Executive Summary

Global financial markets experienced a volatile September as persistent inflation, elevated energy prices and increasingly restrictive monetary policy challenged the resilience demonstrated by equities throughout much of 2026. Government bond markets suffered particularly significant pressure, while equity performance became increasingly dependent upon a relatively narrow group of artificial-intelligence and technology companies.

US equities produced mixed results. The Dow Jones Industrial Average declined approximately 4.3% and the S&P 500 fell around 0.5%, while the Nasdaq Composite gained approximately 1.9%. The divergence reflected continued strength among selected AI, semiconductor and software companies despite considerable weakness across the broader market.

The Federal Reserve delivered one of the month's most important policy developments, unanimously increasing the federal funds target range by 25 basis points to 3.75%–4.00%. The move represented the Federal Reserve's first rate increase since July 2023 and formally reversed the easing cycle that had begun in 2024.

The Federal Reserve stated that economic activity continued to expand at a solid pace, domestic spending remained resilient, productivity growth was strong and capital investment remained robust. Inflation, however, remained elevated, prompting policymakers to conclude that tighter policy was required to support a more timely return towards the 2% objective.

The European Central Bank also tightened monetary policy, raising its deposit facility rate by 25 basis points to 2.50%. The ECB cited continuing inflation pressure associated with the Middle East conflict and projected eurozone headline inflation of approximately 3.0% for 2026.

The Bank of England took a different approach, maintaining Bank Rate at 3.75% by a 6–3 majority. Three Monetary Policy Committee members favoured an increase to 4.00%. UK CPI inflation had risen to approximately 3.1% in August and was expected to increase further, but policymakers judged that existing restrictive financial conditions and a softer labour market justified waiting for additional evidence.

Government bond markets remained under severe pressure. The US 10-year Treasury yield moved above 5%, reaching levels not experienced since before the global financial crisis. Similar increases occurred across European, UK and Japanese sovereign debt as investors demanded greater compensation for persistent inflation, fiscal deficits and rising government borrowing requirements.

Energy remained one of the dominant macroeconomic influences. Oil prices stayed elevated as attempts to reach a durable settlement involving the United States and Iran repeatedly failed to produce a breakthrough. Brent crude remained around or above $100 per barrel for parts of the month, maintaining pressure on global inflation expectations.

Gold performed poorly despite geopolitical and inflation uncertainty, falling approximately 6.6% as rising real yields and a stronger US dollar reduced the attractiveness of non-yielding assets. Bitcoin proved considerably more resilient, gaining approximately 7% during the month.

Key Themes During September

• The Federal Reserve raised rates by 25 basis points to 3.75%–4.00%.
• The increase was the Federal Reserve's first since 2023.
• The ECB raised its deposit facility rate to 2.50%.
• The Bank of England maintained Bank Rate at 3.75% by a 6–3 vote.
• US 10-year Treasury yields moved above 5%.
• The S&P 500 declined modestly while the Nasdaq remained positive.
• Market leadership became increasingly concentrated in AI-related companies.
• Oil remained elevated amid continuing US–Iran uncertainty.
• Gold declined sharply despite persistent inflation.
• Bitcoin continued to attract demand amid concerns surrounding sovereign debt and currencies.

Global Economic Overview

The global economy remained more resilient than financial conditions might have suggested during September. Growth continued across most major economies, but inflation remained above central-bank targets and higher energy costs complicated the outlook. Monetary policy consequently became increasingly restrictive.

United States

US economic activity continued to expand at a solid pace. Household spending remained resilient, productivity growth was strong and business capital investment remained robust, particularly across artificial intelligence, data centres and advanced manufacturing.

The labour market also remained relatively stable. The unemployment rate was approximately 4.1% in August, while job creation broadly kept pace with labour-force growth.

Federal Reserve

At its 15–16 September meeting, the Federal Open Market Committee unanimously increased the federal funds target range by 25 basis points to 3.75%–4.00%.

The decision represented the first US rate increase since July 2023 and confirmed that the monetary-policy cycle had changed decisively. The Federal Reserve had reduced rates several times during 2024 and 2025 but persistent inflation, energy disruption and resilient economic activity ultimately required renewed tightening.

The Committee stated that the increase would support a more timely return of inflation towards its 2% objective while acknowledging that uncertainty remained elevated because of geopolitical developments.

