September in Financial Markets: Costlier Oil, Higher Rates and Strain in Bond Markets

Energy market shock

In mid-September Brent crude reached roughly $110 a barrel, its highest level since May. Refined products were hit hardest: on 22 September US diesel hit a record $6.53 per gallon. Ahead of the 3 November midterm elections, Donald Trump backed a ban on diesel exports, which had reached a record 1.6 million barrels a day in August. By the end of the month Brent had eased back to about $100 a barrel.

Central bank decisions

Within eight days, three of the largest central banks raised rates. The European Central Bank lifted its rate to 2.50% on 10 September, and the Bank of Japan raised its rate to 1.25% on 18 September, the highest since 1995. On 16 September the US Federal Reserve unanimously raised rates by 25 basis points to a range of 3.75–4.00%, the first increase since July 2023. Non-farm payrolls rose by 162,000 in August, and annual consumer price inflation stood at 3.4%. Trump said US rates should be 1% or lower.

Bond market

The US 10-year yield climbed 49 basis points to 5.29%, while the 30-year yield rose above 5.61% on 29 September, the highest since 2002. The Bank of England slowed the pace of quantitative tightening. The yield gap between French and German bonds exceeded 100 basis points and reached 140 in early October after the presentation of the 2027 budget.

Equities and other markets

The S&P 500 lost 0.5% in September and the Dow Jones 4.3%, while the Nasdaq Composite gained 1.9%. The STOXX 600 fell 2.5% and gold dropped about 6.5%.

Trade and artificial intelligence

During Chinese President Xi Jinping's US visit, the trade truce was extended to 10 January 2027. On 12 September Anthropic's chief executive Dario Amodei urged a slowdown in the development of advanced AI models, and semiconductor shares fell sharply. On 25 September OpenAI paused training of its most powerful models after an incident during testing.