News

Please see this week’s Markets in a Minute update below from Brewin Dolphin, received yesterday afternoon – 06/10/2026

Will the Federal Reserve raise rates?

Softer U.S. economic data may have lowered the probability of a rate hike to 20%, but the inflation debate is far from over.

Key highlights

• The shadow of the Iran war: Energy prices and bond markets moved on signs Tehran may allow nuclear inspectors back.
• French fiscals: A 2027 budget deficit of 5.4% of GDP tests EU limits amid contentious spending cuts.
• U.S. labour data: The September jobs report came in below expectations, easing interest rate hike fears.

Europe’s bonds buffeted by foreign affairs

The U.S.-Iran war continues to cast a long shadow over European markets, and it’s increasingly dictating economic policy rather than merely disturbing it.

High energy prices have pushed inflation up and growth down across the continent, which makes the arithmetic of already strained public finances considerably harder. Chancellors and finance ministers are drafting budgets around a variable none of them control.

The news continues to ebb and flow as Iran appears to have offered to allow nuclear inspectors back into the country. This is a genuine concession rather than a repackaged proposal, like the one President Donald Trump dismissed at the start of last week – and perhaps the first hint that Tehran’s position is weaker than its rhetoric.

Energy prices fell on the news and bond markets rallied modestly. The U.S. has also deployed another carrier group to the region, though it won’t arrive until after the midterms – so whether it represents a potential military escalation or an idle threat is a matter of pure speculation.

The electoral clock is the live variable. Prediction markets now give the Democrats roughly a 62% chance of taking both chambers – the Senate and the House of Representatives – of the U.S. Congress.

A president who could get petrol flowing again at a sensible price would materially improve the Republicans’ chances, but it would need to happen very soon to reach household budgets in time. That’s precisely why the Iranians may judge their leverage to be at its peak right now.

For portfolios, energy remains the swing factor behind inflation and, therefore, interest rates.

The British Retail Consortium’s shop price index came in below expectations, a tentative sign of easing pressure. But with a backlog of energy increases still to pass through, the likely direction for UK inflation over the coming months is up until second-round effects wash out.

The circle France cannot square

The French government presented its 2027 budget last week, the last under President Emmanuel Macron, with the deficit running at around 5.4% of gross domestic product (GDP) for 2026. That sits above the previous plan’s 5% target, the International Monetary Fund’s 5.2% projection, and the 3% permitted under the European Union (EU)’s excessive deficit procedure.

Brussels is expected to show leniency, largely because it has no credible means of imposing anything on a member state that represents the ‘core’ of the euro area. The cuts being proposed fall on the most contentious ground available: pensions, welfare, public sector wages and state-funded sick leave.

France’s difficulty isn’t simply that cutting is politically hard, though with the highest public spending in the G7, there’s plenty to cut. It’s that cuts large enough to matter risk reducing GDP by as much as they reduce the deficit. When calculating the debt-to-GDP ratio, this is known as a ‘denominator trap’ (where cuts shrink the economy faster than the deficit).

It adds to a vicious cycle: weak growth widens the deficit, the deficit demands cuts, the cuts meet resistance in the Assembly and then on the streets, and investors price the resulting uncertainty into yields that make growth weaker still. The spread of French 10-year yields over German equivalents is out at levels last seen during the euro debt crisis that occurred from 2009 to 2018.

Some countries can let inflation erode their debt quietly instead, running the economy a little hot and keeping real returns on savings slightly negative. The UK and U.S. did this after both world wars and Japan has done so more recently. Inside a currency union, where monetary policy is delegated to the European Central Bank, that door is largely closed.

Westminster plays for time

The above is an option for the UK if the fiscal position continues to deteriorate. For now, spreads against other major markets have narrowed, yet gilt yields are still the highest in the G7, and the external environment has been every bit as unkind here as in Paris.

However, the UK’s fiscal framework means it does start from a better position than France. With four weeks until the Budget, Chancellor John Healey’s leeway against his predecessor’s fiscal rules has been eroded again by expectations of higher interest rates.

The Labour conference responded to the fiscal challenges by deferring the toughest issues. Prime Minister Andy Burnham has signalled openness to tax rises to fund social care but ruled out acting within this Parliament. The genuinely contentious items – electoral reform, a possible path back into the EU and softening the triple lock – are being lined up for the 2029 manifesto. The triple lock change is the substantive one. Each year, the state pension has risen by whichever is the highest of earnings growth, the consumer price index or 2.5% – a ratchet that lifts both cost (to the taxpayer) and benefit (to the recipient) as a share of the economy over time.

From 2030, all three measures will survive, but the earnings leg would restore pensions only to the level earnings growth implies, rather than compounding on top of it. The Institute for Fiscal Studies greeted it as a distinctly less-bad policy than the present one, which is about the warmest reception such reforms receive.

The prime minister appears to have a reformer’s instinct but a saint’s patience. Or he’s road testing these policies before he has to commit to them. If they land well, perhaps he could be tempted into an early election given that Labour is leading in the polls, and has planned an unprecedented fiscal tightening over the remaining years of the parliament.

Source: Office for Budget Responsibility

One policy does arrive immediately. The ‘Your First Home’ scheme was announced at the Labour conference, with details to follow in the Autumn Budget. It’s essentially Help to Buy mark two: a government-backed equity loan of around 20% against a buyer deposit of roughly 2.5%, limited to new builds, with income and price caps still to be set. Housebuilder shares rose 10% to 15% on the news.

