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.

Despite this, global equities proved resilient, as renewed enthusiasm for technology and artificial intelligence (AI) outweighed the pressure on rate-sensitive sectors. The dollar edged higher but lagged behind the rise in yields, leaving room for it to catch up, while gold remained rangebound, increasingly detached from real rates. With inflation and employment data due this week, oil and yields will remain the main drivers of market direction.

Macroeconomics

In the last week, US data continued to point to sustained investment and a positive business environment. Manufacturing and services purchasing managers’ indexes (PMIs) both increased further on the previous month, with the services PMI reaching a very high level of 58.7. Both indices were driven by firmer activity and higher new orders, but also reflected higher prices. In parallel, core orders on capital goods have rebounded strongly, confirming the strength of the investment cycle. The final estimate for the September Michigan consumer confidence index was less negative than expected, but it still decreased from the previous month. US consumers remained concerned about their financial situations, economic conditions and inflation expectations which continue to rise.

In the eurozone, business confidence was better than expected, with a strong rebound in services thanks to increased new business. Confidence in manufacturing remained stable; however, the flash estimate decreased for France and increased for Germany. Credit remained positively oriented in August, up by 3.6% y/y, suggesting monetary policy is not yet restrictive.

In the UK, business confidence was mixed: a small rise was seen in the manufacturing sector, but confidence weakened somewhat in services due to subdued domestic demand.

In Switzerland, the Swiss National Bank (SNB) left its key rates unchanged but revised its inflation forecasts slightly higher. Norges Bank raised its rates by 25 basis points (bps) to 4.50%, with hawkish views on inflation.

This week, the main focus will be on US job data: the JOLTS survey is expected to be roughly stable from the previous month, and the ADP survey is expected to rebound at 70,000 after 38,000 the prior month. Consensus expects non-farm payrolls (NFP) to slow to 90,000 in September after 162,000 in August, but the unemployment ratio should remain stable at 4.1%, as should the trend on wage growth at 3.1% y/y. In parallel, the ISM manufacturing should show a small rise, and both ISM and final PMI indexes should point to a strong rise in prices. Core personal consumption expenditures (PCE) for August will be released, and a 0.3% m/m rise is expected, after 0.2% m/m the previous month, while the yearly trend should remain stable at 3.3% y/y.

In the eurozone, the main concern will be the inflation estimate for September: a 0.5% m/m rise is expected, reflecting higher energy prices, which should push annual inflation to 3.7% y/y after 3.2% y/y the prior month. Final PMI data will be released along with the European Commission’s confidence indexes for industry, services and consumers.

In China, the manufacturing PMI is expected to improve slightly to 50.1 (up from 49.8), but the services PMI index will probably stay below 50.

Equities

Global equities proved resilient last week (MSCI ACWI total return +1.0%), advancing despite a sharp move higher in long-term yields. Renewed appetite for the global technology sector (+3.3%, best performing) and a late-week retreat in oil prices on the back of a potential Strait of Hormuz reopening eased inflation fears and lifted market sentiment.

Technology-heavy indexes led the week’s gains, with the Nasdaq 100 climbing +3.3% in the US, South Korea’s KOSPI rising +2.7% and Japan’s Nikkei 225 up +2.1%; in contrast, Europe lagged behind at +0.5% (STOXX Europe 600). Investor demand for the AI trade returned sharply as Meta’s AI agent, ‘Muse’, became the most downloaded app, sending shares of the world’s largest social media company up +13% over the week. The potential wide-scale adoption of personal AI agents lent additional justification to the scale of AI infrastructure spending that markets have questioned lately, as well as opening a new tangible monetisation route via the consumer layer. The renewed enthusiasm led the AI complex to move higher, including global semiconductors (+3.7%) and the Magnificent 7 (+3.1%).

Interest rates were also a dominant force over the week, with US 10-year Treasury yields reaching an intra-week high of 5.22% (their highest level in 19 years), driven by robust US economic data, soft demand at a Treasury auction, and firm energy prices. While bond proxy sectors moved lower as a result (global utilities -2.4%, real estate -1.1%), the fact that equity markets overall were able to absorb the jump in yields was the week’s most notable feature and speaks to the underlying strength of earnings and the economic backdrop.

Global equities continue to show the resilience our House View has anticipated. However, sustained long-term yields at elevated levels are among the key risks we are monitoring. In the week ahead, key US macro data (inflation (PCE), employment), alongside the direction of oil prices and yields, will be the key drivers of sentiment and market direction.

Equities absorbed the rise in US 10-year yields to a 19-year high, with losses confined to bond proxies, pointing to solid earnings and economic fundamentals.

Fixed income

Developed market yields sold off again, reaching several multi-decade highs as curves steepened bearishly (this occurs when longer-dated yields rise more than shorter ones). In Treasuries, 10-year paper is now at 5.20% and 30-year paper at 5.50%, both at levels last seen before the global financial crisis (GFC); this has pushed US mortgage rates beyond 7.0%.

Wednesday saw the week’s largest move: rates were already drifting higher pre-market as oil prices rose, but the September flash PMIs were the main event. A poor 5-year auction that afternoon that cleared above 5% – which is the highest since 2006 – aggravated the sell-off. By the end of the last week markets had priced in a 70% chance of an October Fed rate hike (up from 50%), while Thursday’s buyback, which bought only USD 4.1 billion of a USD 6 billion maximum, has so far done little for the long end.

