The Cambridge Weekly – 28th September

Diplomacy returned to focus last week after US and Iranian officials held their first direct talks since June, on the sidelines of the United Nations General Assembly in New York. The three-hour meeting was described positively by the US President, although major differences remain. The price of Brent crude oil fell below $100 per barrel earlier on last week as hopes of progress increased, but rose back above this level later into the period, after the Iranian president said the country would not meet the conditions put forward by the US. Brent crude sits at around $100 per barrel at the time of writing.

The disruption to shipping in the region has continued to affect the wider oil market. The daily cost of hiring a large crude carrier, which can transport around 2mn barrels, reached a record $1.2 million a day on some routes, with vessels having to travel further to avoid the affected waterways. Comparable rates commonly ranged between $20,000 and $50,000 per day in 2025. These higher transport and insurance costs have contributed to the increased delivered price of oil and refined fuels in affected markets.

Elsewhere, Chinese gold imports have exceeded 1,000 tonnes during the first eight months of 2026, surpassing the total imported throughout 2025. Demand has been supported by lower international gold prices, a strong yuan and continued interest from domestic investors. Chinese gold-backed funds added around 44 tonnes in the eight months to August, while the People’s Bank of China recorded its largest monthly purchase of the yellow metal since 2023.

US Equity Market:

The US and China agreed to extend their existing trade truce – which was due to expire in November – by two months last week, providing additional time to negotiate a wider agreement. US Treasury Secretary Scott Bessent said both sides were exploring a broader deal ahead of the meeting between the US and Chinese presidents. Areas of discussion included tariffs on non-critical goods, agricultural purchases, financial services and China’s supply of rare-earth metals, which are an increasingly important component in technology and manufacturing.

US energy companies have pushed back against the proposed introduction of restrictions on diesel exports. Industry groups argued that limiting overseas sales could increase domestic supplies but warned that an outright ban may cause refineries to reduce total production, potentially raising the domestic price of petrol and aviation fuel. Diesel markets were particularly volatile over last week, as investors responded to conflicting reports surrounding whether the administration would proceed with a temporary restriction.

In the stock market, technology equities began the week strongly, after Meta’s new Muse AI agent became the most downloaded free application on Apple’s US App Store. Investors interpreted its immediate popularity as a positive signal for demand for central processing units. Semiconductor company AMD jumped 10% last Monday to exceed a $1 trillion valuation for the first time, while Intel and Arm gained 12% and 17%, respectively. The S&P 500 finished the week to Friday up 1.23%.

UK Equity Market:

Developments ahead of the 28th October Budget remained a key focus last week. Reports indicated that the Chancellor may accept a smaller margin against the government’s fiscal rules, to limit the scale of potential tax rises, after some investors suggested the gilt market could tolerate less fiscal headroom than previously assumed. Global banks also warned they would exit London and the UK market, should Chancellor Healy impose a windfall tax on the sector in the forthcoming budget.

Elsewhere, homeowners refinancing fixed-rate mortgages since the Middle East conflict began, are estimated to be paying around £840 more a year on average. Higher energy prices have increased inflation and interest-rate expectations, feeding through into the market rates used to price fixed-rate mortgages.  On a related note, the confederation of British Industry revealed last week that retailers posted their biggest drop in sales since April, as the everyday consumer continues to grapple with the current geopolitical environment impacting the UK.

The FTSE100 index rose modestly by 0.35% last week, while sterling fell to its lowest level against the dollar in 3 months to around $1.32, as the fallout from the recent Federal Reserve rate rise decision continued to impact currency markets.

Inflation, Interest Rates and Bond Markets:

Bond yields remained elevated across major markets last week. In the US, the 10-year Treasury yield rose to 5.11% last Wednesday, its highest level since 2007, as investors reacted to the limited scale of bond buybacks. In the UK, 10-year gilt yields climbed to 5.40% last Thursday, while Japanese 10-year government bond yields reached 3.08%, their highest level since 1996. Elevated yields suggest investors are demanding greater compensation for lending. Inflation concerns, fuelled by escalating tensions in the Middle East and rising oil prices, have contributed to a global bond sell-off, pushing bond prices lower and yields higher.

The rise in yields follows recent monetary policy decisions in the US, UK and Japan. Both the Federal Reserve and the Bank of Japan raised interest rates in an effort to contain inflation, while the Bank of England left rates unchanged at 3.75%. Although Governor Andrew Bailey has warned that further rate increases may be required, the Organisation for Economic Co-operation and Development (OECD) has suggested that the Bank could maintain rates at their current level until the third quarter of 2027, while still bringing inflation closer to target.

What’s on the horizon

Investor attention will remain on diplomatic developments surrounding the Middle East conflict. The EU Foreign Affairs Council meet today in Brussels to discuss military support for Ukraine, including air defence, defence-industry cooperation and measures to counter Russia’s shadow fleet. Ministers will also exchange views on the situation in the Middle East.

As we move into October, a bumper week of macroeconomic data releases looms large, with both the UK and US set to announce economic growth data for Q2. China and the US will release their September Purchasing Managers Index (PMI) data, to provide an indication of whether economic activity is expanding or contracting. The US will also release a slew of employment-related data points, with September’s non-farm payrolls, unemployment rate and August’s job openings all set to be published. September Consumer Price Index (CPI) figures will release for Germany and the eurozone to give an insight into the state of European inflation.

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.