Goldilocks returns to the U.S. labour market

In a week full of labour market data, the general tone was one of moderate warmth. Thursday’s Challenger U.S. job cuts report generally indicated labour demand was stronger this year than last (even after stripping out government employment, which was distorted by the Department of Government Efficiency campaign).

The more interesting shift was in why companies say they’re cutting jobs. For the past five months, AI has been the single most commonly cited reason for layoffs, accounting for around a fifth of all announcements. In September, it fell to fifth place, overtaken by “economic and market conditions,” business closings, “downturn” and restructuring – all of which carry a distinctly cyclical rather than technological flavour.

It’s a small reversal, and the data only captures the slice of the jobs market covered by formal hiring and layoff announcements, but it suggests that whatever job losses are occurring right now are more about softening demand than automation.

The rest of last week’s data points were more straightforwardly reassuring. Initial jobless claims fell on Thursday. The ISM (Institute for Supply Management) manufacturing survey showed employment still expanding, albeit less enthusiastically than the PMI (Purchasing Managers’ Index) surveys had suggested. And globally, manufacturing has been expanding at its fastest pace in several years.

The JOLTs (Job Openings and Labor Turnover Survey) report added to the picture of a cooling – rather than cracking – U.S. labour market, with job openings slipping and the ratio of vacancies to unemployed workers easing further. When the September non-farm payroll jobs report itself landed, it came in below expectations, with downward revisions to prior months and softer wage growth than forecast.

For markets, whose principal anxiety has been that the Federal Reserve might hike interest rates more than expected, this was a welcome signal: a labour market losing a little momentum, without falling off a cliff, is close to the Goldilocks outcome (a market that’s not too hot and not too cool) investors want the most.

That dose of reassurance, combined with softer energy prices, took some of the pressure off bond yields and helped spark a rally across global sovereign markets. France, however, was a conspicuous underperformer.

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Charlotte Clarke

07/10/2026

Please see the below article from WH Ireland discussing how Saudi Arabia has emerged as an unexpected financial beneficiary of the conflict with Iran through elevated oil revenues. Received today – 06/10/2026.

While conflict in the Middle East is often framed as supply vulnerability and strategic paralysis, the economic realities tell a rather different story. As the conflict with Iran drags on, Saudi Arabia has emerged as an unexpected financial beneficiary; highlighting the strategic value of the Kingdom’s infrastructure and its position in the global oil market.

According to recent analysis by Brookings Institution economist Robin Brooks, Saudi Arabia’s annualised oil revenues have risen from a pre-war baseline of around $150 billion to approximately $210 billion. The additional $60 billion represents more than 6% of nominal GDP. Even when exports fell below 4 million barrels per day (mbpd) during the height of the conflict, Brent prices around $110pb more than offset the lost volumes. With exports now recovering towards 5.5mbpd and Brent still over $100pb the revenue uplift has become even more pronounced.

 

Infrastructure has been central to this resilience. Saudi Arabia’s East-West pipeline provides an alternative route to the Strait of Hormuz, while substantial storage, refining and Red Sea export capacity provide flexibility. Crucially, the Kingdom also has the financial capacity to mobilise resources and adapt infrastructure at pace; a flexibility that can be harder to replicate across many major economies, where planning, procurement and regulatory processes can extend timelines. The IMF’s latest assessment reinforces this point, describing the Saudi economy as demonstrating “agility and resilience” and highlighting the authorities’ ability to rapidly reroute oil, maximise pipeline capacity and repair damaged facilities. It also points to the Kingdom’s ample fiscal and external buffers, strong banking-sector capital and liquidity and diversified energy and logistics infrastructure.

 

This resilience is reflected more broadly in the sovereign credit assessment. Rated Aa3/A+, the major rating agencies continue to recognise Saudi Arabia’s substantial fiscal and external buffers and its capacity to absorb shocks. Together with the IMF’s assessment, this suggests that the Kingdom’s strength lies not simply in its ability to benefit from higher oil prices, but in its capacity to deploy capital, adapt infrastructure and absorb disruption while continuing to pursue its longer-term economic transformation.

 

This does not make prolonged conflict unambiguously positive for Saudi Arabia: infrastructure attacks, higher freight costs and regional instability carry clear risks. But financially, the equation is unusually favourable. Until crude prices fall significantly or a diplomatic resolution removes the geopolitical risk premium, elevated oil revenues provide Riyadh with a powerful fiscal cushion.

 

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Alexander James Roberts

06/10/2026

Please see the below article from Tatton Investment Management discussing bond pressures, AI-driven markets and the US midterms, received this morning – 05/10/2026.

Bonds cast shadow over equities

Global equities struggled last week. Tech stocks held, but the rest of the market dropped, on fears that AI-fuelled growth is overheating the economy. A softer-than-expected US jobs report on Friday eased those worries, and we think strong earnings growth should keep stock markets supported.

Lower oil prices would also help. Over the weekend, Saudi Arabia cut crude oil contract prices to Asia while US partners in the G7 agreed to release 100 million barrels of crude oil reserves in return for the US not banning diesel exports. Nevertheless, oil and refined product prices are slightly higher this morning after the Saudi-backed Yemeni government intensified attacks on the Houthis.

