Global equity markets have been volatile but broadly resilient since late August. Investors have had to absorb two major developments: a synchronised tightening cycle by leading central banks and renewed energy-driven inflation risks arising from the war with Iran.
As world leaders gather in New York for the United Nations General Assembly, concerns about a wider regional escalation are growing. Fighting has resumed between Saudi Arabia and the Iran-backed Houthi rebels in Yemen, while Washington and Tehran have renewed their hostile rhetoric.
The dominant theme in September, however, has been policy credibility. In the US, the Federal Reserve raised its target rate by 25 basis points to 4.0% – its first increase since 2023. Commentators now expect at least one further 25-basis-point rise by December 2026, with more possible in early 2027. This is a sharp reversal from the market’s view earlier this year, when investors expected a series of rate cuts.
The European Central Bank had already increased its three key rates by 25 basis points. Its deposit rate rose to 2.50%, the main refinancing rate to 2.65% and the marginal lending rate to 2.90%. ECB staff now expect euro-area headline inflation to reach 3.0% in 2026, up from 2.1% in 2025, largely because of higher energy prices. They expect inflation to ease gradually to 2.1% by 2028 as the energy shock fades.
The Bank of Japan also raised interest rates in September, signalling that it is prepared to curb inflation even at the cost of weaker near-term growth. By contrast, the Bank of England held its policy rate at 3.75%, while warning that persistent inflation might require further action. Futures markets are pricing in increases from November that could take the rate to about 4.50% by March 2027. The Bank therefore faces a difficult balance between controlling inflation and supporting growth.
Global bond markets sold off broadly over the past few weeks. Long-term government bond yields rose as investors reacted to fiscal concerns, inflation risks and expectations that interest rates will remain higher for longer. These factors increased the term premium – the extra return investors demand for holding a long-term bond rather than a series of short-term bonds. The 10-year US Treasury yield climbed from about 4.73% to an intraday high of 5.04% on 15 September. German Bund and UK gilt yields also reached multi-year highs. Bond markets have since stabilised, but the outlook remains uncertain.
Markets have repriced for higher global interest rates and a modest slowdown in growth. Even so, equities have been supported by resilient corporate earnings and optimistic forecasts. Technology shares have been volatile but have ultimately held up. Global AI spending is forecast to reach about US$2.7 trillion in 2026, nearly 50% more than a year earlier, while hyperscalers are expected to invest US$700 billion–US$1 trillion a year through 2028. Capital expenditure now absorbs almost all operating cash flow, pointing to an unprecedented, debt-funded expansion. Goldman Sachs expects supply and demand to balance only in 2028, suggesting continued infrastructure scarcity and rapid deployment until then. The sector is, however, increasingly sensitive to inflation and interest-rate expectations.
Commodities have rotated clearly in recent weeks. Precious metals surrendered much of their August surge, while energy, selected base metals and some agricultural products held steady or advanced. As a result, industrial demand and geopolitical risk – not safe-haven buying – provided more of the market’s support. Gold peaked at about US$4,650–US$4,680 an ounce on 24 August, its highest level since mid-May, helped by a weaker US dollar, technical buying and demand for safer assets ahead of US inflation data and the Jackson Hole symposium.
By 21 September, spot gold had fallen to about US$4,369 an ounce – roughly 6%–7% below its 24 August high. Silver followed a similar pattern, surging in late August before retreating sharply in September. This was a classic “risk-on, then profit-taking” move: gold’s August rise gave way to selling as expectations of rate increases and a firmer US dollar weighed on assets that do not pay income.
Base metals were mixed but generally positive. Copper rose by about 5.5% in August and remained roughly 19% higher for the year by early September. It slipped slightly in the first few days of September after stronger US jobs data increased the likelihood of rate rises. Chinese monitoring data also pointed to continued industrial demand: compared with late August, early-September prices were up 1.5% for electrolytic copper, 2.2% for aluminium and 3.5% for zinc. Iron ore and coking coal were exceptions, falling 2.0% and 3.3% respectively in August as steelmaking margins remained under pressure.
Energy prices strengthened over the period. Brent crude gained about 5% in August amid renewed tensions in the Middle East. Weekly data published around 24 August showed West Texas Intermediate rising nearly 7% to about US$87 a barrel. Liquefied natural gas led the August gains, increasing almost 16% month on month, while diesel and LPG also rose significantly in early September. At the time of writing, however, crude oil had fallen below US$100 a barrel, providing some relief to equity markets.
We continue to believe that staying invested is justified, provided your risk appetite allows it and your time horizon is at least five years. Markets have historically tended to recover from sharp corrections and reach new highs. For most investors, discipline, diversification and continuous market exposure are more effective than reacting to policy or geopolitical headlines. Nevertheless, geopolitics and monetary-policy uncertainty can still cause short-term volatility.
From a diversification perspective, we continue to favour global equities over fixed-income markets. Economic resilience, strong corporate profits and steady consumer spending support the outlook for shares, even if interest rates rise further, as we expect.
Bonds can still play an important role in some risk-adjusted portfolios. Within global equities, we see further opportunities in US large- and small-cap companies, Asia – where we have been increasing allocations – and emerging markets. These regions may benefit from stronger long-term growth, faster profit expansion and substantial valuation discounts to developed markets.
Beyond equities and bonds, we favour infrastructure-related investments. They offer resilient cash flows, links to inflation and strong long-term demand from AI, electrification and defence. We also see selective opportunities in the UK and Europe because their valuations and dividend yields remain attractive relative to the US.
