Weekly market commentary

Global markets spent the week balancing three key themes: geopolitics, higher interest rates and the continued AI-driven equity rally. At the UN General Assembly, attention centred on the Middle East, with signs of potential progress in US-Iran discussions helping ease concerns over energy supply disruption. Additional diplomatic engagement around Russia-Ukraine and an upcoming Trump-Xi meeting provided some optimism that major geopolitical flashpoints may move towards de-escalation. Oil remained volatile but ultimately retreated from recent highs, helping to reduce some inflation concerns.

Central banks remained firmly in focus. The Federal Reserve's recent rate hike continued to reverberate through markets, with policymakers signalling that inflation risks remain elevated and that further tightening could be required. Treasury auctions were closely watched as the 5-year bond auction had lower than average demand and the 10-year Treasury yield pushed above 5.2%, its highest level since 2007, reinforcing the view that higher rates may persist for longer. The very bullish PMI readings from the US on Wednesday helped underline the positive growth and stickier inflation outlook. In Europe, ECB officials maintained a hawkish stance amid energy-driven inflation concerns, while the Bank of England held rates but warned that further hikes may be needed if energy prices remain elevated.

Despite the challenging rates backdrop, equity markets generally proved resilient. US technology stocks continued to lead performance, with semiconductor and AI-related names driving gains and helping the Nasdaq reach fresh highs. Micron, chipmakers and the broader AI ecosystem remained key beneficiaries of ongoing investment themes, while more rate-sensitive sectors such as financials lagged as bond yields increased more for shorter tenors than long, which goes against the traditional business model of ‘borrowing short to lend long’. Market leadership remains concentrated around technology and AI-related growth opportunities.

Across Europe and Asia, economic data showed greater resilience than expected. Eurozone PMIs surprised to the upside despite the energy shock, while Germany's growth outlook was revised higher. More broadly, Asian markets continued to be supported by AI-related demand, particularly in technology exports and semiconductors, even as higher global interest rates and geopolitical risks remained key headwinds.