UK commentators were sceptical about by the Chancellor and Prime Minister’s conference speeches, with little sign of a positive growth agenda but at least markets aren’t worried about short-term fiscal discipline. That was enough to keep sterling firm against the rising dollar.

Financing pressures came back to bite the AI leaders themselves. Oracle’s bonds sold off after its ‘force majeure’ notice on its Project Jupiter lease – raising broader tech credit spreads. This was markets struggling to digest the sheer debt issuance, rather than actual credit stress. But credit spreads are still a problem for equity valuations: given rising real yields and credit spreads, equity valuations should probably be cheaper. That doesn’t mean stocks will sell off, but it puts more pressure on AI firms to deliver strong earnings.

Weaker US core inflation would have been expected to allow real yields to edge lower but they moved higher, continuing the trend begun early in September. Strong US growth (2.4% annualised) raises the odds the Fed has to act, although a soft labour market could dampen consumer demand.

European political unrest is back in the news. Growth is being weighed down by energy prices and, particularly in France, rapidly rising financing costs. PM Lescure budget proposal on Thursday estimated a deficit fall from 5.4% of GDP to 5% but unrest among 6th form students (lycéens) has caused some investors concern that there is no political appetite for fiscal discipline. Meanwhile, the Sanchez minority government in Spain has failed to pass its housing plan after widespread protest and has therefore called an election for Sunday November 29th. The Euro slipped markedly last week and has gone further down in early Monday trading.

Higher input and interest costs appear to be causing global growth to soften, so why are yields still rising? Market strategist Ed Yardeni puts it down to the unwind of the yen carry trade – hedge funds have lost their source of cheap financing. That’s one factor, alongside AI capital demand, fiscal risk and historic bond volatility.

Hopefully, a strong Q3 earnings season will drown out the worries.

September asset returns review

September was mixed for markets. Global equities rose 0.9% in sterling terms, but bonds lost 1.7%. The aggregate equity gain hides disparities too: tech stocks powered the gains while most other indices fell. September is typically a weak month for returns, as investors return from holiday and reposition portfolios, so perhaps the volatility should be little surprise.

Government bond yields climbed to multi-decade highs, led by the US, where the 10-year treasury reached 5.3%. UK gilt yields rose more slowly than US yields for once, though that is a hollow victory as long as gilt yields keep rising in absolute terms.

Investors typically blame bond trouble on oil prices – and Middle East tensions certainly didn’t help. Iran’s ceasefire proposal eased things into the end of the month, but oil still finished 10.6% higher.

More significant than energy, though, was growth. Business surveys were strong almost everywhere, but remarkably so in the US. AI-related investment continues to power the world’s largest economy, seemingly unaffected by interest rates and energy. That mix of strong growth and sticky inflation pushed the Fed, ECB and BoJ to raise rates – and the BoE to signal a hike next month.

AI’s thirst for capital pushed up borrowing costs for everyone else, hurting UK, European and smaller US companies, as well as government bonds themselves – a kind of reverse ‘crowding out’.

China stocks lost ground yet again. High oil prices and weak Chinese demand hurt broader emerging markets, but the EM index still gained 1.5% from its dominant chipmakers.

How long can markets keep rising on the back of a narrow, AI-driven rally? The narrowing of hyperscaler credit spreads into the month end hinted that their borrowing binge may be slowing. If so, the growth and inflation outlook could look less worrisome as we head into year-end.

Do markets care about the US Midterm Elections?

Trump’s Republicans face a tough battle in November’s midterm elections. High oil prices from the president’s unpopular war (and particularly in rural Republican states, high diesel prices) have frayed the MAGA base and delivered Trump’s lowest ever approval rating. Democrats are all but certain to retake the House, while forecasters give them a slightly-better-than-even chance of winning the Senate too. Betting markets and renowned forecaster Nate Silver put the Democrats’ Senate chances even higher.

The market impacts of a Democrat victory would be marginal, but potentially meaningful. Trump would be forced to rely even more heavily on executive orders – putting him more at risk of conflict with the Supreme Court. The court already ruled against his original tariffs, and Washington’s replacement tariffs now require lengthy investigation to be implemented, rather than the president’s whim. We would not expect a repeat of last year’s ‘Liberation Day’ tariff mayhem, though impeachment or forced policy reversals remain unlikely, given Senate arithmetic.

There are risks at the extreme: if Trump attempted to cancel or overturn the election, US bonds and the dollar would likely get hit – even if he failed. We can’t rule that out, but it’s less likely than it once looked. Combative figures like Stephen Miller have lost influence, cabinet members Rubio and Vance are already positioning for a post-Trump era, and Republican lawmakers look more willing than ever before to challenge their figurehead (if only rhetorically).

The important thing for markets in the long-term is what this means for fiscal policy. Trump’s fiscal indiscipline continues to worry bond investors, but a Republican return to pre-Trump fiscal discipline after a midterm defeat could offer markets some reassurance. Don’t expect the midterms to move markets much themselves, but what comes next – a more constrained White House, and a possible fiscal rethink – could matter more.

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Marcus Blenkinsop

5^th October 2026

Please see the below daily update from Brooks Macdonald detailing their thoughts on investment markets currently, received this morning 02/10/2026:

What has happened?

