Monthly Market Update October 2026
Stay informed with the latest news and insights from Oxonian Capital's Monthly Market Update.
September 2026 Update:
MARKET NEWS
EQUITIES
September was a testing month for equities, as a renewed surge in oil prices, and a coordinated round of interest rate rises, weighed heavily. In Europe, the Stoxx 600 fell -2.4% (+10.2% year-to-date), with Germany's DAX down -4.0% (+2.9% ytd) and the FTSE 100 down -2.0% (+9.5% ytd). U.S. equities held up better in September, with the S&P 500 slipping just -0.3% (+12.7% ytd) and the Nasdaq rising +1.9% (+16.1% ytd), Over three months, the Mag-7 group of U.S. technology companies is up +11.1%, having lagged the market in the first half of 2026.
In Asia, Japan's Nikkei added +1.2% in September (+34.5% ytd), while Hong Kong's Hang Seng fell -3.3% (-1.4% ytd) and the broader emerging markets index dipped -0.7% (+23.5% ytd). South Korea's KOSPI was quieter in September, rising +0.2%, but it has fallen -19.2% over the quarter, giving back some of its earlier gains in the year, albeit it is still up +62.3% ytd. Strong earnings growth is underpinning the case for equities even as bond yields rise, though that relies on earnings continuing to deliver. We continue to see sharp moves in both directions on company reporting dates, highlighting their importance.
CURRENCY
The U.S. dollar strengthened +2.0% against a basket of major currencies (+3.2% ytd), supported by a Federal Reserve interest rate rise. The pound fell -2.1% against the dollar (-1.6% ytd), but edged up +0.4% against the euro, which itself lost -2.5% against the dollar (-3.5% ytd). The yen was the exception, rising +1.5% in September against the dollar and +3.3% over the quarter – helped by joint U.S.-Japanese intervention in early August and a Bank of Japan interest rate rise.
BONDS
Bonds struggled as investors braced for higher inflation and further rate rises. The U.S. 10-year yield rose for a seventh consecutive month – the first such run since 2011 – ending at 5.28%, its highest level since 2007, while Germany's 10-year yield closed at 3.58%. The U.K. 10-year gilt yield ended the month at 5.42%, also the highest since 2007. French government bonds were also weak in September, falling -3.4%, as the spread over German debt rose to its widest level since 2012 amid growing concern over the country's public finances. Corporate bonds again offered little shelter, with sterling investment grade debt falling -1.3%, U.S. investment grade -2.6% and U.S. high yield -2.5%. Shorter duration debt helped a little, although we are now more attracted to longer duration positions given the yields on offer.
ALTERNATIVES
Brent crude rose +14.4% in September to $103.53 a barrel, taking gains to +42% for the quarter and +70.1% year to date. December 2027 oil futures reached a record $81.25, signalling expectations of higher prices for longer. European gas added +4.1% in September, bringing quarterly gains to +66.6%. Precious metals gave back some of August's gains, with gold down -6.3% and silver -9.2% lower. Rising energy costs remain a key concern in the U.K. and U.S., with U.K. diesel prices nearing £2 a litre, adding to inflationary concerns.
MACRO NEWS
POLITICS
The U.S.-Iran conflict widened into a broader threat to Gulf energy supplies. Saudi Arabia halted operations at several energy sites after attacks, claimed by the Houthis, and the Saudi East-West pipeline was closed mid-month before restarting. Hopes of a breakthrough around the UN General Assembly faded by month-end, with President Trump rejecting an Iranian proposal on 26th September and Iran's foreign minister indicated it saw no reason to return to talks with the administration.
Elsewhere, Presidents Trump and Xi met at the White House after the U.S. and China extended their trade truce, though few details are yet to emerge. With the U.S. midterms on 3rd November, trading could become choppier in the coming weeks, although historic patterns usually have turned more supportive into a year-end after the vote. In the U.K., attention turns to the Autumn Budget on 28th October, with some policies having already been launched at the Labour party conference, albeit the more significant ones delayed until the next parliament.
MONETARY POLICY
For the first time on record, the Federal Reserve, European Central Bank and Bank of Japan all raised interest rates in the same month, in September. The Fed raised rates by +0.25% to 3.75–4.00%, its first increase since 2023, in a unanimous vote, and policymakers' projections point to one further rise before year-end. The ECB raised its deposit rate to 2.50%, warning that inflation is likely to stay well above target for an extended period. It expects inflation to average 3.0% this year, easing to 2.5% in 2027 and back close to target (2.1%) in 2028. The Bank of Japan lifted rates to 1.25%, its highest level since 1995.
The Bank of England held the Bank Rate at 3.75%, though three of its nine policymakers again voted for a rise. U.K. inflation rose to 3.1% in August, and the Bank expects it to climb to around 3.75% by the year-end and slightly above 4% in early 2027, cautioning that the longer energy prices stay elevated, the more likely a rate rise becomes. The Bank also confirmed plans to run down its remaining gilt holdings by 2034.
GROWTH
What allowed central banks to act on rates was the resilience of the global economy. Early business surveys for September showed growth accelerating, with the U.S. reaching a five-year high and the Eurozone a three-year high. The U.K. was an exception, with activity slipping to a three-month low as higher energy costs weighed. Policymakers have become more upbeat with Fed officials raising their 2026 growth projection to 2.3%, while the ECB upgraded euro-area growth to 0.9% this year and 1.4% in 2027. Firm growth alongside rising inflation is supportive for company earnings but has been painful for bond investors – a balance we will continue to monitor closely.
CHART OF THE MONTH
September's interest rate rise from the Federal Reserve, its first since 2023, naturally prompts the question of what tighter policy means for markets. The table below looks at every first rate rise since 1928, 15 in all, and how the S&P 500 fared either side of each. A year on, the index was higher on ten of those fifteen occasions, with a median return of 6%. The more useful lesson may be in the five occasions when it wasn't. The 1973 oil embargo, the 1980 oil shock, and the aftermath of Russia's invasion of Ukraine in 2022 all saw inflation pushed higher by energy prices. In each case markets were still lower twelve months later. Even in the better years, the first six months were often bumpy, with returns averaging close to zero. That makes this cycle worth watching closely. The economy is growing strongly, which history suggests is the better backdrop for rising rates, but Brent crude is above $100 a barrel. What has mattered most is why rates were rising, not the fact that they were.
MARKET DATA
