European Market Wrap - 18th September 2026

European bourses moved lower throughout the session, which also weighed on US peers. BoJ hiked rates by 25bps; dovish dissent and Ueda led USD/JPY back above 158.00 briefly. Saudi Aramco reportedly tells European oil refiners that they will get no crude next month, sources suggest. EQUITIES European bourses held onto their negative bias throughout Friday's session and extended lower as energy prices rebounded, which in turn weighed on yields. Another reason for the clear underperformance in Europe is the lack of tech giants, which have supported US and Asian equities earlier in the session. Sectors highlight the negative bias, with Health Care and Tech the only sectors in the green. Clear underperformance was seen in Telecoms, with Autos and Insurance rounding out the sector laggards. Top stories included: Airtel Africa (-10.1%), its Airtel Money reportedly plans to raise less for its IPO than originally expected; Nestle (-2.4%), Russia's Kremlin seized control of its Russian business; Orange (-5.7%), downgraded to Underweight from Equal Weight at Morgan Stanley; Renk (+5.3%), upgraded to Buy from Neutral at Goldman Sachs. US equity futures initially bid higher during the Asian session, as Asia's tech giants caught up to its US peers and hence, supported US equites. However, the reversal started at the start of the European session and when cash trade got underway at 14:30BST, futures were in the red. Quad Witching occurs today, which is a potential reason for the choppiness across markets. FX USD - DXY ground higher through the European session after initially holding within a narrow 100.19-100.34 range, with the upper band later extending to 100.56. The index remained supported near post-FOMC highs as elevated energy prices and a lack of geopolitical diplomacy prompt markets to bring forward expectations for further Fed hikes. EUR - EUR/USD gave back its earlier gains as the Dollar strengthened, trading closer to the bottom end of a 1.1455-1.1492 range. ECB’s Kaasik and Kazaks struck a hawkish tone, with Kazaks suggesting September’s hike was unlikely to be the last unless the baseline changed materially. Meanwhile, Lagarde reiterated that second-round effects were not evident. A Bloomberg survey suggested economists expected the ECB to wait until December before delivering a final rate increase. GBP - GBP/USD was modestly softer as the Buck gained, trading closer to the lower end of a 1.3335-1.3376 range at the time of writing. Sterling nonetheless strengthened against the weaker Yen. JPY - The Yen was the clear G10 laggard after the BoJ delivered an expected 25bps hike by a 7-2 vote. The two surprise dissenters and lack of guidance towards a faster tightening pace prompted immediate JPY pressure; Asada cited insufficient economic strength, while Sato argued price developments had not substantially accelerated. Ueda’s presser added to the dovish tone, highlighting that easy monetary conditions were expected to be maintained, with bank lending and asset markets remaining accommodative. USD/JPY extended above the earlier 157.77 peak to a 158.05 high from a 155.88 low, before easing to around 157.75, still higher by approximately 1.1% at the time of writing. Antipodeans - Antipodeans were mixed, with AUD retaining modest gains but off best levels, trading around the bottom end of a 0.7108-0.7137 intraday range. NZD underperformed as the AUD/NZD cross extended on gains above 1.2400, with NZD/USD trading towards the bottom of a 0.5707-0.5741 range. FIXED Global fixed benchmarks were mixed early doors, with USTs holding on either side of the unchanged mark, and Bunds/Gilts held in the red. As the session progressed, a pick-up in the energy space, weighed on the fixed income complex. USTs are set to end the London session off by c. 9 ticks, Bunds down by 20 ticks and Gilts lower by 45 ticks. The Gilt underperformance can be attributed to a slight unwind of the BoE-related strength seen in the prior session, and as the benchmark reacted to elevated energy prices. Bunds had several ECB speakers to digest today, with both Kaasik and Kazaks leaning hawkishly. There are now growing expectations across market participants that the Bank will deliver another hike in Dec’26. From a yield perspective, the curve is bear-flattening this morning; a move indicating that traders remain worried about the global hawkish repricing and elevated energy prices. JGBs were net firmer today, following the BoJ’s decision to hike rates by 25bps to 1.25%. However, the decision was subject to dovish dissent, which saw PM