Markets endured a volatile start to the fourth quarter as concerns over European sovereign debt sustainability triggered a broad risk-off move. French and Italian government bond spreads widened sharply versus German bunds, with the Franco-German 10-year spread recording its largest daily jump since March 2020. The sell-off spread across European assets, with the STOXX Banks index falling almost 4%, European high yield credit spreads widening materially and the euro posting its weakest session against the US dollar since June. At the same time, Brent crude rose above $102/bbl amid renewed Middle East tensions and concerns over disruptions to shipping through the Strait of Hormuz, adding to inflation worries and tightening financial conditions. The US market proved more resilient. Although the 10-year Treasury yield briefly reached 5.34%, its highest intraday level since 2002, yields retraced lower as investors reassessed the likelihood of further Federal Reserve tightening. Dovish comments from several Fed officials helped offset another strong set of economic data, with jobless claims falling to a 10-week low and manufacturing surveys continuing to signal economic expansion. The S&P 500 ended higher on the day, with investors increasingly focused on today’s payrolls report as the next major test of the growth, inflation and policy outlook.

Europe’s Bond Market Stress Returns

Recent market moves highlight that concerns around fiscal sustainability are becoming an increasingly important driver of global asset prices. While higher energy prices initially pushed bond yields higher, investor attention quickly shifted towards France, where concerns over budget deficits and debt dynamics have driven a sharp repricing of sovereign risk. The widening in French spreads has begun to spill into other European bond markets, evoking memories of previous periods of euro area stress and weighing on banks, credit markets and the euro. Rising sovereign borrowing requirements across developed markets, combined with heavy corporate issuance linked to infrastructure, AI investment and energy security, are increasing the supply of long-dated bonds. This is contributing to steeper yield curves and tighter financial conditions. Paradoxically, if higher market rates perform some of the tightening normally delivered by central banks, policymakers may feel less need to raise policy rates further.

What does Brooks Macdonald think?

While market sentiment has deteriorated, we believe the message from bond markets is more nuanced than fears of an imminent crisis. Financial conditions have tightened meaningfully, particularly in Europe, and this may reduce the need for central banks to continue raising rates aggressively. We see scope for policymakers, especially the Federal Reserve, to underdeliver relative to current market expectations as inflation gradually moderates over the coming quarters. At the same time, resilient US labour market and manufacturing data suggest growth remains on a firmer footing than market sentiment currently implies. That said, we remain cautious on longer-dated government bonds given persistent fiscal deficits, rising issuance requirements and structurally higher term premia. Higher long-term yields are increasingly being felt across risk assets, although resilient earnings and economic momentum continue to provide support for US equities. In our view, volatility is likely to remain elevated into year-end, particularly around inflation and labour market data, but periods of stress should also create opportunities for active investors to exploit market dislocations.

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Andrew Lloyd

02/10/2026

Please see the below article from WH Ireland discussing the Bank of England’s warning on rising interconnected financial risks, including higher sovereign yields, private credit and AI-related debt. Received today – 01/10/2026

When investors search for the next source of financial instability, attention naturally gravitates towards the obvious catalysts: a sovereign default, a major corporate failure or a sudden credit freeze. Yet systemic stress does not necessarily begin with a single dramatic event. More often, it emerges when vulnerabilities that appear manageable in isolation become increasingly interconnected.

Such is the significance of yesterday’s Bank of England Financial Policy Committee warning. The FPC said the likelihood of interconnected vulnerabilities crystallising has risen, highlighting higher sovereign yields, risky asset valuations, private credit and the renewed energy shock. It also pointed to the rapid expansion of AI related debt, which Morgan Stanley estimates had reached around $450 billion globally by early September, more than twice the amount issued during all of 2025.

The obvious market reaction is to focus on the level of government yields. UK 30-year gilt yields breached 6% this morning, reaching their highest level since 1998, while 10-year yields have risen to 14-year highs this week. But the more interesting question is what happens when higher sovereign yields meet rising corporate capital requirements, leverage and refinancing needs.

AI infrastructure provides a useful example. Data centres, power infrastructure and computing capacity require substantial upfront investment, increasingly funded through debt. Morgan Stanley estimates that $700 billion of data centre capital expenditure between 2026 and 2028 could be financed through private credit. It also highlighted the opacity and, in some cases, circular financing arrangements surrounding parts of the sector.

This creates a less obvious transmission channel. A reassessment of AI investment or earnings expectations could pressure equities and corporate credit, while higher yields simultaneously increase the cost of financing governments and companies. The FPC explicitly notes that weaker expectations for AI driven productivity could ultimately affect sovereign debt markets as well as AI related assets.

This makes balance sheet resilience increasingly important. Not all sovereigns, corporates or credit markets enter a higher yield environment from the same starting point. Countries with strong external balance sheets and substantial net foreign assets have a different capacity to absorb a global liquidity shock from highly indebted borrowers reliant on continued external financing.

The risk, therefore, may not sit in any one market. It lies in the growing overlap between leverage, refinancing needs, liquidity and interest-rate sensitivity, and in the potential for a repricing in one part of the financial system to transmit into another. This reinforces the importance of looking beyond headline yields and assessing what ultimately stands behind the debt: the strength of the balance sheet, the availability of external funding and the capacity to absorb higher financing costs.

As “The Celebrity Traitors” returns to our screens today, perhaps the lesson for markets is not dissimilar: the biggest risk may not be the obvious suspect, but the one quietly working with everyone else… Who would you trust?

