Global Macro and Markets Briefing – 28 September 2026
The bond market is no longer treating inflation as a temporary shock
The most important development last week was not the recovery in equities. It was the refusal of sovereign bonds to rally meaningfully even when oil prices eased.
US business activity strengthened much more than expected in September. The S&P Global composite PMI rose from 56.0 to 58.4, its highest reading since July 2021. Services reached 58.7 and manufacturing 56.7, with domestic demand driving faster growth in new orders. The strength was broad enough to challenge the view that the economy is being sustained solely by AI investment.
That matters because the Federal Reserve has already raised its target range by 25 basis points to 3.75–4.00%. Its September projections indicated one further increase this year, while subsequent comments from officials emphasised that inflation pressure was spreading beyond energy and tariffs.
Interest-rate markets moved closer to the Fed's message. The probability of another quarter-point increase at the October meeting rose from roughly 50% early in the week to about 71% by Friday. That still leaves room for the October employment and inflation data to change the decision, but the burden of proof has shifted. The Fed would now need convincing evidence of slower demand or easing underlying inflation to pause comfortably.
Households are experiencing a less benign version of this resilience. September consumer sentiment fell to a four-month low as concerns about inflation and purchasing power intensified. The contrast is important. Business activity remains strong in nominal terms, but consumers are becoming less confident that their incomes will keep pace with living costs.
Sovereign yields are becoming the market's real tightening mechanism
The US 10-year Treasury yield reached approximately 5.20% during the week, while the 30-year yield climbed to 5.48%, its highest level since 2004. Japan's 10-year yield exceeded 3.12%, a level last seen in 1996.
This was more than a mechanical response to oil. Yields remained elevated when crude retreated because investors are also pricing stronger growth, further central-bank tightening, heavy government borrowing and greater uncertainty over the longer-term inflation outlook.
The distinction matters across asset classes. A diplomatic agreement can remove part of oil's geopolitical premium relatively quickly. It cannot, by itself, reverse persistent services inflation, large fiscal financing requirements or a rise in the term premium demanded by bond investors. Higher sovereign yields consequently feed into mortgages, corporate debt, private credit and equity valuations before central banks announce another move.
Discussion of a possible 6% US 10-year yield shows how far the market's frame of reference has shifted. That is not a forecast or a level currently priced as inevitable. It is better understood as a potential stress threshold at which refinancing costs and equity valuations would become considerably harder to defend.
AI enthusiasm kept equities moving in the opposite direction
US equities nevertheless finished the week higher. The SPX500 gained 1.1% and the NAS100 advanced 3.3%, with the latter recording a record closing high on Tuesday. Technology and communication-services shares led the advance as investors returned to companies most closely associated with AI spending and adoption.
The rally was not indiscriminate. On Friday, the Nasdaq recorded 123 new 52-week lows against only 34 new highs. The Russell 2000 also ended the week lower, even as the large-cap indices advanced. Beneath the stronger headline numbers, therefore, investors were still favouring companies believed capable of producing earnings growth fast enough to overcome a rising discount rate.
This is a durable rally only if AI investment translates into revenues, margins and cash flow rather than simply larger capital budgets. The corporate bond market is already becoming more selective towards frequent AI-related issuers, suggesting that lenders are beginning to distinguish between credible investment returns and expenditure supported mainly by an optimistic narrative.
Oil eased, but the supply risk did not disappear
Saudi Arabia's restart of the East–West Pipeline and tentative US-Iran diplomatic contacts reduced fears of an immediate supply shortage. USOil settled at $92.49 a barrel on Friday, while UKOil remained above $100 because the global benchmark retained a larger Middle Eastern risk premium.
Crude flows through the Strait of Hormuz reached an estimated 33.7 million barrels during the week beginning 20 September, broadly consistent with the preceding week. That argues against a fresh collapse in exports, but it does not amount to normalisation. Houthi attacks on Saudi infrastructure continued, shipping conditions remained vulnerable and no binding US-Iran settlement had been reached by the weekend.
The oil market is therefore caught between softer US fundamentals and an unresolved global supply threat. If UKOil falls sustainably below $100, inflation expectations and rate-rise probabilities should receive some relief. A renewed disruption to Saudi or Gulf exports would reverse that improvement quickly.
The Trump-Xi summit bought time rather than a strategic reset
The United States and China extended their tariff truce until 10 January, removing a near-term deadline that could have triggered another round of tariff escalation. The summit produced no broad settlement on technology, Taiwan or the two countries' strategic rivalry. Its market value lay primarily in preventing relations from deteriorating further.
China's domestic economy remains unbalanced. Industrial production grew 5.2% from a year earlier in August, supported by technology and advanced manufacturing. Retail sales increased by only 0.4%, however, while property investment fell 19.9%. Beijing's export and industrial machinery is running more effectively than its consumer engine.
The People's Bank of China left its benchmark lending rates unchanged for a sixteenth consecutive month. Weak demand would ordinarily support further easing, but pressure on bank margins and the wide yield differential with the US limit the central bank's freedom to cut aggressively.
Currencies reflected policy divergence more than conventional risk aversion
FXCM's USDOLLAR recorded a second consecutive weekly gain as expectations of further US tightening increased. It retreated on Friday as oil eased, while the yen strengthened to approximately ¥157.28 per dollar after Japanese officials reiterated their concern about excessive currency weakness.
The yen's failure to strengthen sustainably after the Bank of Japan's September rate increase shows that a higher policy rate alone may not be enough to reverse the currency's underlying weakness. Markets will remain alert to more forceful BOJ guidance or renewed intervention.
Gold traded close to $4,155 an ounce today despite geopolitical tension. Rising real yields and a firmer dollar increased the opportunity cost of holding a non-yielding asset, offsetting some of its safe-haven appeal.
What matters next
The US employment report on Friday is the immediate test. Another strong payroll result would reinforce expectations of an October Fed increase and could push long-term yields further into territory that threatens equity valuations and refinancing conditions. A weak report would help bonds, although it might also challenge the growth assumptions supporting the equity market.
US inflation, UKOil, Hormuz shipping volumes and any concrete US-Iran agreement are the other decisive indicators. The central cross-asset question is whether equity investors can continue to treat the bond sell-off as background noise.
Final thought
AI optimism is still powerful enough to lift equities against rising yields, but unless inflation or energy costs retreat soon, the bond market will turn expensive capital from a valuation concern into an economic constraint.
Sources and References
Russell Shor
Senior Market Strategist
Russell Shor is a Senior Market Strategist at FXCM, having been promoted to the role in 2025 in recognition of his depth of insight and consistent delivery of high-impact market analysis. He originally joined FXCM in October 2017 as a Senior Market Specialist.
Russell holds an Honours Degree in Economics from the University of South Africa, is a certified FMVA®, and a full member of the Society of Technical Analysts (UK). With over 20 years of experience in financial markets, his work is renowned for its clarity, precision, and strategic value across asset classes.
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