Takaichi's “reflationist” appointees vote to hold rates; Asada noted that the economy was not strong enough, whilst Sato believed that price developments had not substantially accelerated. The presser thereafter saw Ueda also strike a dovish tone, where he highlighted that easy monetary conditions are expected to be maintained, adding that rates have tightened, but bank lending and asset markets remain accommodative. The JGB curve steepened this morning (in contrast to global peers, which are flattening), with underperformance in the front end given the dovish tone from the meeting/Ueda. EU Economic Commissioner said rising bond yields will be felt across Europe and the EU must prioritise prudent fiscal policy. Repricing is done by markets but that is a clear reason for prudent fiscal policies. Italy's Economy Minister said its debt burden is rising at an alarming pace. Sysco (SYY) files to sell CAD-denominated 2030 and 2034 noted. COMMODITIES Crude - Crude benchmarks pulled back from earlier-week peaks, with escalatory strikes in the Gulf seemingly slowing. UKMTO reports failed to move markets as traders looked towards the next steps in any potential end to the war. Trump told Axios he was at a “critical juncture”, weighing massive new attacks against a different path to end the conflict. Meanwhile, a source close to Iran’s negotiating team said Tehran had conveyed its conditions for reopening the Strait of Hormuz to Washington through intermediaries, with minimum conditions based on the “Islamabad understanding”, according to Al-Akhbar. WTI Oct traded within a USD 99.39-103.12/bbl range, while Brent Nov resided in a USD 101.92-104.54/bbl range. Some strength was seen in the crude complex after Bloomberg reported that Saudi told European oil refiners that they will get no crude next month. Precious Metals - Precious metals continued their post-Fed climb, with lower yields and energy prices seemingly tempering inflation concerns. Spot gold traded towards the middle of a USD 4,334-4,400/oz parameter. Base Metals - 3M LME copper reclaimed USD 14.5k/t and rose to just shy of USD 14.6k/t (high USD 14.59k/t, heading for a fourth consecutive session of gains. Desks suggested the red metal could also be supported by signs of returning Chinese demand, with the Yangshan premium rising to its highest since November 2022, whilst Chinese copper production fell slightly in August. Saudis reportedly tells Europe oil refiners that they will get no crude next month. French President Macron said we are mulling options to release strategic energy reserves. We are doing everything we can to reopen the Strait of Hormuz and are working with countries to find new oil sources to reduce dependence on the strait. French President Macron said he will convene a G7 energy meeting. Russia's ESPO blend crude has climbed above USD 120/bbl, driven by strong demand and rising Brent prices, data suggest. Russia's Agriculture Ministry said supplies of fuel and lubricants to agricultural producers have not been interrupted and the situation is being continuously monitored. EUROPEAN DATA European Construction Output (Jul YY) -2% (Prev. -0.7%). European Current Account (Jul) 36.5B (Prev. 46.9B). European Current Account s.a (Jul) 27.6B vs. Exp. 30.7B (Prev. 35.1B). Italian Construction Output (Jul YY) -1.2% (Prev. 2.9%). Italian Current Account (Jul) 7384M (Prev. 5821M). German PPI (Aug YY) 4.6% vs. Exp. 4.1% (Prev. 3.0%). German PPI (Aug MM) 1.1% vs. Exp. 0.4% (Prev. 1.1%). UK Retail Sales (Aug YY) 2.4% vs. Exp. 1.9% (Prev. 1.2%). UK Retail Sales (Aug MM) 0.5% vs. Exp. -0.2% (Prev. -0.5%). UK Retail Sales ex Fuel (Aug MM) 0.6% vs. Exp. -0.2% (Prev. -0.9%). UK Retail Sales ex Fuel (Aug YY) 2.7% vs. Exp. 1.9% (Prev. 1.8%). NOTABLE HEADLINES Italian Finance Minister said the ECB’s rate hikes cannot solve inflation. French finance minister said the country should not 'abandon' the 3% deficit target. said the ECB is fulfilling its responsibilities. Eurogroup Chief said euro-area growth momentum should persist through the end of 2026, rising bond yields will increase budgetary pressure. Credibility is an asset so we need to stay on the agreed fiscal path. Concerned but not anxious about the development of bond yields. EU Economy Commissioner Dombrovskis said the economy is proving resilient and that windfall tax will be addressed. TRADE/TARIFFS India and the UAE reportedly had discussions to deepen partnerships; potentially to build oil facilities. CENTRAL BANKS Citi expects the BoJ to deliver 25bps rate hikes in Dec'26, Mar'27, Jul'27 (prev. forecast of Jan'27, Jun'27, Dec'27). ECB