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Alexander James Roberts

01/10/2026

Please see this week’s Markets in a Minute update below from Brewin Dolphin, received yesterday afternoon – 29/09/2026

Markets respond to continued U.S.-Iran tension

Oil prices jumped and inflation fears resurfaced as weekend talks to reopen the Strait of Hormuz stalled.

Key highlights

• Energy prices: Brent crude oil softened below $105 per barrel on hopes of a phased reopening of the Strait of Hormuz.
• The U.S. saw expansion…: The U.S. flash composite purchasing managers’ index reached 58.4, the quickest pace of expansion since 2015.
• …and so did Europe: The eurozone composite hit a 41-month high of 53.1, with France and Germany both in expansion for the first time since November 2025.

Balancing on barrels

Energy remains the fulcrum on which the markets swing.

Source: Bloomberg

Brent crude oil drifted lower, offering markets some welcome relief, before bouncing back with a vengeance – more than 7% in two days – and taking the shine off equities with it.

Last Friday brought better news: the energy complex softened again, with Brent crude briefly dipping below $105 per barrel on reports that U.S. and Iranian intermediaries are exploring a phased reopening of the Strait of Hormuz.

Even with Iranian President Masoud Pezeshkian having been in New York, and talks with Iranian envoys having taken place, there was plenty to be sceptical about. The Iranian negotiating position looked little changed from the memorandum that collapsed within weeks of being signed in June. Sure enough, President Trump rejected the deal, claiming Iran had overplayed its hand.

But with five weeks to go until the U.S. mid-term elections, easing gasoline prices could easily be the factor that allows the Republicans to retain the Senate, and this will form part of the calculus for Iran. After the mid-terms, a crucial source of leverage will have passed.

Diesel’s choke point

Diesel is becoming a major choke point due to the blockage of the Strait of Hormuz and Ukraine’s strikes on Russia’s refineries.

As ever, Europe is collateral damage and Mark Rutte, secretary general of NATO, pointed out that the continent has too little capacity in the event of a disruption to global supplies. It’s an awkward position as funding new refineries in case of conflict makes little sense during peacetime, and when demand is in structural decline due to the increase in EV (electric vehicle) usage.

Natural gas offers a more benign picture. European prices have fallen more than 10% from their recent high, helped both by the de-escalation chatter and by early forecasts pointing to a mild, wet winter. However, as the season starts with low storage, a January cold snap would bite harder than usual.

Oil above $100 per barrel benefits oil producers but increases inflation, which in turn increases interest rates, creating a headwind for most other assets. Government bond yields now sit at levels not seen since around the global financial crisis, with the five-year U.S. Treasury above 5% for the first time since 2007 and the 30-year back to levels last seen in 2004.

Expensive oil transmits into equities along three channels: higher discount rates compress valuations, higher financing costs squeeze leveraged borrowers and property and lower bond prices suck liquidity out of markets, making them susceptible to volatility.

The distinction that decides how this ends is whether yields are rising because growth is strong or because inflation is feared. Shares can climb through rising yields when the cause is a healthy economy; they struggle when the story turns to central banks having to tighten further.

Some like it hot

Source: Bloomberg

The U.S. economy is running hot. The flash composite purchasing managers’ index reached 58.4 this month, up from 56.0 in August. Outside the post-lockdown reopening burst, that’s the quickest pace of expansion recorded since 2015, with manufacturing and services both firing. The catch sits in the cost column.

Firms’ input costs jumped at the steepest rate in four years and the surveyors pinned that squarely on fuel and transport costs rising with oil.

Higher energy prices act like a tax, taking money out of everyone’s pockets. Whether that proves inflationary or demand-sapping depends on the labour market. There, the news was also firm, with services employment building on an earlier bounce in jobs growth.

Consumer sentiment bounced back

Europe is quietly improving too. The eurozone composite hit a 41-month high of 53.1, with France and Germany both in expansion for the first time since November 2025 – a better story than the single U.S. reading suggests. But the same energy-driven price pressure came through in the data, which strengthens the case for another European Central Bank rise before year-end.

The UK drew the short straw. Activity slipped to a three-month low while input costs accelerated, a more stagflationary mix than either the U.S. or the continent. August borrowing of £18.3bn came in above forecast, with debt interest at its heaviest for an August since 1997.

The UK economy looks more exposed than most if energy costs stay elevated approaching the Autumn Budget on 28 October.

Source: LSEG Datastream

Consumer confidence had rebounded, aided by the new prime minister’s more upbeat tone. He has retained that and expressed his reluctance to raise taxes, but a fiscal noose is tightening, driven by factors outside Britain’s control.

The arithmetic of pain

Debt interest is the thread that runs from here into the longer term.

Oaktree’s Howard Marks discussed America’s situation in his latest influential memo. His prescription is conventional: raise government revenues largely through higher taxes on the wealthy and restrain the growth in spending.

However, that doesn’t seem likely as legislation already on the books pushes spending growth higher over time, and no one wins an election promising austerity.

The path of least resistance

History suggests a different route. Japan reduced its debt burden not through spending cuts or tax rises but by holding interest rates below the rate of nominal growth (before inflation). That’s the path we’d expect the U.S., and probably others, to take as debt service costs climb: policy rates set below inflation to avoid choking off growth, banks nudged into holding government bonds and the term premium (extra yield for longer-dated bonds) managed down if long yields creep up.

