A Weekly Survey of Markets, Policy, & Power
Issue No. 29·Sunday, the 4th of October, MMXXVI·London
- On 2 October the G7 agreed to release up to 100 million barrels of diesel and crude over four months. It is a response to a fuel shock, and also an attempt to calm bond markets that the fuel shock has unsettled.
- The 30-year gilt yield reached 6% for the first time since 1998. That makes the UK the first G7 economy to pay so much for long-term money since Italy in 2012, and Britain is where the energy shock now bites hardest.
- The US 30-year Treasury touched 5.501% on 24 September and, according to Reuters, topped 5.65% by 1 October, its highest since 2002. August payrolls were revised down to 133,000. The Fed is tightening into a weakening jobs market.
- ArcelorMittal said it cannot restart Kryvyi Rih after four missile strikes in five weeks and expects an impairment of about $1 billion. A pause in Ukrainian steel has become a loss.
The Editor's View
A note from the desk
The G7's barrels buy weeks; the bond market is pricing Hormuz
Your heating bill and your government's borrowing bill are now being set in the same narrow stretch of water off Iran. The G7's answer this week was to open the emergency stockpiles: up to 100 million barrels of diesel and crude over four months, with diesel first. The Research Brief takes the view that the 30-year gilt yield will still be at or above 6% when the 20-day diesel phase of the G7 release ends, because a stockpile can calm fuel prices for a few weeks while bond investors are pricing how long the Strait of Hormuz stays disrupted.
Reserves run out. Nothing in the G7 statement reopens the strait, and Bailey has already said the longer energy volatility lasts, the likelier a rise in Bank Rate. The strongest case against us is that markets trade on expectations: a coordinated release, backed by more production and cheaper tanker insurance, could break the inflation scare before the barrels even arrive. If the 30-year gilt falls back below 6% while ships still cannot pass freely through Hormuz, we misread what the bond market is pricing.
— The EditorFor you, in one line
UK · Mortgage, rent and bills
Energy bills rose 4% to £1,723 a year for a typical household on 1 October, and the Bank of England has warned a rate rise is getting likelier.
The reasoning, and what it means for your country, continues in The Deep Dive.
The Deep Dive
- Hormuz disruption keeps oil and gas dear
- Oil, airlines, housebuilders, utilities, government bonds
- BP, Shell mixed; IAG, Persimmon, National Grid lose
- UK pays 6% to borrow long
- Energy bills up 4%; rate rise likelier
The G7's diesel release is aimed at the pumps, and at the gilt market behind them
Up to 100 million barrels from emergency reserves will buy time. Until shipping through the Strait of Hormuz is restored, it cannot settle a bond market that has pushed UK long-term borrowing costs to 6%.
What happened
Iran's disruption of shipping through the Strait of Hormuz has kept oil and gas expensive for long enough that it is no longer only an energy story. On 2 October the G7 agreed to release up to 100 million barrels of diesel and crude from emergency reserves over four months, with diesel front-loaded in the first 20 days. Leaders condemned Iran's disruption of energy trade and called for the full restoration of navigation through the strait. Macron said members would coordinate to raise production and to bring down transport costs such as tanker insurance. The UK government published the leaders' statement the same day.
The bond market had forced the pace. The 30-year Treasury yield touched 5.501% on 24 September, its highest since 2004, and the 10-year reached 5.223%, a level last seen in 2007. The selling did not stop there: by 1 October the 30-year Treasury had topped 5.65%, its highest since 2002, according to Reuters. That same day, according to Bloomberg, the 30-year gilt yield climbed to 6% for the first time since 1998, and the FTSE 100 fell 2.0%.
The chain from tanker to Treasury is short. Higher wholesale gas prices from the Middle East conflict lifted Ofgem's cap 4% to £1,723 a year for a typical dual-fuel household from 1 October. Dearer oil revives inflation fears, investors then demand more to lend to governments for thirty years and bet on further rate rises, and shares fall as the safe return climbs. A stockpile release attacks only the first link.
Sectors and companies
► MixedBP and Shell sit on both sides of the G7 decision. The Hormuz disruption has kept crude expensive, which feeds straight into their upstream cash flow. But the release, together with the promised rise in production, is designed to push that price down over the next four months. The FTSE 100, where the two oil majors are among the largest companies, fell 2.0% on 1 October anyway. When gilts move this violently, an oil tailwind does not protect even London's oil-heavy index.
▼ LoseIAG and easyJet get the least from this package. The opening 20 days are about diesel. Jet fuel, the airlines' largest variable cost, benefits only to the extent that more crude reaching refiners pulls every fuel price down. If the release disappoints, the airlines carry a high fuel bill and face customers whose own energy bills have just gone up.