President Lagarde said rates do not move in lockstep with energy prices, and that other factors play a role. ECB President Lagarde, speaking on RTE Radio, said growth is a bit more promising than we thought, not seeing second round effects yet. Reiterates a meeting-by-meeting approach. ECB's Kazaks said September hike unlike to be the last, "unless we find ourselves in a very difference scenario than the baseline", Econostream reported. October hike “would still be consistent with the September projections”. Every meeting is live ... I would not segregate projection and non-projection meetings. If the move in inflation is very strong or we see core inflation moving up, we can take bigger steps. Second-round effects are not necessary” to justify another rate hike. ECB Consumer Expectations Survey (Aug): 1-year 3.0% (prev. 2.9%), 3-year 2.9% (prev. 2.7%), 5-year 2.5% (prev. 2.4%). ECB's Kaasik said more tightening needed if inflation risks materialise; exact level of neutral rate is not a big concern now. European ECB Consumer Inflation Expectations (Aug) 3% (Prev. 2.9%). ECB's Kazaks, speaking to Bloomberg, said the ECB must do everything to avoid second round effects, all meetings are live meetings. All decisions so far have been relatively straightforward. Near the upper end of neutral. Quite likely restrictive policy will be needed. Uncertainty remains very high. Slowing AI demand has the potential to slow economic growth. ECB's Vujcic said market bets on further ECB rate hikes are being largely driven by higher energy prices, will look at a wider set of economic indicators when deciding the next policy move. Higher inflation through Autumn will dampen GDP. ECB should not focus on labels such as 'Neutral' and 'Restrictive'. Rate hike pace worth keeping for the time being. NBP's Janczyk warns that energy-related risks could prompt rate hikes. GEOPOLITICS RUSSIA-UKRAINE French President Macron said France has been targeted by Russian hybrid attacks in recent weeks. Russia's ESPO blend crude has climbed above USD 120/bbl, driven by strong demand and rising Brent prices, data suggest. Russia's Agriculture Ministry said supplies of fuel and lubricants to agricultural producers have not been interrupted and the situation is being continuously monitored. Russian Foreign Ministry spokesperson said Russia has asked Japan to remove the US Typhon missile system from Japanese territory. Russia Defence Ministry said Russian forces hit cargo vessel in Odesa, IFX reported. Turkish President Erdogan and US President Trump may discuss initiatives for negotiations on Ukraine in New York, RIA reported citing sources. MIDDLE EAST UKMTO has received a report of an incident in the Strait of Hormuz; The CSO of a vessel has reported a tanker being hit by an unknown projectile causing a fire, which was extinguished. Yemeni Houthi commander and his companions killed in an airstrike on the Kahbub front, according to Asil Al-Saqladi. French President Macron said reaching an agreement between the United States and Iran is unlikely in the short term. Houthis are reportedly expanding its minefield in Bab al-Mandab and Dhubab., Al Araby reported. Source close to the Iranian negotiating team said Tehran has informed Washington, via intermediaries, of its conditions for reopening the Strait of Hormuz, with the minimum conditions based on the “Islamabad understanding”, according to Al-Akhbar. Source close to the Iranian negotiating team said Trump’s claims that Iran directly requested a return to negotiations are unfounded and are a tactical attempt to manipulate global energy prices. Pakistan Army spokesperson said Pakistan will go to any extent to defend Saudi Arabia against any attack. NATO Secretary General to visit the US between 22-24 September; to speak on the 24th. US is reportedly expected to send MQ-9 Reaper drones to South America, CNN reported citing sources; plan is part of counternarcotics and counterterror operations; there are still discussions on whether to send some drones to the Middle East. Iranian IRGC Navy commander said the Togo-flagged Trend tanker was stopped after attempting an unauthorised passage through the Strait of Hormuz, with IRGC naval units targeting the vessel and causing a fire that forced it to halt, IRNA reported. NORTH AMERICAN DATA US Manufacturing Production (Aug YY) 0.9% (Prev. 1.2%). US Capacity Utilization (Aug) 76.3% vs. Exp. 76.4% (Prev. 76.3%). US Manufacturing Production (Aug MM) -0.3% vs. Exp. 0.3% (Prev. 0.2%). Industrial Production (Aug YY) 1.4% (Prev. 1.1%). Industrial Production (Aug MM) 0.0% vs. Exp. 0.3% (Prev. 0.2%).