Author: Fiona Craig

Interest rates and energy prices are again playing a larger role in equity-market performance as investors assess monetary policy, inflation data and geopolitical developments, according to Barclays strategists.

Oil prices have risen amid the continuing U.S.-Iran standoff, while European gas prices have climbed to their highest levels since early 2023. They remain below the peaks reached during the 2022 Russia-Ukraine energy shock.

A Barclays team led by Emmanuel Cau said prolonged higher energy prices are adding to inflationary and interest-rate pressures. Markets are currently assigning roughly a two-thirds probability to a Federal Reserve rate increase in September following persistent inflation and hawkish remarks from Kevin Warsh at Jackson Hole.

Barclays economists have also changed their forecast, projecting two additional Fed rate increases during 2026, with moves expected in September and December.

The European Central Bank is expected to increase rates once more during September. However, the strategists said “upside risks increase if energy prices stay higher and stagflation concerns rise.”

At the same time, Barclays said a substantial amount of hawkish monetary policy expectations already appears to be reflected in markets. Signs of moderation in U.S. economic activity mean the payrolls report and the following week’s CPI data will provide additional information on the economic and policy outlook.

The strategists said earnings have helped equities absorb tighter financial conditions, but the effect of the second-quarter reporting season is diminishing.

“Equities have become more sensitive to rates and oil volatility recently, as the Q2 earnings tailwind is behind us and macro is back in the driver’s seat,” they wrote.

Barclays pointed to several potential market catalysts during the autumn, including central bank decisions, the U.S. midterm elections, Xi-Trump talks and geopolitical developments. Against that backdrop, the strategists said hedging and some tactical reduction in beta exposure “appears prudent.”

The team nevertheless maintained a supportive broader outlook through the end of the year, subject to interest rates and oil prices stabilising.

Barclays also assessed the potential market implications of progress towards a Russia-Ukraine truce. The strategists said the recent rise in European gas prices has paused the broadening of the region’s equity market performance and that credible movement towards an agreement could be welcomed by European markets, even without a final settlement.

“Cyclicals would likely be the main beneficiaries, at least tactically, with Autos, Materials and other energy-intensive sectors gaining from improving energy cost dynamics, while Infrastructure and Industrial names may benefit from growing expectations around Ukraine’s eventual reconstruction,” they noted.

Under that scenario, Barclays said energy, utilities and other defensive sectors could underperform.

European natural gas futures edged higher on Friday, stabilising after several volatile sessions as benchmark contracts headed towards a fourth consecutive weekly increase after reaching their highest levels since 2023.

The front-month Dutch TTF contract rose modestly, trading near €72.50 per megawatt-hour (MWh) and putting the European benchmark on course for a weekly gain of more than 8%.

In Great Britain, the equivalent NBP wholesale gas contract held near 179 pence per therm and was heading for a weekly increase of more than 9%, following Monday’s UK bank holiday.

Strait of Hormuz Disruption Remains in Focus

Gas markets continued to assess supply risks following military strikes involving U.S. forces and Iran and the resulting disruption to commercial tanker traffic through the Strait of Hormuz.

While Washington has maintained that international shipping lanes remain open, satellite tracking data cited in the report indicated that commercial vessel traffic through the waterway was running at a fraction of normal pre-war levels.

The Strait is an important route for global liquefied natural gas supplies, including exports from Qatar, with approximately 20% of worldwide LNG supply potentially exposed to disruption through the waterway.

U.S. President Donald Trump has warned of further strikes against Iranian infrastructure and raised the possibility of targeted action against Kharg Island.

European utilities are consequently competing with Asian buyers for alternative LNG cargoes from the Atlantic basin as markets assess the availability and cost of replacement supplies.

European Gas Storage Levels Stand at Around 62%

The supply uncertainty comes as Europe approaches the later stages of its summer storage injection season ahead of winter demand.

Data from Gas Infrastructure Europe showed European underground gas storage facilities at approximately 62% of capacity, below the five-year seasonal benchmark.

Storage replenishment during August was affected by higher gas-fired power generation during summer heatwaves in Southern Europe, scheduled maintenance on Norwegian offshore pipelines and delays to Qatari LNG shipments.

These factors have increased attention on the pace of storage injections during the remaining period before winter heating demand rises.

Higher Energy Prices Add to ECB Policy Considerations

The increase in European natural gas prices has coincided with Brent crude trading above $90 a barrel, adding to attention on the potential effect of energy costs on inflation.

