Fed, BOJ, AI Boom and Elections: What markets are watching next

Global financial markets are set for a potentially volatile period as traders return from their August holidays to a series of economic, geopolitical and political risks, with concerns over elevated government debt and persistent inflation remaining firmly in focus, Reuters reported.

According to Reuters, investors are watching developments across energy markets, central-bank policy, artificial intelligence valuations, European fiscal risks and the U.S. election cycle as key potential sources of market volatility.

Iran War Keeps Energy Markets on Edge

The war involving Iran remains one of the biggest drivers for financial markets, particularly through its impact on oil and gas prices.


Energy prices have swung sharply as investors assess whether and when critical shipping routes, particularly the Strait of Hormuz, will fully reopen. The uncertainty has benefited energy companies while increasing costs for industries and economies that depend heavily on fuel, Reuters reported.

Reuters reported that higher energy prices have also added to inflation pressures, weighing on government bonds as investors reassess the outlook for interest rates.

Although the global economy has so far absorbed the impact of higher energy costs, the buffers that initially helped cushion the shock are beginning to diminish. In the near term, discussions involving Iran and Oman over the management of the Strait of Hormuz will remain closely watched.

Longer-term investors are also considering whether the crisis could accelerate changes in regional energy infrastructure, including pipelines designed to reduce dependence on the strategic waterway and new geopolitical partnerships in the region.

Fed and BOJ Set for a Volatile Week

The U.S. Federal Reserve and the Bank of Japan are scheduled to meet in the same week in September, potentially creating a major source of volatility across global bond and currency markets.

Markets will be watching not only the Fed's policy decision on September 16 but also Chair Kevin Warsh's communication and guidance on the future path of interest rates. Reuters noted that markets are currently pricing roughly a 40% probability of a rate hike.

Warsh's appearance at the Jackson Hole economic symposium on Friday is therefore particularly important for investors seeking clues about the Fed's thinking.

Uncertainty over the central bank's communication strategy has added to market confusion, while recent U.S. Treasury intervention in bond markets could further complicate the signals investors derive from Treasury yields.

In Japan, markets are also increasingly focused on the Bank of Japan's policy outlook. Investors expect the BOJ to raise rates on September 18 following recent moves to support the yen.

Reuters reported that the central bank's communication will be crucial for Japanese bond markets, with the 10-year government bond yield approaching 3%, a level not seen since the mid-1990s.

AI Trade Faces Anthropic Test

The artificial intelligence investment boom could face another major test if Anthropic proceeds with a blockbuster initial public offering.

Reuters reported that Anthropic could become the next major technology company to enter public markets following the huge SpaceX IPO in June. Reports suggest Anthropic could seek to raise as much as $100 billion.

The potential listing comes as investors are already absorbing a surge in technology-company bond issuance to finance massive AI-related capital expenditure.

Anthropic was valued at about $965 billion in May, according to Reuters. A valuation around $1 trillion in an IPO would put the company among the world's largest publicly traded businesses.

A weak investor response to the AI theme could have implications well beyond new listings. Companies such as Nvidia and Microsoft, as well as other stocks whose valuations depend heavily on expectations for AI infrastructure spending, could also face pressure.

France Heads Toward a Fiscal Showdown

France is another market risk as the government prepares to present a draft budget to the National Assembly in the coming weeks.

The government is expected to face a difficult balancing act as it attempts to bring the fiscal deficit under control ahead of the 2027 presidential election. Reuters reported that political developments could add pressure to French government bonds, particularly if investors become concerned about the government's ability to implement credible fiscal consolidation.

Any significant increase in French borrowing costs could become an additional challenge for the euro area's debt markets.

Germany's bond market could also face political pressure as Chancellor Friedrich Merz confronts upcoming state elections. His political standing has weakened following a series of setbacks, while the far-right Alternative for Germany could make gains in some regional contests.

Britain's Fiscal Position Under Scrutiny

The United Kingdom is also entering a potentially important period for markets under new Prime Minister Andy Burnham.

Reuters reported that markets have so far shown limited concern over Burnham's economic policies, but attempts to boost growth could face questions if they involve significant fiscal spending at a time when government finances remain constrained.

The September Labour Party conference and October budget will provide important tests for Burnham and Finance Minister John Healey.

Britain's 10-year borrowing costs remain elevated, although they have eased from the 18-year highs reached in May. The market turmoil caused by the 2022 mini-budget remains a significant reminder of the risks associated with aggressive fiscal policy.

The government's commitment to existing fiscal rules will therefore be closely monitored by investors.

U.S. Midterms Add a Political Risk

The U.S. midterm election campaign is expected to intensify in September, potentially influencing economic and fiscal policy.

One major concern for the administration is gasoline prices. Reuters reported that average U.S. gasoline prices have risen above $4 a gallon following the Iran war, compared with less than $3 in January.

Higher fuel costs could put additional pressure on consumers and become an increasingly important political issue as the elections approach.

Investors are also watching the Treasury market closely. Elevated long-term borrowing costs could increase pressure on the administration because mortgage rates are closely linked to longer-dated Treasury yields.

Markets Enter a More Challenging Phase

Taken together, the risks suggest that investors could face a more complicated market environment as the summer break ends.

Geopolitical uncertainty, energy-driven inflation, central-bank decisions, stretched AI valuations and growing fiscal concerns are all converging at a time when government debt levels remain elevated.

Reuters' assessment highlights that markets may have less room to absorb additional shocks than they did earlier in the year, making central-bank communication, fiscal policy and developments around the Iran conflict particularly important for investors in the weeks ahead.