Daily Market Outlook, September 29, 2026

Daily Market Outlook, September 29, 2026

Patrick Munnelly, Partner: Market Strategy, Tickmill Group

Munnelly’s Macro Missive - Risk Retreats As Rates Reprice

Global equities slipped to their lowest level in a week as rising oil prices and renewed Federal Reserve tightening expectations pushed bond yields back toward cycle extremes. The MSCI All Country World Index fell 0.2%, Asian equities dropped around 1%, and Nasdaq 100 futures declined 0.4%. The market tone remains dominated by the same uncomfortable macro mix: expensive energy, elevated yields, a stronger Dollar and narrowing tolerance for valuation risk.

Treasuries stabilised in Asia after heavy selling in New York, but the damage from the latest rates repricing is clear. The US 10-year yield traded around 5.25%, close to its highest level since 2007, while the 30-year yield edged up to 5.56%. The long end remains the central pressure point for global markets. Higher oil is raising inflation expectations, resilient US data are keeping the Fed hawkish, and investors are demanding more compensation for duration risk.The Dollar strengthened against most major currencies, supported by higher US yields and safe-haven demand. The greenback continues to benefit from both inflation and risk-off channels. If oil keeps pushing inflation higher, the Fed has reason to tighten further. If risk sentiment deteriorates, global investors still move toward Dollar liquidity. That leaves the Dollar well supported unless either oil breaks lower or US data weaken materially

Brent crude rose for a second day, climbing nearly 2% to around $107.30/bbl as hopes for a quick diplomatic resolution in the Middle East faded. The renewed rise in crude is again feeding directly into market pricing for inflation and policy rates. The problem is not just the level of oil, but the persistence. The longer Brent stays above $105/bbl, the harder it becomes for central banks to argue that the shock is temporary and the greater the risk that it bleeds into wages, transport costs and services prices. The move in oil has also changed the tone in equities. Energy producers may benefit, but the broader market sees higher crude as a tax on consumption and margins. Growth stocks are particularly vulnerable because rising yields compress multiples, while cyclicals face the risk of softer demand if energy costs squeeze households and firms. That is why the AI and semiconductor narrative, while still structurally important, is no longer enough on its own to support the broader tape.

Gold edged up 0.3% to around $4,130/oz after Monday’s near-4% slide, while silver steadied near $60.60. The modest rebound reflects some dip-buying and geopolitical hedging, but precious metals remain caught between two opposing forces. Middle East risk and fiscal concerns provide support, while higher real yields and a firmer Dollar act as a powerful headwind. For now, the rates channel is still dominant.Chinese equities were relatively stable after authorities signalled a stronger commitment to supporting the economy, even as mainland shares hit a one-year low earlier in the week. Policy support is helping limit downside, but confidence remains fragile. Investors still want to see evidence that measures will translate into stronger domestic demand, better credit transmission and a stabilisation in corporate earnings. Until then, China can resist global risk-off pressure only partially.Japanese equities fell more than 1%, with the move amplified by more than half of Topix constituents trading ex-dividend. Even allowing for that technical factor, the broader backdrop is challenging. Higher US yields, elevated oil prices and a still-weak Yen complicate the outlook for Japanese assets. The BoJ has started normalising policy, but the global rates backdrop and Dollar strength continue to dominate FX and equity flows. European markets were set for a muted open as investors weighed rising yields, stronger crude and the possibility of additional Fed tightening. Europe is especially exposed to the energy channel because higher oil threatens already fragile growth while increasing headline inflation. That creates a difficult environment for the ECB, which must decide whether to look through an energy shock or lean against the risk of second-round effects.