US Inflation

PCE inflation remained approximately 3.7%, substantially above the Federal Reserve's 2% target. Higher energy prices, tariffs and strong demand for investment goods continued to contribute to price pressure.

Federal Reserve policymakers increasingly focused on preventing temporary supply-driven inflation from becoming embedded within wages and broader pricing behaviour.

US Growth

Despite tighter financial conditions, the economy continued to benefit from substantial business investment. Artificial-intelligence infrastructure remained particularly important, supporting construction, electrical equipment, semiconductors, utilities and software.

Eurozone

The eurozone economy remained relatively resilient despite high energy costs. The ECB revised its 2026 growth forecast slightly higher to approximately 0.9%, with growth expected to improve to 1.4% during 2027.

Inflation nevertheless remained considerably above target. ECB staff projected headline inflation averaging approximately 3.0% during 2026, 2.5% during 2027 and 2.1% during 2028.

European Central Bank

On 10 September, the ECB raised all three key policy rates by 25 basis points. The deposit facility rate increased to 2.50%, the main refinancing rate to 2.65% and the marginal lending facility rate to 2.90%.

The ECB explicitly cited continuing Middle East-related inflation pressure and emphasised that inflation was expected to remain substantially above target for an extended period.

United Kingdom

UK CPI inflation increased to approximately 3.1% in August and the Bank of England expected inflation to rise further over subsequent quarters as higher crude and refined energy prices passed through to households and businesses.

Economic activity nevertheless remained slightly stronger than previously anticipated, supported by investment and government spending.

Bank of England

The Monetary Policy Committee voted 6–3 to maintain Bank Rate at 3.75%. Three members preferred an immediate increase to 4.00%.

The Bank concluded that there was still relatively little evidence of material second-round effects within wages and domestic pricing. However, it judged inflation risks to be increasingly tilted to the upside.

The Bank also announced a multi-year plan to unwind the remaining stock of government bonds accumulated under quantitative easing, with the portfolio scheduled to decline to zero by the end of 2034.

Japan

Japan continued its gradual transition towards structurally higher interest rates. Domestic inflation, wage growth and fiscal expenditure kept pressure on Japanese government-bond yields, while technology exports and corporate investment remained supportive of growth.

China

China's economy remained supported by manufacturing, technology exports and government stimulus, although property weakness and subdued household confidence continued to limit domestic demand.

Chinese authorities continued prioritising advanced manufacturing, semiconductor development and strategic industrial capacity.

Global Outlook

The global economy entered the final quarter of 2026 with growth remaining surprisingly resilient but financial conditions becoming increasingly restrictive. The combination of high energy prices, elevated bond yields and renewed central-bank tightening represented the principal challenge for the remainder of the year.

Equity Markets

Global equity markets experienced substantial volatility during September but remained remarkably resilient considering the scale of the increase in bond yields. The MSCI World Index declined approximately 1.3%, although global equities remained more than 12% higher for the year and close to record levels.

United States

US performance varied considerably by index. The Dow Jones Industrial Average declined approximately 4.3%, while the S&P 500 fell around 0.5%. The Nasdaq Composite gained approximately 1.9%, demonstrating the continuing influence of technology and artificial-intelligence companies.

The divergence illustrated an increasingly important characteristic of the 2026 equity market: headline indices remained strong even while a substantial proportion of individual companies experienced considerably weaker performance.

Artificial Intelligence

AI remained the principal source of equity-market strength. Strong earnings, exceptional capital expenditure and continuing demand for computing infrastructure supported selected semiconductor, memory and software businesses.

However, concerns regarding valuation, electricity requirements and the sustainability of extraordinary capital expenditure created substantial volatility within the sector.

Semiconductors

Semiconductor shares generally proved more resilient than broader hardware and electronic-equipment companies. Demand for advanced processors and high-bandwidth memory remained exceptionally strong.

Financials

Higher policy rates offered potential support to bank interest margins, but rapidly rising long-term yields increased concern surrounding credit quality, bond portfolios and refinancing risk.

Energy

Energy remained one of the strongest areas of the market as oil prices stayed elevated. Producers and selected energy-service companies benefited from stronger commodity prices and continuing concern regarding global supply security.