The European Central Bank is due to hold its next Governing Council meeting on September 10.

Preliminary August data showed eurozone core inflation easing to 2.4%, while headline consumer price inflation accelerated to 3.3% year on year. Energy components increased 14.3%.

The combination of higher energy prices, inflation developments and signs of slower regional economic growth will form part of the economic backdrop assessed by policymakers as they consider the outlook for monetary policy.

Bitcoin (COIN:BTCUSD) extended its rebound on Friday, rising above $81,000 as lower U.S. Treasury yields reduced expectations for an imminent interest rate increase and cryptocurrency markets assessed potential regulatory developments in Washington.

Bitcoin was up 4.3% at $81,069.6 by 05:28 ET (09:28 GMT). The cryptocurrency had briefly moved above $82,000 on Thursday, reaching its highest level in almost four months.

The absence of further military action between the U.S. and Iran also coincided with the improvement in market sentiment.

Cryptocurrency-related equities participated in the advance, with Strategy, the largest corporate Bitcoin holder, rising nearly 18% during Thursday’s trading session.

Lower Rate Expectations Support Bitcoin Rebound

Bitcoin was on course to gain 4.3% for the week, putting the cryptocurrency on track for a third consecutive weekly advance.

The latest gains followed a decline in U.S. Treasury yields after Federal Reserve Governor Christopher Waller discussed the outlook for monetary policy.

Waller told Reuters that he was leaning towards leaving interest rates unchanged at the Federal Reserve’s September meeting, particularly if forthcoming inflation figures show that price pressures are moderating.

Expectations for a September rate increase subsequently declined. CME FedWatch showed a 50.4% probability of a hike, down from more than 60% earlier in the week.

The latest move follows a period of sensitivity to bond-market developments for Bitcoin, whose late-August advance was interrupted as Treasury yields increased.

Clarity Act Vote Expected on September 15

Regulatory developments were another focus for cryptocurrency markets after Securities and Exchange Commission Chair Paul Atkins commented on the Clarity Act.

Atkins said he expects the Senate to vote on the legislation on September 15. He also called for policymakers to approve the measure and send it to President Donald Trump by the end of the month.

The SEC is also preparing cryptocurrency legislation that could operate alongside the Clarity Act, according to Atkins.

Progress on the Clarity Act has previously been delayed by disagreements in Congress concerning stablecoin yield payments and proposed restrictions on cryptocurrency trading by policymakers.

Altcoins Join Broader Crypto Advance

Other major cryptocurrencies also recorded gains on Friday, with the broader market heading towards a third consecutive positive week.

Ethereum rose more than 5% to $2,522.53 and was up 4.3% for the week.

XRP advanced 6.6%, taking its weekly gain to 7%, while BNB increased 2.5% on Friday and 5% for the week.

Solana gained 3.9% and Cardano rose 8%. Dogecoin and $TRUMP also advanced, rising 5.8% and 8.1%, respectively.

Eurozone retail sales fell 0.6% in July compared with June, missing expectations for a 0.3% increase, as lower demand for non-food products outweighed an increase in purchases of food, drinks and tobacco, according to data released by Eurostat.

Sales of non-food products declined 1.4% month on month, while food, drinks and tobacco sales increased 0.4%. Sales of automotive fuel through specialised stores decreased 0.8%.

Across the wider European Union, retail trade volumes fell 0.4% in July. Non-food sales declined 1.1% and automotive fuel sales also dropped 1.1%, while purchases of food, drinks and tobacco increased 0.3%.

Germany Records Largest Monthly Decline

Among the reported member states, Germany registered the largest monthly decline in eurozone retail sales, with volumes falling 3.4%.

Spain recorded a 0.9% decrease, while retail sales in Italy and Poland both fell 0.3%.

At the other end of the rankings, Latvia posted the largest monthly increase at 2.5%, followed by Cyprus at 2% and Luxembourg at 1.8%.

Eurozone Retail Sales Rise 0.6% Year on Year

Compared with July 2025, the calendar-adjusted retail sales index increased 0.6% in the eurozone and 1% across the EU.

Eurozone sales of food, drinks and tobacco increased 1.6% year on year, while non-food product sales edged 0.2% higher. Automotive fuel sales declined 3.1%.

Cyprus recorded the largest annual increase among member states at 8.6%, followed by Latvia at 7.1% and Sweden at 6.4%.

Romania registered the largest year-on-year decline, with sales falling 5.7%. Germany recorded a 2.5% decrease and Italy posted a 1% decline.