The RBA delivered the expected 25 bps hike, lifting the policy rate to 4.6%. The decision itself was well telegraphed, so the guidance mattered more. Governor Bullock left the door open to further tightening, noting that inflationary pressures are likely to persist for longer than previously expected. Markets are still debating whether another 50 bps of tightening will be required before the cycle ends. The RBA’s message was not unambiguously hawkish, however. Bullock revealed that both a hold and a hike were considered at the meeting, which gave the statement a more balanced tone. Energy prices are part of the inflation problem, but Australia’s challenge is broader than the Middle East shock. Domestic capacity pressures remain significant, the labour market is still somewhat tight, and unemployment remains low. In other words, the conflict has made the inflation backdrop worse, but Australia already had a CPI problem. The Board appears pragmatic rather than dogmatic. It recognises the need to contain inflation, but is also wary of lagged policy effects, housing-market sensitivity and broader growth risks. Bullock said she hoped the four hikes delivered in this cycle would prove restrictive enough, though the evidence is not yet conclusive. She also noted that recent bond-market moves had tightened financial conditions, but did not characterise them as disorderly. That framing leaves the next move heavily dependent on energy prices and incoming inflation data. If oil continues to rise, the RBA may need to deliver more. If crude stabilises and domestic data soften, the bar for additional tightening rises. Current pricing still leaves the Australian Dollar as the developed-market high yielder, but the tone of the statement feels mildly negative for the currency given the amount of tightening already priced by rates markets.

In the UK, Dave Ramsden’s speech, “Quantitative tightening: the next chapter,” clarified the Bank of England’s evolving thinking on the balance sheet. The Monetary Policy Committee has judged that there is no monetary-policy reason to retain a structural gilt portfolio in the Asset Purchase Facility. Of the £488bn of gilts currently held, £368bn will be unwound by 2034 through maturities and £20bn of annual active sales, while £120bn will remain solely to back banknote issuance. The latest QT framework is designed to reduce the amount of policy signal embedded in balance-sheet decisions. The annual uncertainty around the pace and composition of QT has been replaced with a multi-year unwind strategy, with only narrowly defined conditions under which the path could be reconsidered. 

Subject to agreement with HM Treasury, implementation will also move away from direct sales into the market and toward sales to the Debt Management Office, restoring the DMO as the sole public-sector supplier of gilts. The key message is that QT should now be seen mainly as an operational exercise, not an active monetary-policy instrument. Bank Rate remains the primary tool for influencing financial conditions. That distinction matters because the BoE is trying to separate balance-sheet mechanics from the policy-rate signal. In a market already sensitive to gilt supply, fiscal pressure and debt-interest costs, reducing uncertainty around QT should help limit unnecessary volatility at the long end. The transition toward a demand-driven, repo-led operating framework is central to the shift. As APF assets mature, they can be replaced by liquidity provision through repo operations. That means the stock of gilts held for monetary-policy purposes is now on a defined path toward zero, but the overall size of the Bank’s balance sheet and the level of reserves in the system will ultimately be determined by demand for central-bank liquidity under an ample-reserves framework.

For gilt markets, this is structurally important. The BoE is signalling that the APF unwind is no longer a live annual cliff event for investors to price. That should reduce uncertainty around supply, especially when combined with the earlier decision to avoid long-dated active sales. However, this does not remove the broader fiscal challenge. With the Budget one month away, higher gilt yields, rising debt-service costs and pressure on the financing requirement remain central concerns. The UK fiscal backdrop therefore remains in focus. Revisions to the OBR’s economic and financial-market assumptions are likely to worsen the borrowing outlook, even if resilient activity provides some offset. The government will probably need to rebuild fiscal headroom through some tightening, most likely tax increases rather than spending cuts. But gilt investors may look beyond the Budget itself, because the Prime Minister’s ten-year plan, defence spending, welfare decisions and social-care reform could all carry larger medium-term implications.

Macro to Micro, markets are struggling with a simple but powerful problem: oil is rising at the same time that bond yields are already near multi-year highs. That combination compresses equity valuations, tightens financial conditions and raises the probability that central banks keep policy restrictive for longer. The RBA’s hike shows how energy shocks can reinforce pre-existing inflation problems, while the BoE’s QT speech shows policymakers trying to reduce balance-sheet uncertainty even as Bank Rate remains the main weapon. For traders, watch Brent above $107, the US 10-year near 5.25%, the Dollar, Gold and the US labour data. Unless oil retreats or data soften, risk assets will remain hostage to the higher-for-longer trade.