Bunds reached a 17-year high of 3.63% but were up only 10 bps through Monday (half the move of Treasuries), while the France-Germany spread continues to widen (now at 110 bps). Gilts did not hit new highs, leaving the 10-year at a 20-bp premium to Treasuries, the lowest since the beginning of the year. Markets are now pricing in an 87% chance of a Bank of England (BoE) rate hike in November.

Over the weekend the US rejected Iran’s offer to reopen the Strait of Hormuz within seven days in exchange for lifting the naval blockade, ending economic warfare and releasing frozen assets. Brent crude flirted with USD 108 per barrel (/bbl) on Monday morning, but for rates, crude is not the full story. This past week President Trump floated a ban on US diesel exports, Ukraine kept striking refineries deep inside Russia, and traffic through the Strait of Hormuz remained impaired, which has pushed European gasoil’s premium to Brent to a record USD 95/bbl.

Elevated rates are not standing in the way of the AI push, which has now crossed into high yield at scale. Last week SoftBank raised USD 11 billion across the US dollar and euro, the largest high yield (HY) corporate bond sale on record, to fund a USD 65 billion commitment to OpenAI that takes its ownership to roughly 13%. On the investment grade (IG) side, hyperscaler bond sales have surpassed USD 200 billion, which is offering competition for Treasuries at the long end.

Credit widened selectively: HY gave up 20 bps and additional tier 1 bonds (AT1) 15 bps against 5 bps for IG and 2 bps for emerging markets. Higher rates and wider spreads caused returns to be negative across the board: Treasuries -0.3%, IG and AT1s -0.6%, HY -0.9% and EM -1.3%. All-in yields sit at compelling levels, with USD IG at 5.7%, HY now at 8.0% and AT1s and EM at 7.0% and 7.2%, respectively, while euro IG is at 4.2%, HY at 6.3% and AT1s at 5.9%.

Long-dated yields rose faster than short-dated ones, pushing Treasury yields to levels last seen before the GFC, as markets increasingly price in a Fed rate hike in October.

Forex and Commodities

Last week, the USD edged higher against the majority of G10 currencies. The US Dollar Index (DXY) rose to levels of above 101, its highest since late July.

USD appreciation was subdued compared with the rise in long-end yields. There are two main data releases over the coming week that are relevant for the USD: the publication of PCE data on Wednesday and NFP data on Friday. The inflation data are more important, given the Fed’s focus on inflation; if the month-on-month PCE print comes in above expectations, it should give markets room to increasingly price in an October Fed rate hike, thus giving the USD a boost.

Last week, the EUR/USD fell to levels of just below 1.14, reflecting rate spread developments and aggressive US long-end yield rises. The DXY Index is trading below both one- and two-year overnight index swaps (OIS), suggesting that there could be more EUR/USD downside to come in the near term. The main risk event for the EUR over the coming week is the publication of CPI data for September, which are expected to print at 3.6% y/y (headline) and 2.5% y/y (core). Overall, we anticipate that the EUR/USD should trade at the lower end of its recent trading ranges in the near term.

The AUD/USD traded down to levels around 0.7020 this past week; the downward move reflected modest AUD weakness and USD appreciation. The Reserve Bank of Australia (RBA) is expected to raise its policy rate by 25 bps to 4.60% this week, which has been priced in with a 90% probability. RBA Governor Bullock has kept the door open to more tightening since the bank’s Monetary Policy Committee’s (MPC) last rate hike in May. Hiking rates to 4.60% would give the AUD the highest nominal carry profile in the G10, giving the AUD limited downside risks, irrespective of any USD moves.

At its 24 September meeting, the Swiss National Bank left its deposit rate at 0.00%, as was widely expected. The SNB’s conditional inflation forecast rose slightly; however, the adjustment was not enough to convince markets that the SNB could raise rates above recent expectations. Two-year SARON swaps have priced in just over two 25-bp rate hikes, which is consistent with the SNB’s updated conditional inflation forecast of 0.7% for 2026, and 0.8% for both 2027 and 2028.  The main event risk for the CHF over the coming week is the publication of September CPI data, which is expected to print at 1.0% y/y (headline) and 0.5% y/y (core). The data are unlikely to be market moving, given the SNB’s relaxed stance on rates.

Gold traded at levels of around USD 4,300 per oz last week. The tight trading range is interesting because it appears that gold has continued to decorrelate from US 10-year TIPS yields, which rose to levels of above 2.80%. This clear decorrelation shows that gold is increasingly trading independently of monetary policy developments, reflecting robust underlying demand from both central banks and retail/institutional investors. The main events this week should be the PCE print, which should not have a material impact on gold. Overall, investors should anticipate a rangebound price regime, until markets have greater clarity about the end point of the Fed’s tightening cycle.

The dollar is edging higher but lagging behind the surge in long-end yields; a hot PCE print on Wednesday could give it room to catch up.

The opinions expressed herein are correct as at 28 September 2026 and are subject to change without notice. This information should not be relied upon by the reader as research or investment advice regarding any particular fund, strategy or security. Past performance is not a guide to current or future results. Any forecast, projection or target, where provided, is indicative only and is not guaranteed in any way.