Energy markets remain at the centre of investors’ attention as disruption in the Middle East continued to impact oil supplies and shipping last week. Despite this, oil companies have continued to pursue investment opportunities across the region, to target greater access to the vast oil and gas reserves under the belief that the region’s abundant, low-cost reserves outweigh the heightened risks. Brent crude traded above $104 per barrel last Thursday, having briefly traded below $100 earlier on in the week. Meanwhile, the shortage of crews willing to enter the Strait of Hormuz has reportedly pushed the pay offered to some ship captains as high as $100,000 per month, along with a $50,000 bonus per trip.
Technology investment also remained a dominant theme. In recent weeks, China has accelerated the build out of data centres across energy-rich parts of the territory, in a bid to strengthen its global foothold in AI. Meanwhile in Europe, Brussels considered raising EU tax revenues through a broad levy aimed at capturing the major US tech companies. The proposal would involve all companies operating within the EU that exceed an annual revenue of €100mn to pay a yearly lump-sum tax contribution.
Elsewhere in Brazil, equities rallied over 8% last Monday on expectations of a presidential election victory for Flávio Bolsonaro and subsequent market-friendly reforms.
US Equity Market:
Despite political uncertainty regarding the growing Government deficit, and the upcoming mid-term elections in November both placing upwards pressure on Treasury yields, equity markets have continued to ride the AI wave. The S&P 500 index briefly reached a new record high during trading last Tuesday and closed the week to Friday up 1.17%. Early estimates from Goldman Sachs forecast that Q3 S&P 500 earnings have risen 27% vs Q3 2025, marking the third consecutive quarterly rise over 25%. Unsurprisingly, this is mostly driven by the AI expansion, and concerns regarding the sustainability of the highly concentrated rally continue to linger in the background.
In contrast to the broad market equity rally, SpaceX saw the yield on its fixed interest debt rise last week, as investors re-priced the credit risk they attribute to the issuer. This repricing occurred after SpaceX announced plans to raise new debt capital to fund further AI-related investment. This caused investors to attribute more credit risk to the issuer and pushed yields on the debt higher. As a reminder, bond prices move inversely to yields.
UK Equity Market:
Tensions in the Middle East continued to place pressure on Britain’s public finances last week ahead of the 28th October Autumn Budget. The FT estimated that higher energy prices, and rising borrowing costs observed over recent months, have reduced the fiscal headroom by c.£12bn, eroding half of the fiscal headroom calculated back in March. This has fuelled rumours that Chancellor John Healey will look to plug the gap by increasing taxes, with a rise on banks widely rumoured, alongside a reduction in government spending.
UK investors were pleased to see Andy Burnham’s government reaffirm its commitment to the development of the Oxford-Cambridge corridor. As a reminder, the government-backed programmed is designed to improve transport, housing and commercial links between the two world-recognised university and technology centres as part of a broader effort to encourage investment and economic growth in these areas.
The FTSE 100 weakened last Thursday morning as investors responded to higher oil prices and government bond yields, but closed the week to Friday up 0.87%. Sterling now trades at around 1.32 against the US dollar.
Inflation, Interest Rates and Bond Markets:
In line with recent trends, rising government bond yields were the focus for global investors once again this week. US government bonds did however stabilise after a better-than-expected auction of 10-year Treasuries, indicating that investors remain willing to purchase government debt, despite uncertainty and pressures on the bond market. Nevertheless, 10-year US yields remain elevated, climbing to almost 5.36% last Wednesday, up around 1.2% on an absolute basis since the end of 2025, reflecting continued investor concern regarding inflation, political stability and the scale of the government deficit.
European bond markets remained volatile after a sharp sell-off in French debt, driven by concern about public finances and political stability. The euro also weakened to its lowest value against the dollar in almost a year and a half as high energy prices and concerns surrounding France’s fiscal position weighed on the currency, with unpopular austerity measures in place aimed at reducing the country’s deficit. In line with the broader trend, UK government bond yields remain elevated, with 30-year and 10-year gilt yields peaking at around 6.04 % and 5.12% respectively last week, reflective of broader market uncertainty.
Last Wednesday, the Federal Reserve’s September meeting minutes were released, and they confirmed that the Committee voted for the rate hike on 16th September in response to soaring inflation in the US. The minutes also revealed sentiment from the Committee that another rate hike would be needed by the end of 2026, with the market currently pricing in a 70% chance of a 25bps hike by December.
What’s on the horizon
This week brings a flurry of inflation data, with the US releasing its consumer price index (CPI) for September on Wednesday, followed by its producer price index (PPI) on Thursday. CPI measures changes in prices paid by households, while PPI tracks the prices received by businesses, and can provide an early gauge of future cost pressures. China will also announce its September inflation, alongside its trade balance, on Wednesday, while figures for the eurozone are set for release on Friday.
Q3 earnings season also kicks off this week, with large US banks among the first major companies to report. These results could provide an update on the level of consumer and corporate borrowing, trading activity and whether rising interest rates are leading to greater credit losses.
This material has been written on behalf of Cambridge Investments Ltd and is for information purposes only and must not be considered as financial advice. We always recommend you seek financial advice before making any financial decision.
Past performance is not a guide to future performance.
The value of your investments can go down as well as up and you may get back less than you originally invested.
Source of financial market data: MorningstarDirect.