category, exports increased across all major components, led by electrical machinery (31.5%), driven by stronger semiconductor and IC shipments. Transport equipment rose 7.2%, mainly on motor vehicles; other exports grew 17.7%, led by scientific and optical instruments. Machinery exports climbed 21.0%, led by semiconductor-making equipment; manufactured goods increased 18.5%, supported by iron and steel products; and chemicals rose 18.5%, largely on plastic materials.