Overnight Headlines

• Germany Issues EU Budget Ultimatum To Axe ‘Billions’ In Planned Spending

• Europe’s LNG Shift Is Breaking The Economics Of Gas Storage

• US Warns Houthi Ties With Al-Shabaab Threaten Red Sea Trade

• Oil Prices And US Treasury Yields Show Tightest Relationship Since 1990

• Gold Trades Near Seven-Week Low As Rate-Hike Pressure Mounts

• RBA Raises Rates To 15-Year High As It Fights Sticky Inflation

• Japan’s Katayama Reiterates Weak Yen Concern After Bessent Call

• Japan 40-Year Bond Sale Sees Strongest Demand Since 2020

• RTX Wins $21B US Agreement For Air-to-Air Missile Output

• OpenAI Scraps Release Of New AI Model Over Safety Concerns

• Anthropic Warns Of ‘Existential Risks To Humanity’ In IPO Prospectus

• Nvidia, Anthropic CEOs To Attend Trump-Johnson Lunch On AI Risks

• Nvidia Sets Buyback Plan As AI Chip Competition Weighs On Stock

• Nvidia Turns To Insurers To Offset AI Risks

• UniCredit Moves To Seize Control Of Commerzbank Within Months

• AstraZeneca To Invest $2B In Summit Therapeutics, For Cancer Drugs

• Shein Drops To Record Low After Profit Plunge In Debut Earnings

FX Options Expiries For 10am New York Cut 

(1BLN+ represents larger expiries and is more magnetic when trading within the daily ATR.)

• EUR/USD: 1.1400 (EU4.11b), 1.1600 (EU1.17b), 1.1490 (EU1.07b)

• USD/JPY: 157.50 ($461.1m), 157.00 ($385.4m), 155.00 ($327m)

• USD/BRL: 5.1500 ($510m), 5.2100 ($374.3m)

• GBP/USD: 1.3300 (GBP494.3m)

• AUD/USD: 0.7000 (AUD515m)

• USD/CAD: 1.2838 ($420m), 1.2839 ($410m), 1.3235 ($302.2m)

• USD/CNY: 6.6800 ($620m), 6.6850 ($600m), 6.6700 ($400m)

• NZD/USD: 0.5800 (NZD352.8m), 0.5900 (NZD301.7m)

• USD/MXN: 18.25 ($452m), 17.00 ($320m)

• EUR/GBP: 0.8645 (EU323.4m)

CFTC Positions as of 25/9/26

• In a recent market update, equity fund speculators have ramped up their S&P 500 CME net short position, adding a hefty 66,665 contracts to reach a total of 355,121. Meanwhile, equity fund managers have also been active, boosting their S&P 500 CME net long position by 35,280 contracts, bringing their total to an impressive 934,913.

• On the Treasury front, speculators have made some adjustments as well. They've reduced their net short position in CBOT US 5-year Treasury futures by 116,513 contracts, now standing at 880,853. Similarly, they've trimmed their CBOT US 10-year Treasury futures net short position by 9,484 contracts, which now totals 811,752. However, there's been an increase in the CBOT US 2-year Treasury futures net short position, which has risen by 51,712 contracts to reach 907,065.

• In other adjustments, speculators have cut their CBOT US UltraBond Treasury futures net short position by 8,478 contracts, bringing it down to 336,725. They've also reduced the net short position in CBOT US Treasury bonds futures by 47,352 contracts, now totaling 155,805.

• Shifting gears to cryptocurrency, the Bitcoin market shows a net long position of 2,756 contracts. Meanwhile, several currencies are experiencing net short positions: the Swiss franc sits at -26,752 contracts, the British pound at -82,568 contracts, and the euro at -52,334 contracts. On a brighter note for the Japanese yen, it boasts a net long position of 71,982 contracts..

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