Market Moves video: from oil to bonds – the forces shaping the Autumn outlook

In this episode of Market Moves, Oliver Faizallah, Head of Fixed Income Research, unpacks what's behind recent volatility, explores the growing divergence between the UK, Europe and the US, and considers what it could mean for interest rates, growth and investment markets in the months ahead.

Key takeaways:

• Oil prices and geopolitical tensions have continued to drive inflation concerns.
• Bond yields have risen as markets reassess interest rate expectations.
• The UK and Europe face the challenge of higher inflation and weaker growth.
• The US economy remains more resilient. 

In case you missed it, you can watch last month’s video with Patrick Farrell here: Market Moves August 2026 investment outlook: AI, inflation and interest rates

Market Moves September 2026 transcript

EW: It's been a turbulent month for the UK economy, with global tensions overshadowing what had been a period of resilience at home. The FTSE just hit a six-week low as oil prices surged past $100 a barrel after the US Middle East escalation rattled markets worldwide. And on the domestic front, government borrowing costs are the real story here as a global bond sell-off pushed UK borrowing costs to their highest since the financial crisis. So where exactly does this leave investors? That is the question on everybody's minds. I'm joined today by Oli Faizallah to break it all down. Oli, thanks so much for being here. How are you? 

OF: Good. Thank you for having me. And welcome back. The last time we were doing Market Moves, we were very much focused on central bank rate cuts, and a lot has happened since then. We're very much looking towards a hiking cycle across the globe. And it's very much down to exactly what you just talked about. Oil prices are surging to new highs. Lots of geopolitical tensions going on, but it's affecting different economies differently. 

But one thing that we've seen across the board is higher borrowing costs. So that's both at the short end of the curve and the long end of the curve. So, we've seen markets pricing in higher central bank policy rates and also growing debts, growing deficits, are increasing the yields of longer end bonds as well. But we're seeing a little bit of a difference as to what's the driver of higher rates. 

It's all inflation. But when you look at the UK and Europe, really this is imported inflation. It's higher energy prices because of higher oil price. It's not exuberant demand. It's not a super strong economy. So, there's only so much central banks can do to raise rates to bring prices down. 

We're also in a situation where if central banks, especially in the UK and Europe, push rates too high, we're looking at a recession-type scenario – because we're already in a low-growth environment, or potentially a stagflationary scenario – where you have higher inflation but also very low growth as well. In Europe, we're starting from a lower base rate, so there is room for the ECB to hike rates. But what the markets are really looking towards is the tone of the central banks. 

Is it one and done? You know, a hike to say that we see that inflation is becoming a problem, we can act, and then, you know, we'll wait and see. Or is it more hawkish? As it stands, the UK and Europe markets are pricing in three hikes over the course of the next 12 months. 

EW: Buckle up, folks. 

OF: Now, in our view, that's pretty extreme. 

EW: Yeah.

EW: For the reasons that it’s an imported inflation problem. There's only so much higher rates can do to bring that down. The US is a different story. We've got two levers on inflation there. So, one is the higher oil prices, but we do also have a very strong economy. Another factor that the entire world really shares is high debt and deficit levels. But the difference between, say, the UK and the US is that there was a real commitment to bringing down debt levels. There was an acknowledgement that interest payments spent by government spending have gone too high. Yes, we need to increase growth, but we need to rein in spending as well. 

That sends a signal to the bond market that we can't just keep borrowing and we can't just keep spending. We need some fiscal responsibility. That's not the case in the US. 

We've had an attempt by the US Treasury, Scott Bessent, to try and rein in long-end yields by announcing large US Treasury buybacks. It's an intervention. It's a yield curve control, and the market hasn't responded well to it. He has tried to say we will buy long-end bonds, keep them subdued, but ultimately, he's fighting fiscal irresponsibility, he's fighting inflation, and the bond market is fighting back. He believes himself to be the house, the casino, and he's going up against the bond market, and he's setting himself up to lose. 

In addition, we've had a very recent announcement by Donald Trump to push through a win for the House and the Senate, by promising a $5,000 check to every single US adult. 

EW: I saw this.

OF: But given what he seems to get away with, given what his administration seems to get away with, the market has to take these things seriously and there is a real risk that the US administration loses control over the long end of the bond curve. 

We have a central bank, a Fed central bank, that at the recent Jackson Hole meeting was incredibly hawkish. Kevin Warsh, the chair of the US Fed, gave a very hawkish message that inflation is too high. It's been too high for too long. And he needs to do whatever is necessary to bring inflation back down. 

The fact is they have a dual mandate. On the one side inflation is too high, on the other side the Fed needs to consider employment. They need to have sustainably low employment. We've just had a very strong jobs data print last week. So that side of the dual mandate, not a problem. All eyes are on the next inflation print. If that comes a little bit too high, then, you know, they will need to act. If they don't, there is a real reputational issue that the Fed is in lockstep with the US government. And that credibility issue could then see short-end yields, you know, either back up more or you could see the repercussions lead to just a general further sell off in the Treasury curve.

EW: So, I guess to summarise heading into the Autumn, we're bracing for a bumpy couple of months, as energy bills, jittery bond markets and the US tensions are weighing on investors worldwide. Oli, thank you so much for being here and all your expertise.

OF: Thanks for having me.