By Kārlis Mārtiņš Gulbis, Investment Analyst, Signet Bank.
In September the war found its second chokepoint, and markets followed. After Hormuz came the Bab el-Mandeb: the Houthis seized the Yemeni port of Mokha and then Perim Island, which sits in the strait itself. At the same time, drones launched from Iraq forced Saudi Arabia to shut its East-West pipeline, the kingdom’s main route around Hormuz. Brent jumped to around USD 110/bbl, its highest since May. Refined products felt the squeeze most as US diesel hit a record USD 6.53/gal on 22 September, and with midterms on 3 November Trump backed a ban on diesel exports, which had reached a record 1.6m bbl/d in August.
As expected, central banks stopped looking through the energy shock, and three of the majors raised rates within eight days. Then came the flash PMI – US business activity grew at its fastest pace since July 2021, and the selloff that followed carried the 30-year Treasury yield above 5.61% on 29 September, a level last seen in 2002.
The S&P 500 slipped 0.5% and the Dow fell 4.3%, ending a five-month winning streak, while the Nasdaq Composite gained 1.9% as technology was the only S&P 500 sector to finish higher. The S&P 500 and the Nasdaq still closed a second straight quarterly gain. Financials, down around 7%, had their worst month since March 2023, while the STOXX 600 lost 2.5%, ending its own five month run. Gold fell about 6.5%, and Brent eased back to around USD 100/bbl at the end of the month
Back in the hiking business
Strong data left the Fed little choice. August payrolls rose 162k, about three times expectations, and CPI held at 3.4% YoY with energy up 16.3%. On 16 September the FOMC voted 12-0 to raise its target range by 25bp to 3.75%-4.00%, its first hike since July 2023, and 16 of 18 officials projected another hike before year end. Trump replied within hours that US rates “should be 1%, or less”.
The ECB had lifted its deposit rate to 2.50% on 10 September, and the Bank of Japan raised its policy rate to 1.25%, the highest since 1995, on 18 September.
Five percent and counting
In August the pressure on long-dated debt came from supply worries; in September it came from central banks. Almost all of the 49bp rise in the 10-year Treasury yield, to 5.29%, ran through real yields, with the 10-year TIPS yield up about 44bp, its fastest climb in four years. However, this time a central bank blinked: the Bank of England slowed QT, will no longer sell its longest-dated gilts and paused active sales pending a review before April 2027.
France moved from strained to stressed, as the OAT-Bund spread broke 100bp for the first time since the euro area debt crisis and reached 140bp in early October, when the government presented a 2027 budget built on EUR 54b of savings.
A red carpet and a short extension
Xi Jinping’s 23-25 September state visit, his first to Washington since 2015, came with full ceremony but modest results. The trade truce was extended only to 10 January 2027, two months beyond its November expiry. The two sides agreed lower tariffs on USD 30b of non-sensitive goods each way, Chinese purchases of at least 10m tonnes of US coal in both 2027 and 2028 and a new dialogue on advanced AI, but rare earths stayed unresolved after China’s magnet shipments to the US fell 21%.
Pacing the frontier
On 12 September Anthropic CEO Dario Amodei urged AI labs to slow frontier development so safety work can keep up, Sam Altman and Elon Musk agreed. Two days later the Philadelphia
Semiconductor Index fell 5.9% and the KOSPI 3.3%. On 25 September OpenAI paused training of its most capable models after an agent slipped past internet restrictions in testing.
Meanwhile, local opposition blocked or delayed 45 US data centers worth USD 68b in Q2. Spending did not slow however as Nvidia rose almost 3% after a record USD 150b buyback increase.
Micron’s fiscal Q4 revenue reached USD 54.2b, nearly five times a year earlier, and it guided USD 61.5b for this quarter
Firmer dollar and tarnished metals
Currencies remain confined to their familiar range, though shifts in market behavior hint at rising volatility. The dollar has edged toward the stronger side of its neutral zone, and although its next move remains unsettled, we still favor buying it on dips. A EUR/USD climb to 1.1600 would signal renewed dollar weakness, while support at 1.1150-1.1200 should ideally hold, allowing a rebound toward 1.1400-1.1500; failing that, a far steeper decline could follow. Precious metals remain unattractive, with gold especially vulnerable to a deeper fall.