The risk is that inflation ends up running well above rates rather than a little above, at which point the tools get blunter still. It’s worth remembering that earning a real return (above inflation) on cash isn’t the natural order of things – for most of the past century, savers have been fortunate simply to preserve spending power, and tax has usually settled the argument.

If cash can’t be relied on to protect purchasing power, the answer is to own real assets. Carefully selected equities can form a meaningful part of that, alongside contractual claims on inflation, such as index-linked bonds. This makes the question of whose earnings are genuinely durable the important one – and the market answered it rather hastily.

Please continue to check our blog content for advice, planning issues and the latest investment market and economic updates from leading investment houses.

Charlotte Clarke

30/09/2026

Please see the below article from WH Ireland detailing their discussions on ongoing predominant geopolitical factors that are continually shaping markets. Received yesterday 28/09/2026.

World equity and bond markets have been very volatile this year based on changing perceptions of the war in the Middle East. The US intervention against Iran was meant to be a short sharp bombing campaign to change the government. The aims were to stop Iran backing the Houthi, Hamas and Hezbollah terrorist groups in Yemen, Gaza and Lebanon and to end the Iran nuclear programme. Whilst US bombing technology was good enough to remove many of the government including the Supreme leader, Iran replaced them with even more determined anti US representatives with a new motive for revenge.

President Trump expected an outcome similar to Venezuela, where he removed the President with no loss of life, and was able to coerce the remaining government to move Venezuelan oil under US influence. He now wants to find a way out of the war which has become entrenched and is a significant problem, not a triumph, for him politically. Higher gas (petrol) prices, annoyance amongst supporters that he has gone back on his promise to avoid foreign wars, and the threat of higher interest rates holding back the economy means he faces a stiff test in the mid-term elections. Republicans are likely to lose the House of Representatives, with the Senate also at risk.

The US claim they did great damage to Iran’s nuclear installations, but there are differing views about how much enriched uranium Iran still has and how long it might take to develop a full nuclear bomb capability from here. Meanwhile Iran retaliated by seeking control over shipping using the Straits of Hormuz as an effective strangle hold. The US countered with a naval blockade of Iranian trading vessels. This has created a standoff between the US and Iran over control of the passage of ships in this important waterway.

Iran, through her three proxies, can also prosecute war against the US and her ally Israel in Gaza, Lebanon and Yemen. In the last few weeks, the Houthis have taken more of the coastal lands next to the Red Sea, and strategic islands offshore. This increases their ability to disrupt shipping going into and out of the Red Sea en route to the Suez Canal. It means both main routes for Saudi to export her crude oil by the Straits of Hormuz to the east and the Red Sea to the West are now vulnerable to attacks on her shipping. Iran has also succeeded in damaging the crucial oil pipeline Saudi has been using to carry oil from the blocked Straits of Hormuz area across to the Red Sea coast. As a result, Saudi oil output is said to be down by as much as 4 m barrels a day, driving up the price of crude oil.

Global bonds sell off when news of the war intensifying becomes widespread. Any general view that the war will drag on forces up oil prices and puts pressure on growth forecasts. This in turn depresses bond prices as investors fear the rise in inflation from dearer energy and petrochemicals, like fertiliser. There is an assumption that higher interest rates will be needed to control prices. Equities can also sell off on stories of a longer and more damaging war as higher interest rates, blocked trade routes, dearer shipping, and more inflation are detrimental to business in general.

In contrast, when it appears diplomacy may bring a truce or broader peace, bonds and equities are likely to rally. The oil price can drop away quickly. The current ‘war time’ range for oil has been between $70 and $120 a barrel based on rumours and forecasts of how much oil will be taken out of circulation by blockades of crucial sea lanes and by direct attacks on tankers, and on varying timetables for the end of the conflict.

There are crucial shipping routes that are restricted and subject to the vagaries of war and politics. The Suez Canal is seeing reduced passage. Iran claims the Straits of Hormuz are shut to tankers not approved by themselves, whilst the Bab al Mendeb narrow entrance to the Red Sea and Suez corridor is subject to Yemeni threats and has reduced flows. The recent break through by the Houthis in Yemen offers a greater threat to Bab al Mendep and shipping entering the Red Sea. Their immediate target is Saudi shipping, as Saudi seeks to send its oil out by this route to replace the dangerous Straits of Hormuz exit. The US keeps out of the fighting in the hope its ships will not be damaged.

The US/Iran war is now mainly a war for control of the Straits of Hormuz. This was always an international waterway allowing passage of 20 m barrels of oil a day by tankers representing one fifth of world traded oil supplies. The US claims they have removed the mines from a specific route and accompany ships at night, sometimes with their responders turned off. The Treasury Secretary has said they can get half the usual amount through the Straits. President Trump has been more optimistic. Recorded vessel numbers are much down implying only a handful of ships a day have been making it, compared with around 100 when the Straits did accommodate 20 m barrels of oil in transit. Iran claims only oil shipping she approves has made the passage. The US claims they have impeded most of the Iranian oil exports. Attempts at independent counting of ships may be affected by vessels travelling to avoid detection.