Europe

European equities faced pressure from higher ECB rates, elevated energy costs and rising government-bond yields. Financial and defence companies remained comparatively resilient, while rate-sensitive and consumer-oriented sectors generally struggled.

United Kingdom

The FTSE 100 recorded its largest monthly decline since March. The index nevertheless completed a seventh consecutive positive quarter, demonstrating the broader resilience of UK large-cap equities during 2026.

Asia-Pacific

Asian markets produced mixed returns. Technology-oriented markets remained supported by AI demand, while energy-importing economies faced pressure from elevated oil prices and higher US interest rates.

India

India experienced a particularly difficult month. The Nifty 50 and Sensex declined approximately 6%, affected by high oil prices, foreign investor outflows and rising global bond yields.

Indicative September Performance

Fixed Income Markets

Fixed income was at the centre of September's market volatility. Government-bond yields moved sharply higher as central banks tightened policy and investors demanded greater compensation for inflation and rapidly expanding sovereign debt.

US Treasuries

The US 10-year Treasury yield moved above 5%, reaching levels not experienced since before the 2007–2008 global financial crisis. The 30-year yield moved even higher, exceeding 5.5% during periods of particularly intense selling.

The Federal Reserve's September rate increase reinforced expectations that monetary policy could remain restrictive well into 2027.

Yield Curve

Long-term yields increased alongside shorter maturities, reflecting both monetary-policy expectations and a higher term premium associated with fiscal deficits, inflation uncertainty and heavy government issuance.

European Government Bonds

European sovereign yields also moved higher following the ECB's second rate increase of 2026. Large defence and infrastructure programmes added to expected government borrowing requirements.

UK Gilts

UK gilts remained under pressure as inflation reached 3.1% and the Bank of England maintained the possibility of further tightening. The announcement that the remaining QE portfolio would ultimately be fully unwound also reinforced the long-term transition towards a smaller central-bank presence in the gilt market.

Japanese Government Bonds

Japanese government yields remained close to multi-decade highs as investors anticipated further monetary normalisation and substantial fiscal borrowing.

Investment-Grade Credit

Corporate credit remained more resilient than government debt because strong earnings limited immediate default concerns. However, the increase in underlying sovereign yields substantially increased absolute borrowing costs.

High-Yield Credit

High-yield markets increasingly differentiated between companies with strong cash flow and those requiring frequent refinancing. Businesses dependent upon cheap leverage faced significantly more difficult conditions.

Private Credit

Private credit continued to offer attractive headline yields, but higher base rates increased stress among weaker borrowers. Interest coverage, maturity schedules and covenant protection became increasingly important underwriting considerations.

Foreign Exchange

Foreign-exchange markets were strongly influenced by monetary-policy divergence, geopolitical uncertainty and government-bond yields during September.

US Dollar

The US dollar strengthened as the Federal Reserve increased rates and markets anticipated the possibility of additional tightening. Higher Treasury yields also increased the relative attractiveness of dollar-denominated assets.

Euro

The euro received support from the ECB's 25-basis-point increase, although elevated energy-import costs remained a significant economic headwind.

Sterling

Sterling remained supported by expectations that Bank Rate could eventually rise to 4.00%, although UK fiscal concerns and elevated gilt yields created considerable volatility.

Japanese Yen

The yen experienced exceptional volatility as Japanese and US authorities became increasingly concerned about disorderly currency movements. Coordinated intervention was used during the quarter to stabilise the currency.

Chinese Renminbi

The renminbi remained comparatively managed as Chinese authorities balanced domestic monetary accommodation against the need to limit excessive capital outflows.

Emerging-Market Currencies

Higher US rates and a stronger dollar created renewed pressure on emerging-market currencies, particularly those belonging to energy-importing economies with substantial dollar-denominated financing requirements.

Commodities

Commodity markets remained central to the global inflation outlook during September. Oil prices stayed elevated while precious metals weakened under pressure from higher real interest rates.

Oil

Oil remained volatile as negotiations involving the United States and Iran repeatedly failed to deliver a durable resolution. Brent crude traded around or above $100 per barrel during parts of the month and had risen approximately 40% during the third quarter.

The persistence of elevated oil prices maintained pressure on transport, manufacturing and household energy costs across the global economy.