▼ LosePersimmon, Barratt Redrow and Taylor Wimpey are exposed through the gilt market. UK fixed mortgage rates are priced off the rates lenders pay to borrow for several years, and those move with gilts. Bailey's warning that a rise in Bank Rate grows likelier the longer energy volatility persists adds pressure on short-term rates as well. Buyers who can afford less at higher monthly payments show up first in housebuilders' sales rates and only later in their profits.
▼ LoseNational Grid and SSE trade like bonds with a dividend attached, and both borrow heavily to fund network spending. When a 30-year gilt pays 6%, their payouts look less special and their refinancing bills rise. These are the kind of shares that get marked down first when government yields jump.
Your edition
What it means for your country
In the UK
The UK is the sharpest case. A 30-year gilt yield of 6% makes Britain the first G7 economy to pay that much since Italy in 2012. Every extra fraction on long-term borrowing eats into the room that Andy Burnham, Prime Minister since 20 July, and his Chancellor, John Healey, have for anything else, including help with energy bills. Inflation reached 3.1% in August. The Bank held at 3.75% on 17 September, and Bailey has said the longer energy volatility lasts, the more likely a rise becomes.
In the United States
Americans are getting the same shock with a more aggressive central bank. The Fed raised rates to 3.75%-4.00% on 16 September. Bets on another hike then pushed the 30-year Treasury to 5.501% on 24 September and the 10-year to 5.223%, and by 1 October the 30-year had topped 5.65%, its highest since 2002, according to Reuters. Hiring is fading underneath: August payrolls were revised to 133,000, and July turned into a loss of 10,000. Washington's interest bill rises with every bond sold at these yields, which is the fiscal end of a story that started with oil.
In the Eurozone
Europe's bond trouble is more home-grown. France's 10-year yield has held above 4.5% since rising past it for the first time since 2008, and its borrowing costs are now among the highest in the G7. A budget fight is driving that more than oil is. France, Germany and Italy all share in the G7 release as members. So France is the control case: if energy eases and French yields stay up, Europe's problem is its budgets.
Elsewhere in the world
The G7 chose a coordinated supply response instead of waiting on diplomacy over Hormuz: up to 100 million barrels over four months, plus work to raise production and cut tanker insurance costs. A strategist quoted by CNBC described fiscal, economic, geopolitical and supply-side inflation pressures converging on bond markets. That is a polite way of saying an oil shock has become a government-funding shock. Any country that borrows in these markets now pays more because the largest borrowers do.
What it means for you
Mortgage, rent and bills
Energy bills rose 4% to £1,723 a year for a typical household on 1 October, and the Bank of England has warned a rate rise is getting likelier.
Ofgem's cap covers 1 October to 31 December 2026. It rose because of higher wholesale gas prices from the Middle East conflict, though it is still 52% below the 2022 peak. Bank Rate is 3.75%, and Bailey has said the longer energy prices stay volatile, the more likely the Bank will need to raise it. Households on tracker or variable mortgages would feel that directly. Fixed deals are priced off borrowing costs that have climbed alongside gilt yields.
Savings and pensions
Savings rates follow Bank Rate, held at 3.75%, and the Governor says a rise grows likelier the longer energy prices stay volatile.
Rates on cash accounts tend to track Bank Rate, so savers gain if Bailey's warning turns into a rise. The 30-year gilt yield reached 6%, the first time since 1998, which is what the government now pays to borrow for that long. Pension funds and others who already hold gilts have seen the value of those bonds fall as yields rose.
Investing
The FTSE 100 fell 2.0% on 1 October as rising oil prices pushed the 30-year gilt yield to 6%, the first time since 1998.
Bloomberg called the FTSE one of the worst-performing regional benchmarks that day. When the government can borrow for 30 years at 6%, shares have to offer more to compete. Companies that borrow heavily, or that investors treat like bonds, such as utilities, tend to be marked down first. UK funds holding gilts have seen bond prices fall as yields rose.
Your job or business
Nothing in this story changes much for jobs or pay in the UK this week.
Mortgage, rent and bills
The 10-year Treasury yield reached 5.223%, its highest since 2007, and US home loan rates are generally priced off longer Treasury yields.
That pressure falls on buyers and on homeowners hoping to refinance. We have no checked figure for this week's mortgage rates, so we cannot say how much of the rise lenders have passed on yet. The direction is clear enough while bets on another Fed hike keep long-term yields up.