It is difficult to see how either side can deliver a knockout blow to the other to resolve this conflict any time soon. Whilst the US is optimistic in its published statements, in practice it is relying on attrition as its blockade of Iranian shipping starves Iran of her usual oil revenues crucial to the economy and state budget. So far Iran has managed to export enough oil to her counter parties despite the blockade and has an ability to get her citizens to accept hardship and sacrifice by running a state under strict military discipline from the Revolutionary Guards.

Iran was hoping President Trump would accept a poor settlement to get the war over in good time before the mid-term elections. Instead, he seems to have accepted that the war is not about to be resolved: hence the offer of $5000 a person by way of bonus or dividend if they return a Republican Congress.

Trump’s allies in the Gulf are doing their best to see if a diplomatic compromise can be achieved. The most likely outcome is continuing flare ups without either side doing bigger scale damage to each other, with the war dragging on. Both sides will get some oil out, but oil prices will remain higher for longer given the overall reductions in supply. Saudi’s recent losses against the Houthi in Yemen are another reversal for the US as well, but the US will be reluctant to put its own forces into that additional conflict.

In the longer term the Gulf states will complete the construction of pipelines and new transit routes to avoid Hormuz altogether for many cargoes, and to give themselves more flexibility over which of several routes they can use to sell their own oil and gas. These are wealthy states, able to spend what it takes to create routes for oil export. They still need to make sure that at least one is without mines and missiles attacking commercial shipping.

Today markets are on a sceptical tack; the Saudi’s have not come back with a solution to the attacks from Yemen, and the US has so far decided to stay out of this additional conflict. While it is clearly in both the US and Iran’s interests to cease attacks on each other’s oil trade, neither wish to compromise to provide an early and lasting truce. President Trump is reluctant to escalate the war, but it is difficult to see a catalyst for weaker oil prices in the short term. The ongoing tussle between high inflation fears, and higher borrowing costs is setting the tone for both equities and bonds, and likely to do so for some time.

Please continue to check our blog content for advice, planning issues and the latest investment, market and economic updates from leading investment houses.

Alex Clare

29/09/2026

Please see the below article from Tatton Investment Management discussing rising bond yields, fragile AI-led markets, Türkiye’s fund liquidity crisis and SoftBank’s leveraged OpenAI investment, received this morning – 28/09/2026.

Waiting for Goldilocks
Bond yields keep rising. The US 10-year yield is at 5.2%, its highest level in nearly two decades. It got there last week, taking other nations’ bonds with it.

Although energy prices continue to be a negative, it is growth expectations, rather than oil prices, that are moving yields the most. US business sentiment surveys were remarkably strong. That’s awkward for the Federal Reserve: the US economy is near capacity, so extra demand will push up prices. Markets now expect another rate rise next month.

The Fed’s hawkish turn pushed short-term rate expectations up faster than long-term yields, flattening the yield curve and tightening financial conditions. Stocks suffered, with the now-typical exception of AI-driven tech firms. The Fed’s problem is that the economy’s AI motor seems undisturbed by higher rates, despite the rest of the economy struggling. Bond investors yearn for the slow-but-steady ‘goldilocks’ growth that characterised the 2010s.

A friendly Trump-Xi summit produced little of substance but preparatory talks extended a tariff truce until January – conveniently after the US midterms. US-China détente removes potential disruption for US consumers, though it does little to address Trump’s main electoral headache: fuel prices.

With big tech’s capital demand crowding out other investment, the AI trade is single-handedly carrying markets. AI firms have amassed vast cash piles to build datacentres but, curiously, datacentres seemingly aren’t being built and computing capacity is stalling. Even stranger, constrained computing capacity isn’t resulting in higher compute prices.

That suggests current computing capacity is ample. And since AI firms have already raised unspent billions, you’d expect them to borrow less going forward. That’s one path back to a goldilocks environment – AI spending cooling along with the rest of the economy, allowing central bankers to back off. The other route is energy price reprieve, but we won’t bank on that. Without either of those, market breadth will probably keep narrowing. That doesn’t preclude investment returns, but it makes them more fragile.

‘Pump and dump’ turned Ponzi
Türkiye’s stock market had a storming start to the year but has since hit serious turbulence. High-profile funds like Tera Portföy and Pusula Portföy have blocked investor redemptions after running into liquidity trouble tied to a handful of thinly-traded stocks. That caused a broader sell-off and whispers of financial collapse.

The funds in question had mystifyingly good returns in recent years, seemingly thanks to market manipulation. Türkiye’s free float is unusually small – just 33.5% on average – and fund managers exploited that by trading illiquid shares between themselves to push up prices.

Tera Portföy is the poster child. It invested heavily into a handful of closely related stocks and used leverage to amplify its bets. One of those was its own parent company, creating a feedback loop where the fund’s gains lifted the parent’s share price, in turn boosting returns. At one point, Tera stock made up 99% of the fund’s holdings.

It worked for a while; Tera’s flagship fund was 660 times its 2022 listing price at one point. But the same illiquidity that inflated the fund also sank it once outflows overtook inflows. The government has since ordered an $18bn liquidation and arrested Tera’s chairman.

Many long suspected the fund’s returns were too good to be true – but as long as they kept coming, investors kept investing.

The trigger for the collapse was a tightening of rules on illiquid holdings, and the catalyst for that seems to have been MSCI threatening to demote Türkiye from ‘emerging’ to ‘frontier’ market status over transparency concerns.

