September was a negative month for most markets, driven by higher oil prices and surging bond yields. The higher oil prices continue to press inflation higher, caused by the ongoing war in Iran which is now also expanding towards Saudi Arabia. By consequence bond yields surged more to multi-year highs and central banks tightened their monetary policies by raising interest rates to prevent inflation from getting out of control. Among industry sectors, only Information Technology and Communication Services saw growth with US AI-related stocks climbing on continued optimism. More traditional industry sectors, such as Consumer discretionary, finance, utilities and basic materials dropped by more than 5%. As a result the tech-heavy Nasdaq gained 1,86% in September while the more dispersed S&P500 dropped 0,45% and the traditional Dow Jones Industrial index dropped 4,29%.

US inflation in August remained at an elevated 3,4%, causing the Federal Reserve Bank to raise the interest rate by 0,25 percentage points for the first time since 2023 (the post-COVID era when the supply disruptions and high demand caused global inflation to spike). WTI crude oil once again climbed 5% in September, closing above $90 per barrel, so higher inflation is expected to be reported in October and another FED interest rate increase anticipated before the end of the year. Meanwhile 10-year US treasury yields climbed as high as 5,30%.

A similar scenario occured in the Eurozone. The European Central Bank (ECB) raised interest rates by 25 basis points in September, taking the deposit rate to 2,5%. The move came in response to above-target inflation caused by higher energy prices. ECB President Christine Lagarde warned that inflationary price shocks could continue into 2027. Annual inflation in the eurozone was confirmed at 3,2% in August, up from 2.0% a year earlier. Also the ECB is expected to raise the interest rate at least once more before year-end. Major European indices all declined in September with the German DAX, French CAC40 and Eurostoxx50 losing 4,03%, 4,44% and 2,35% respectively. Also the Slovene SBITOP index fell 3,48%. Also in Europe bond yields climbed, particularly in France which is struggling with mounting debt and budget deficit while French presidential elections are coming up in half a year in April 2027.

Among other major stock indexes, other than the Nasdaq, also the Japanese Nikkei index managed to squeeze out a modest gain in September, namely by 0,67%. Moreover the Yen managed to gain 3,89% against the Euro. In September, the Bank of Japan raised the interest rate to 1,25%, the highest level in 31 years. The financial sector, led by banking and insurance shares, performed strongly as domestic interest rates rose. Although concerns about high valuations persisted, AI-related shares also held up relatively well, supported by a continued favourable business environment and sustained investor interest.

Precious metals once again dropped due to higher yields and a stronger dollar, with gold dropping 6,58% and silver dropping 9,59%.

Rudy Marchant

Fund manager OTP Skladi

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