Insights

The US economy remains resilient, but rising prices and political pressure are keeping investors cautious.

Central bank doctrine recommends not reacting directly to a supply shock on the proviso that it is temporary and that inflation is not already persistently above its target. Currently, neither of these two conditions has been fulfilled. Underlying inflation, as measured by the PCE index, came in at 3.0% in August, and the US–Iran conflict has been dragging on for over six months.

A month ago, we wrote that the outlook for equity markets remained reassuring, supported by resilient earnings, and that only a tightening of financial conditions would signal a genuine change in regime.

Treasury and Bund yields touched multi-year highs before easing back, as weak US payrolls sharply reduced the odds of an October US Federal Reserve rate hike.

Since 2022 and the end of the ultra-low interest rate environment in Europe, the real estate sector has undergone a significant repricing. Yields have risen sharply, while transaction volumes and asset values have declined.

Long-term yields surged to multi-decade highs as robust US data and firm energy prices reinforced expectations of another US Federal Reserve (Fed) rate hike.

The US economy remains resilient, but rising prices and political pressure are keeping investors cautious.

A month ago, we wrote that the outlook for equity markets remained reassuring, supported by resilient earnings, and that only a tightening of financial conditions would signal a genuine change in regime.

Treasury and Bund yields touched multi-year highs before easing back, as weak US payrolls sharply reduced the odds of an October US Federal Reserve rate hike.

The AI boom has pushed the world’s five hyperscalers (Microsoft, Amazon, Alphabet, Meta and Oracle) into a new era of financing. In 2026, their capital spending is expected to exceed operating cash flow, with investment projected to reach USD 5.6 trillion by 2030, raising fundamental questions about how this unprecedented expansion will be funded.

US President Trump’s approval rating is among the lowest for a sitting president in post-World War II US history and leaves an 80% probability that the US House of Representatives will shift to Democratic control, with US Senate facing a 50:50 chance of switching to Democratic control.

The closure of the Strait of Hormuz has been the GCC’s biggest geopolitical shock in decades – but not a credit crisis.

Central bank doctrine recommends not reacting directly to a supply shock on the proviso that it is temporary and that inflation is not already persistently above its target. Currently, neither of these two conditions has been fulfilled. Underlying inflation, as measured by the PCE index, came in at 3.0% in August, and the US–Iran conflict has been dragging on for over six months.

In 2026, the five hyperscalers (Microsoft, Amazon, Alphabet, Meta and Oracle) will spend around USD 820 billion in capex, compared with USD 750 billion in operating cash flows. This means that their investments are exceeding available cash flows and that this funding gap has to be financed through debt.

The markets are looking to the future, whilst central banks are looking to the past.