Natural Gas

Natural-gas prices remained sensitive to Middle Eastern supply routes and approaching winter demand within Europe and Asia.

Gold

Gold declined approximately 6.6% during September, its weakest month since June. Rising Treasury yields and a stronger dollar outweighed the normally supportive effects of geopolitical uncertainty and inflation.

The decline demonstrated that gold's short-term performance remains highly sensitive to real interest rates even when longer-term demand from central banks and institutional investors remains strong.

Silver

Silver also weakened as higher real yields reduced demand for precious metals, although industrial requirements associated with electronics and electrification continued to provide structural support.

Copper and Industrial Metals

Industrial metals remained supported by electricity infrastructure, defence spending and artificial-intelligence investment, although higher financing costs limited speculative demand.

Agricultural Commodities

Food and agricultural prices remained vulnerable to elevated fuel, fertiliser and transportation costs, adding to concern that headline inflation could remain above central-bank targets.

Digital Assets

Digital assets remained comparatively resilient during September despite rising interest rates and substantial volatility across conventional financial markets.

Bitcoin

Bitcoin gained approximately 7% during September and traded above $86,000 during parts of the month.

The performance contrasted with gold's substantial decline and reinforced the increasing perception among some investors that Bitcoin could function as an alternative scarce asset during periods of concern surrounding government debt and fiat currencies.

Ethereum

Ethereum remained supported by continuing development of tokenised financial markets and institutional blockchain infrastructure, although performance remained volatile.

Institutional Adoption

Institutional participation continued through exchange-traded products, custody services and tokenised investment vehicles. Digital assets increasingly formed part of broader discussions surrounding portfolio diversification and monetary risk.

Stablecoins

Stablecoins continued expanding their role within payments and digital settlement. Their substantial holdings of short-dated government securities also made the sector increasingly relevant to conventional financial markets.

Tokenisation

Banks and asset managers continued experimenting with tokenised funds, deposits and securities, reinforcing the distinction between blockchain infrastructure and speculative cryptocurrency trading.

Risk Considerations

• Bitcoin gained approximately 7% during September.
• Higher interest rates did not prevent digital-asset appreciation.
• Institutional participation remained significant.
• Fiscal concerns supported interest in scarce digital assets.
• Volatility and regulatory uncertainty remained substantial.

Private Equity

Private-equity markets entered a more challenging financing environment during September as sovereign yields increased sharply and major central banks returned to monetary tightening. Strong corporate earnings and public-market valuations continued to support exits, but acquisition financing became increasingly expensive.

Deal Activity

Infrastructure, technology, healthcare, industrial services and energy remained active areas. Investors increasingly prioritised businesses capable of generating strong cash flow without requiring aggressive leverage.

Financing

The Federal Reserve and ECB rate increases raised benchmark financing costs directly. Higher long-term sovereign yields also increased the cost of fixed-rate acquisition debt.

Transactions dependent upon rapid refinancing or substantial multiple expansion consequently became more difficult to justify.

Artificial Intelligence

AI remained one of the most active areas of private investment. However, the extraordinary quantities of capital already committed to infrastructure increased the importance of utilisation, customer concentration and return-on-invested-capital assumptions.

Energy

Persistently high oil prices increased interest in energy security, power generation and efficiency. Assets providing essential infrastructure remained particularly attractive where revenues were contracted rather than directly exposed to commodity prices.

Exits

Public equity markets remained sufficiently strong to support IPOs and strategic sales, particularly for high-quality businesses. However, rising bond yields increased the valuation discount applied to businesses with distant or uncertain cash flows.

Secondaries

Secondary-market activity remained strong as institutional investors sought liquidity and buyers attempted to acquire mature portfolios at attractive discounts.

CE Global Private Equity Observations

• Acquisition financing became more expensive.
• Strong cash generation became increasingly valuable.
• AI infrastructure remained attractive but capital intensive.
• Energy security continued to create investment opportunities.
• Higher discount rates increased valuation discipline.

Artificial Intelligence & Technology

Artificial intelligence remained one of the strongest supports for global economic growth and equity markets during September, even as higher interest rates created a more demanding valuation environment.

Semiconductors

Demand for AI processors, high-bandwidth memory and advanced networking equipment remained exceptionally strong. Semiconductor companies continued to benefit from hyperscaler capital expenditure and expanding enterprise adoption.