Savings and pensions
The Fed raised rates to 3.75%-4.00% and now pays banks 3.90% on reserves; rates on cash tend to follow.
Savers with cash in savings accounts and money-market funds benefit as banks pass the higher rate on. They keep benefiting while further rises stay on the table. The Fed's first increase since 2023 was unanimous, which makes a quick reversal less likely.
Investing
The 30-year Treasury touched 5.501% on 24 September, the highest since 2004 at the time, as bets on another Fed hike mounted.
Yields kept climbing into October. Rising yields cut the price of bonds people already own, including those held in retirement funds. They also raise the bar for shares, because the return on government debt climbs while company earnings may be squeezed by dearer energy and slower hiring.
Your job or business
Hiring is slowing: August payrolls were revised down to a gain of 133,000, and July to a loss of 10,000 jobs.
That is the jobs market the Fed raised rates into on 16 September. Higher borrowing costs tend to bite first on businesses that rely on credit, such as builders and smaller firms. Workers there are the most exposed if the Fed hikes again.
Mortgage, rent and bills
Nothing in this story changes much this week for mortgages, rents or energy bills in Europe that we can show.
Savings and pensions
Nothing in this story changes much this week for savers or pension holders in Europe that we can show.
Investing
French 10-year yields have held above 4.5% since rising past it for the first time since 2008, among the highest borrowing costs in the G7.
People holding French government bonds, directly or through funds, have seen prices fall. The pressure in France is mostly about its budget and a fragile minority government. That makes the budget vote on 17 November a bigger event for these bonds than anything the G7 does on oil.
Your job or business
France's 2027 budget targets a 54 billion euro adjustment, including a freeze on public-sector wages.
French public-sector workers are the group most directly affected. The pay freeze is part of how the government hopes to persuade lenders it can bring borrowing down, at a time when its borrowing costs are among the highest in the G7. Whether the freeze survives depends on the vote on 17 November.
Mortgage, rent and bills
Nothing in this story changes much this week for household bills or mortgages outside the UK, US and France that we can show.
Savings and pensions
Nothing in this story changes much this week for savers outside the UK and US that we can show.
Investing
Bond markets are pricing fiscal, geopolitical and supply-side inflation pressures together, pushing UK and US long-term borrowing costs to multi-decade highs.
When the largest government borrowers pay more, government bonds held in funds and pensions around the world lose value, and the safe return every other investment has to beat goes up. The UK is the first G7 economy to pay 6% on long-term debt since Italy in 2012.
Your job or business
Businesses that run on diesel and shipping are the direct target of the G7 release, with diesel coming first in the opening 20 days.
Hauliers and farmers who burn diesel stand to see the earliest relief if the release works. Leaders also said they would coordinate to raise production and cut transport costs such as tanker insurance, which feeds into what refiners and fuel buyers pay. The release runs for four months; after that, relief depends on shipping through Hormuz being restored.
What happens next, and what would prove us wrong
The first test is the 20-day diesel phase. If fuel prices ease, inflation fears should ease with them, and long-term yields should follow. Bailey has tied the Bank's next move to how long energy volatility lasts, which makes Threadneedle Street a follower of the oil market for now. Ofgem's current cap runs from 1 October to 31 December 2026, so any further rise in wholesale gas shows up in the next one, and a release of diesel and crude does little for gas. France's budget vote on 17 November is the cleanest read on how much of Europe's bond pressure comes from budgets.
We could be wrong in two ways, and they point in opposite directions. Gilt yields back below 6% while ships still cannot pass freely through Hormuz would mean the stockpile alone was enough to calm bond investors. Fuel prices falling while gilt and Treasury yields stay at their highs would mean the sell-off was mostly about budgets. In that case we would have the number right and the reason wrong.
Flashpoints
- Strait of HormuzEscalatingDisruption is serious enough that the G7 agreed on 2 October to release up to 100 million barrels from reserves, according to NPR.energy · transport · airlines · bonds
- Russia-Ukraine warEscalatingArcelorMittal said four missile strikes in five weeks leave it unable to restart Kryvyi Rih safely, and it expects an impairment of about $1 billion.steel · commodities
Directions describe the past week only.
The Rest of the Week
Fed hikes, Bank of England holds, and US hiring weakens
The Fed raised its range by a quarter of a point to 3.75%-4.00% on 16 September, its first rise since 2023, and did it 12-0. The next day the Bank of England held at 3.75% on a 6-3 vote, with inflation at 3.1% in August. Unanimity in Washington and a split in London show which bank was quicker to act on the energy shock, and Bailey has said the longer volatility persists, the more likely the Bank will need to follow.