Eurostat Revises June Retail Sales Data

Eurostat also revised its retail sales figures for June.

The monthly change was revised to an increase of 0.2% in both the eurozone and the EU. The previous estimates had indicated a 0.3% decline in the eurozone and a 0.1% decrease across the EU.

June’s annual growth rate was revised to 1.4% for the eurozone and 1.7% for the EU, compared with the previously reported rates of 0.7% and 1.2%, respectively.

Morgan Stanley identified Eni (BIT:ENI) as having the highest projected production growth among the European oil majors covered in its latest analysis of approximately 4,000 oil and gas fields.

The bank’s research estimated aggregate production growth for the sector at an annual rate of 2.9% between 2025 and 2030, up from 1.2% in its previous year’s forecast. Rolling four-year forward production increased by 8.3%.

The analysis used bottom-up information from multiple data consultants to assess production trends across major European energy companies.

Eni Production Growth Forecast at 4.5%

Eni recorded the highest projected production growth among the companies included in the study, with Morgan Stanley forecasting growth of 4.5% through 2030.

The bank’s analysis indicated that Eni’s production could continue increasing through 2034.

By comparison, Equinor (TG:DNQ) was identified as facing the largest production growth challenges among the European majors covered by the research.

Morgan Stanley Upgrades Shell to Overweight

Morgan Stanley also upgraded Shell (LSE:SHEL) to Overweight and designated the company as a Top Pick.

The bank expects a total shareholder return of 15% and anticipates an acceleration in dividend per share following recent changes in the business.

The rating and shareholder return expectations represent Morgan Stanley’s assessment rather than a guarantee of future performance.

BP Retains Overweight Rating

Morgan Stanley maintained its Overweight rating on BP (LSE:BP.).

The firm cited its expectations that BP could reduce net debt faster than the company’s stated targets, alongside its assessment of the company’s valuation and potential catalysts.

The research forms part of Morgan Stanley’s broader assessment of production growth and shareholder returns among Europe’s major oil and gas companies.

UK construction activity declined for a 20th consecutive month in August, with house building recording the fastest contraction among the three main sectors, according to data from S&P Global.

The S&P Global UK Construction PMI fell to 44.3 in August from 44.7 in July, remaining below the 50.0 level that separates expansion from contraction. Survey respondents reported subdued demand and a shortage of new projects, particularly in residential construction.

House Building Records Steepest Decline

Activity decreased across all three construction categories during August.

The housing activity index fell to 37.6, representing the sharpest decline among the subsectors and the only category where the pace of contraction accelerated compared with July.

Commercial construction registered an index reading of 47.8, with activity falling at the slowest rate since January. Civil engineering stood at 40.5 and recorded its weakest decline since March.

New Orders Continue to Fall

New business volumes decreased again during August, although the rate of contraction was modest and the slowest since September 2025.

Construction companies cited increased risk aversion following the Middle East conflict and delays in client decision-making as factors affecting new orders. Some survey respondents reported an improvement in infrastructure-related work.

Employment across the sector also declined as companies reported insufficient new business to replace completed projects and continued cost pressures. However, the pace of job losses was modest and the slowest since February.

Subcontractor usage increased for the first time in almost two years.

Purchasing Costs Continue to Rise

Purchasing activity declined sharply during August, with the pace of reduction accelerating from July.

Higher fuel costs, transportation expenses and raw material prices contributed to another increase in purchasing costs. However, overall input cost inflation eased to its lowest level in six months, with some companies reporting more competitive supplier pricing.

Tim Moore, Economics Director at S&P Global Market Intelligence, said: “UK construction companies experienced another solid reduction in output volumes, with a faster downturn in house building the main reason for a weaker overall performance during August.”

Construction Firms Remain Cautious on Outlook

Business expectations for the coming 12 months remained subdued and eased from July.

Approximately 38% of survey respondents expect construction output to increase over the next year, while 20% anticipate a decline.

Companies cited subdued client confidence, uncertainty surrounding the domestic economic outlook and concerns related to the Middle East conflict among the factors affecting expectations.

Gold prices traded close to $4,500 an ounce on Friday, extending their recovery after gaining almost 2% in the previous session as investors awaited U.S. employment figures for further guidance on the Federal Reserve’s September policy decision.

The metal was supported by a weaker U.S. dollar and comments from Federal Reserve Governor Christopher Waller indicating that he could favour leaving interest rates unchanged if incoming data continue to show easing inflation. U.S. inflation figures due next week are also being monitored.