Memory

AI-related demand created particularly strong conditions within advanced memory markets. Capacity shortages and increasing requirements for high-bandwidth memory supported substantial revenue growth among leading suppliers.

Software

Software companies continued integrating generative and agentic AI capabilities into existing products. Businesses demonstrating measurable customer adoption and revenue generation generally received stronger investor support.

Capital Expenditure

Hyperscaler expenditure remained exceptionally large. Data centres increasingly required significant external financing, linking AI development directly to global credit and bond markets.

Power Infrastructure

Electricity availability remained a critical constraint. High energy prices further increased the importance of efficiency, dedicated generation and reliable grid access.

AI Market Concentration

September highlighted the degree to which major equity indices depended upon a relatively small group of AI-related companies. This concentration represented a growing portfolio risk even where the underlying businesses continued to perform strongly.

Technology Risks

• Equity-market leadership remains highly concentrated.
• AI infrastructure requires enormous amounts of capital.
• Higher bond yields increase required investment returns.
• Electricity availability remains a major constraint.
• Valuations increasingly depend upon measurable monetisation.

Sector Spotlight

Private Credit

September's sector spotlight examines private credit as higher central-bank rates and rising sovereign yields fundamentally alter the economics of corporate borrowing.

Structural Growth

Private credit expanded rapidly during the low-rate period as institutional investors sought higher yields and companies sought alternatives to conventional bank financing.

Higher Base Rates

Floating-rate private loans can generate attractive income for lenders when central-bank rates increase. However, the same mechanism raises interest expense for borrowers immediately.

Interest Coverage

Companies originally financed under assumptions of falling interest rates may now face substantially greater debt-service requirements. Interest coverage therefore becomes one of the most important underwriting measures.

Refinancing Risk

Businesses approaching maturity may discover that replacement financing is considerably more expensive than their existing debt. Companies with strong cash flow can generally absorb this increase, while highly leveraged borrowers may require additional equity.

Covenants

Stronger covenant packages become more valuable during periods of financial stress by giving lenders greater ability to intervene before borrower value deteriorates substantially.

Liquidity

Private loans are inherently illiquid. Investment vehicles offering frequent investor redemptions therefore require careful liquidity management, particularly during periods when investors simultaneously seek to reduce risk.

Private-Market Opportunities

• Senior secured lending
• Asset-backed finance
• Special situations
• Rescue financing
• Infrastructure debt
• Secondary private-credit portfolios

Principal Risks

Default rates could increase if interest rates remain elevated for an extended period. Valuation opacity and limited secondary-market liquidity can also delay recognition of deteriorating credit quality.

Investment Perspective

Higher interest rates create both opportunity and risk within private credit. High-quality senior lending can generate attractive contractual returns, while weaker borrowers increasingly require restructuring or additional capital. Manager underwriting discipline therefore becomes considerably more important than during periods of abundant liquidity.

Regulatory Update

September produced significant changes across global monetary policy and financial-market regulation, with major implications for private-market investors.

Federal Reserve

The Federal Reserve increased its target range by 25 basis points to 3.75%–4.00%. The unanimous decision represented the first US monetary-policy increase since July 2023 and confirmed a renewed tightening cycle.

European Central Bank

The ECB increased its deposit facility rate to 2.50%, main refinancing rate to 2.65% and marginal lending facility rate to 2.90%. The Bank emphasised that Middle East-related inflation was expected to remain above target for an extended period.

Bank of England

The Bank of England maintained Bank Rate at 3.75%, although three policymakers voted for an increase to 4.00%.

The MPC also approved a multi-year programme to reduce its remaining government-bond portfolio to zero by the end of 2034, representing an important new stage of quantitative tightening.

Artificial Intelligence

Regulatory attention increasingly focused on autonomous AI agents, cybersecurity, model accountability and access to sensitive information as enterprise deployment expanded.

Private Credit

Higher interest rates increased regulatory and institutional attention on private-credit valuations, liquidity terms and borrower leverage.

Digital Assets

Stablecoin reserves, cryptocurrency taxation and institutional custody remained active areas of regulatory development as digital assets became increasingly integrated into conventional financial markets.