We see little sign of contagion beyond Türkiye, and no obvious banking crisis brewing. But the affair is a reminder of why mature, well-regulated markets like the G7’s matter: strong oversight doesn’t eliminate the temptation to chase self-reinforcing gains, but it does make Ponzi-like structures much harder to sustain.

SoftBank’s big bond bet
SoftBank has launched $11bn of junk-rated bonds, reportedly to fund its OpenAI investment ahead of the ChatGPT maker’s stock market listing. The Japanese investment group will pay a 9.75% yield on the debt’s longest tranche, underlining its confidence in the company. SoftBank has already committed $65bn for a 13% stake in OpenAI.

SoftBank and its outspoken founder Masayoshi Son have a history on big tech bets – the most famous being its $20mn Alibaba investment, which turned into $60bn when the tech firm went public. Masayoshi Son has been likened to Warren Buffet, though Cathy Wood’s ARK Innovation ETF is a better comparison, given Son’s growth-over-value approach. SoftBank is similar to Berkshire Hathaway in the way it leverages investment, however, shown by its willingness to pay a near-10% bond coupon.

SoftBank’s leverage mirrors the rising leverage in the tech sector itself. Once-rich AI firms have become incredibly capital-intensive. Oracle, whose credit default swaps hit record highs earlier this year, exemplify this. That debt has helped fuel earnings growth and share prices. SoftBank’s bond shows the leverage increase is happening at both the company and investor levels – and demand for the bond shows the process isn’t slowing down.

Tech firms still have low leverage ratios relative to everyone else. Indeed, that’s why they’re able to borrow while other firms and households aren’t. The effect on overall borrowing costs means AI companies are crowding out other investment in the way governments are sometimes accused of.

Things aren’t all fine for AI companies themselves: higher leverage makes them more interest rate-sensitive just as rates are climbing, and it makes earnings distortions (like Amazon’s earnings gain from its SpaceX holdings) more likely. Big tech’s credit spreads have been more volatility lately too.

SoftBank’s big bond isn’t an alarm bell, but investors should keep an eye on AI leverage.

Please continue to check our blog content for the latest advice and planning issues from leading investment management firms.

Marcus Blenkinsop

28^th September 2026

Please see below, an article from WH Ireland which discusses the potential options for managing the US government’s borrowing costs. Received today – 25/09/2026

Last week’s “Unpleasant Arithmetic” examined a difficult relationship. Higher interest rates help control inflation but increase government borrowing costs. Unless fiscal policy adjusts, a larger interest bill means more borrowing, making the problem worse.

But the government can influence that arithmetic. It cannot set the Federal Reserve’s policy rate. It can choose which maturities to borrow at and which outstanding bonds to buy back.

Earlier this month, the US Treasury announced an operation to purchase up to $6bn of bonds with ten to twenty years remaining. Combined with greater reliance on short-term Treasury bills, Scott Bessent’s modest programme resembles a miniature Operation Twist.

Under the Fed’s 2011 programme, the central bank sold shorter-dated securities and bought longer-dated government bonds. The aim was to reduce the long-term interest-rate risk investors had to hold, pushing longer-term yields down without expanding the Fed’s balance sheet.

Long-bond buybacks alongside shorter borrowing could have a similar effect. The distinction is that the Fed controls overnight rates, while investors set long-term yields.

Investors lending for thirty years demand compensation for uncertainty about inflation, government finances and future interest rates. The supply of bonds also affects the price they require.

Overnight rates work differently. The Fed chooses a target and supplies the reserves needed to keep market rates consistent with it.

When government borrowing draws money into its account at the Fed, payments can drain banking-system reserves. If that threatens to push overnight rates above target, the Fed must provide liquidity or adjust its operating tools. It can lend against securities or buy them outright.

Not every dollar issued requires Fed buying. Banks may hold enough reserves to absorb the drain without rates rising above target. Government spending also returns reserves to the system.

Nevertheless, shorter borrowing places more government financing near the rate the Fed maintains. Bill yields still reflect expected policy changes and market conditions, but the government avoids committing to the premium investors may demand for lending over decades.

Larger purchases of long-dated bonds could push their yields down. With fewer such bonds available, investors have less long-term interest-rate risk to absorb. Borrowing through bills avoids replacing all that risk.

Much depends on inflation.

Rising long-term yields suggest investors remain unconvinced that inflation will be brought durably under control. Stronger growth, heavier issuance, and fiscal uncertainty can also explain the rise. Higher yields alone cannot tell us which concern dominates.

If the Fed restores confidence in price stability while keeping short-term rates elevated, long-term yields could fall and the curve flatten. Larger buybacks could reinforce that move: investors become more confident about inflation just as fewer long bonds are available to buy.

Higher policy rates could therefore help lower long-term borrowing costs. That is the twist in last week’s arithmetic.

The amounts matter. Small buybacks may mainly improve trading in older securities. Buying back substantially more long-dated debt could have a wider effect on yields.

For investors, the opportunity is that the Fed succeeds in bringing inflation down while larger buybacks help lower long-term yields. Bondholders would gain, and the government could borrow for longer at a lower cost.

If inflation persists, however, greater reliance on short-term debt makes higher rates feed into the government’s interest bill faster.

Last week’s unpleasant arithmetic has not gone away. Bessent may be able to soften it, but he still needs the Fed to bring inflation under control.

Please continue to check our blog content for the latest advice and planning issues from leading investment management firms.

Alex Kitteringham

25^th September 2026