At 21:18 ET (01:18 GMT), XAU/USD gained 0.3% to $4,484.27 an ounce, while gold futures were trading at approximately $4,530. XAG/USD stood around $65.8 an ounce, with XPT/USD near $1,775. The U.S. Dollar Index was lower at approximately 99.4.

Fed Rate Expectations Shift Following Waller Remarks

Gold’s advance followed three consecutive sessions of declines before the metal rebounded by almost 2% on Thursday.

Waller indicated that he could favour keeping interest rates unchanged at the Federal Reserve’s September 15-16 meeting if forthcoming economic releases confirm that inflationary pressures are continuing to ease.

He said August inflation figures would play an important role in his decision, while retaining the possibility of supporting a rate increase if price pressures strengthen.

The implied probability of a September rate increase subsequently declined to approximately 50%, compared with around 70% earlier in the week.

Lower interest rates can affect demand for gold by reducing the relative yield advantage available from interest-bearing assets.

Currency movements were also in focus after the Japanese yen strengthened by nearly 2% against the dollar on Thursday. The move was the yen’s largest daily gain since Japanese and U.S. authorities intervened in foreign-exchange markets just over a month earlier.

U.S. Jobs Report Becomes Next Market Focus

Investors are now awaiting the U.S. nonfarm payrolls report for additional evidence on labour-market conditions and their potential implications for Federal Reserve policy.

Gold had fallen to approximately $4,282 an ounce earlier in the week, its lowest level in almost four weeks, before recovering.

Tony Sycamore, senior market analyst at IG, linked part of the subsequent recovery to easing pressure from energy prices, U.S. Treasury yields and the dollar, as well as indications that the latest escalation in the Middle East may have moderated. He also pointed to an improvement in risk sentiment.

Sycamore said the metal remained above its late-June low of $3,942, maintaining his medium-term assessment that gold had established a base around that level.

He added that the move below the 200-day moving average of approximately $4,526 during the previous week had affected the short-term technical outlook but had not altered his broader assessment.

Developments in the Middle East remain another factor for gold markets. Earlier fighting contributed to higher oil prices and inflation concerns, while a subsequent moderation in energy-price pressures has reduced some of that impact.

Oil prices declined modestly on Friday but remained close to six-week highs, with renewed hostilities between the United States and Iran keeping potential disruption to shipments through the Strait of Hormuz in focus.

At 03:47 ET (07:47 GMT), November Brent crude futures were down 0.5% at $95.09 a barrel, while WTI crude futures also fell 0.5% to $90.81 a barrel.

Despite Friday’s decline, Brent was on course to rise approximately 7% for the week, while WTI was heading for a gain of around 10%. Both contracts had reached six-week highs in the previous session.

U.S.-Iran Hostilities Keep Attention on Hormuz

The latest developments followed U.S. strikes against Iranian targets earlier in the week, including military assets located near the Strait of Hormuz.

Iran subsequently launched missile and drone strikes against U.S. and allied positions across the Gulf region, including Kuwait, Bahrain and Jordan.

Restrictions imposed by Iran on international shipping through the Strait of Hormuz have also expanded, raising concerns about the potential for continued disruption to oil flows through the waterway.

Civilian casualties have also been reported during the conflict. According to the supplied report, a U.S. strike reportedly hit an area where a wedding was taking place in southern Iran, killing civilians. Tehran condemned the attack.

U.S. Vice President JD Vance said on Thursday that Washington did not intend to hold talks with Iran unless Tehran stopped attacks on commercial shipping in the Strait of Hormuz.

“Escalation is propping up crude, but the rally may lose traction if Hormuz shipments keep moving smoothly,” ING analysts said in a note.

Lower U.S. Inventories Provide Additional Support

U.S. commercial crude inventories declined during the latest reporting week, providing another factor for oil markets.

Commercial crude stocks stood at approximately 424.5 million barrels in the week ended August 28, compared with 428.9 million barrels in the previous week, according to the Energy Information Administration.

The U.S. Strategic Petroleum Reserve was approximately 286.6 million barrels.

OPEC+ Meeting Approaches

OPEC+ is expected to maintain its existing oil production policy for October when members meet on Sunday, Reuters reported, citing sources.

The meeting takes place as the producer group completes the unwinding of one layer of its production cuts. Shipping disruptions through the Strait of Hormuz remain an additional consideration for global oil supply.