Then the revisions arrived: US August payrolls cut to 133,000 and July turned into a loss of 10,000. A Fed tightening into a weakening jobs market is hard on US housebuilders such as Lennar and D.R. Horton, whose buyers face dearer mortgages just as hiring slows.
France's budget fight pushes its borrowing costs towards the top of the G7
France's 10-year yield rose above 4.5% for the first time since 2008 and has stayed there. Finance Minister Roland Lescure set out a 54 billion euro adjustment for 2027, including a public-sector pay freeze, against a deficit of 5.1% of GDP last year and debt of 119% of GDP by end-June. More than 400 schools closed amid student unrest over facilities and teacher shortages. Sébastien Lecornu's minority government now has to carry painful cuts to a vote on 17 November.
The second-order exposure is French banks. Lenders such as BNP Paribas and Société Générale are large holders of their own government's debt, so rising French yields weigh on the value of those holdings and can lift their funding costs.
ArcelorMittal gives up on restarting its Ukrainian steelworks
ArcelorMittal told Ukraine's government it cannot restart operations at Kryvyi Rih in a safe and sustainable manner after four missile strikes in five weeks. It expects a non-cash impairment of approximately $1 billion, principally on property, plant and equipment. The word that matters is restart. Until this announcement the plant was a suspended asset that might come back; now the company expects to write down the value of the plant itself, and Ukraine loses one of its largest industrial sites. Because the charge is non-cash, it hits ArcelorMittal's book value and leaves its cash untouched. The heavier damage falls on Ukraine's export earnings and on the jobs around the steelworks.
Nike restructures as Accenture beats
Nike's revenue fell 4% to $11.21 billion, with China down 26%. It announced Pace, a four-year restructuring targeting $2.5 billion of savings by 2031, with layoffs starting in 2027, and its shares fell nearly 9% after hours. Accenture went the other way, surging as much as 22% after earnings of $3.29 a share on revenue of $18.68 billion beat the LSEG consensus of $3.18, with record large bookings.
The split is instructive. A consumer brand hit by falling sales in China is planning layoffs, while companies are still paying consultants for technology work with borrowing costs at multi-decade highs. Other sportswear and consumer brands selling into China face the same weak shopper when they next report.
Markets in Brief
London took one of the week's hardest blows. The FTSE 100 fell 2.0% on 1 October, one of the worst-performing regional benchmarks, according to Bloomberg, as the 30-year gilt yield reached 6%. The detail that matters is that London's index is full of oil producers that ought to enjoy dearer crude, and it fell anyway, so the bond market was setting the price of UK shares this week. In Paris, the 10-year yield has held above 4.5%, a budget problem the G7 cannot release its way out of.
New York was calmer. The SPDR S&P 500 ETF closed Friday at 769.64, down 0.22% on the week, and the Russell 2000 tracker slipped 0.16%. The Dow tracker did worst, down 1.23%, while the Nasdaq-100 tracker rose 0.68%. With the 30-year Treasury yield above 5.65% by 1 October, its highest since 2002 according to Reuters, long-dated growth stocks should have suffered most from higher yields. Instead the selling landed on the old-economy names in the Dow, while technology spending held up, as Accenture's results showed. Small companies, which tend to borrow at floating rates, barely moved, which is odd for a market facing a Fed that raised rates on 16 September and may do so again.
| Index | Symbol | Close | Δ Week |
|---|---|---|---|
| FTSE 100 | UKX | 10,461.95 | −2.2% |
| DAX 40 | DAX | 25,231.20 | −0.7% |
| CAC 40 | CAC | 7,897.19 | −2.2% |
| STOXX Europe 600 | SXXP | 631.35 | −1.1% |
| Closing prices, local currency · rounded | |||
| Index | Symbol | Close | Δ Week |
|---|---|---|---|
| S&P 500 ETF (SPDR) | SPY | 769.64 | −0.2% |
| Nasdaq-100 ETF (Invesco QQQ) | QQQ | 749.58 | +0.7% |
| Dow Jones ETF (SPDR) | DIA | 511.10 | −1.2% |
| Russell 2000 ETF (iShares) | IWM | 281.52 | −0.2% |
| Closing prices, USD · rounded | |||
The Week Ahead
The research holds only one dated event, and it is in November. The nearer test, the G7's 20-day diesel phase, has no fixed end date in our sources.
| Tuesday17 · xi · mmxxvi | France's National Assembly holds its solemn vote on the whole 2027 budget — A defeat for Lecornu's minority government would show that France's bond pressure is about budgets and politics, whatever happens to fuel prices.French National Assembly |