Compliance Priorities

• Update financing models for higher US and eurozone rates.
• Stress-test portfolio companies against further tightening.
• Review private-credit interest coverage and refinancing schedules.
• Monitor AI governance and cybersecurity requirements.
• Review liquidity assumptions within private-market funds.
• Maintain conservative valuation procedures as discount rates increase.

Looking Ahead

Markets entered the final quarter of 2026 facing a considerably more restrictive monetary environment than existed at the beginning of the year. Strong corporate earnings continued to support equities, but rising interest rates, elevated oil prices and exceptionally high government-bond yields created substantial risks.

Federal Reserve

The Federal Reserve's September increase shifted attention immediately towards the possibility of further tightening. Inflation remained approximately 3.7%, well above target, while economic activity and employment remained sufficiently resilient to tolerate higher rates.

Markets would therefore focus closely on September employment and inflation data ahead of the Federal Reserve's October meeting.

European Central Bank

The ECB's second increase of 2026 demonstrated that European policymakers remained prepared to tighten policy despite relatively modest economic growth. Further increases would depend upon energy prices and evidence of second-round inflation.

Bank of England

The Bank of England remained more cautious, but the three votes for a September increase demonstrated that a move to 4.00% remained a realistic possibility if UK inflation continued rising.

Government Bonds

Sovereign yields above 5% represent an increasingly important challenge for equity valuations, corporate refinancing and government finances. A further disorderly increase in yields could become one of the most significant risks to financial markets during the fourth quarter.

Middle East and Energy

The unresolved US–Iran conflict remained central to the inflation outlook. A durable agreement reopening normal shipping routes could reduce oil prices substantially, while renewed escalation could produce another energy shock.

Artificial Intelligence

AI remained the strongest source of corporate investment and equity-market optimism. However, market concentration increased the consequences of any disappointment in earnings, utilisation or capital-expenditure returns.

Corporate Earnings

Third-quarter earnings would test whether companies could continue absorbing higher wages, energy costs and financing expenses without significant margin deterioration.

Gold and Bitcoin

September demonstrated an unusual divergence between gold and Bitcoin. Higher real yields placed substantial pressure on gold while Bitcoin continued advancing. Both assets nevertheless remained important indicators of investor attitudes towards inflation, currencies and government debt.

Private Credit

The renewed central-bank tightening cycle increased the probability of stress among highly leveraged borrowers. Refinancing requirements during 2027 and 2028 would therefore become increasingly important to portfolio analysis.

Private Markets

Higher discount rates should create greater valuation discipline and potentially attractive entry points for investors with available capital. Infrastructure, energy security, industrial technology and selected credit opportunities remain particularly interesting.

CE Global Private Equity Perspective

September represented an important change in the investment environment. The Federal Reserve's first rate increase since 2023 confirmed that investors can no longer assume that the post-2024 monetary-policy cycle will steadily move towards cheaper capital.

The combination of strong economic activity and persistent inflation creates a challenging but potentially attractive environment for private investors. Companies with strong margins, recurring revenues and conservative leverage can continue performing well, while businesses dependent upon cheap refinancing are likely to face increasing pressure.

CE Global Private Equity believes that the sharp increase in government-bond yields reinforces the importance of valuation discipline. Higher risk-free rates increase the return required from all investments and reduce the justification for paying exceptional multiples unless growth and cash generation are equally exceptional.

Artificial intelligence remains one of the most important structural opportunities, but concentration risk has increased significantly. Exposure to the supporting infrastructure — including electricity, cooling, networking, cybersecurity and specialist industrial equipment — may provide attractive participation without relying entirely upon the valuations of a small number of technology companies.

Private credit is also becoming increasingly interesting. Higher rates provide attractive contractual yields for lenders with disciplined underwriting, while refinancing stress may create opportunities within special situations, rescue finance and secondary portfolios.

Entering the final quarter, CE Global Private Equity continues to favour moderate leverage, strong free cash flow, pricing power and businesses whose investment case remains viable under conservative assumptions. In an environment where both inflation and interest rates can remain elevated for longer than expected, financial resilience is becoming an increasingly valuable competitive advantage.

This market review is provided for general information and discussion purposes only. It does not constitute investment, legal, tax or other professional advice, nor an offer or solicitation to purchase or sell any security, financial instrument or investment product. Market values can rise or fall, and past performance is not a reliable indicator of future results.