Written Commentary
The Ghost in the Machine: Q3 2026 Macro Outlook
September 28, 2026
Modest relief on energy prices as US pledges not to attack Iran before mid-terms, but conflict tensions remain; light schedule has Japan Household Spending, Canada jobs, US Michigan Sentiment and USDA WASDE, focus shifting to next week’s run of US & China inflation, China Trade, US Retail Sales & Industrial Production, earnings & IMF/World Bank meetings.
- AI risk appetite still strong, but array of pressures from bond yields, credit spreads and issuance, and very high bar set for earnings surprises advises caution
EVENTS PREVIEW
Energy Markets and Geopolitical Risks
The week ends with a continued run of often very conflicting signals, for example the US pledging not to attack Iran before the Mid-term elections offers relief, and yet the attacks on energy shipping in the Persian Gulf continue unabated, with Brent crude retreating only modestly and US retail Gasoline prices at $4.37 and diesel still at a whopping $6.28, even if down on last week’s $6.37.AI Enthusiasm and Earnings Expectations
While there remains an inordinately large amount of AI enthusiasm, the failed Firmus Ltd (backed by Nvidia) IPO in Australia, disappointment at what were truly spectacular sales and revenue gains at Samsung Electronics and TSMC, and a renewed bout of concerns over a further $100 Bln AI investment funding round from Softbank, all point to a good deal more caution, particularly given that the recent fresh equity index highs have been paced by a narrow AI focussed group of companies. This all comes just ahead of the official start of the US Q3 earnings season, which according to Factset are expected to see y/y earnings growth of 29.5%, BUT unusually earnings estimates have been revised higher since the start of Q3 when the estimate was 26.7%, even if this was driven very largely by Nvidia and Micron Technology. The point being that the 5-yr average for earnings growth estimates during a quarter has been a net downward revision of 2.2%, and the 10-yr average -2.5% – the bar for surprise rises is thus set very high.Bond Markets, Credit Conditions and the Week Ahead
There has been some relief for US Treasury yields on the week, but mostly at the front end of the curve as markets have pared back the slope of their Fed rate hike trajectory but still anticipating three further 25 bps hikes by September 2027. Credit spreads remain under upward pressure from the current and expected deluge of issuance, with MBS negative convexity risks easing after their late September spike, and only back at average levels for the past 5 years, neither are signalling major stress, but persistent upward pressure remains. European bond yields have the additional vulnerabilities from political risks, enormous fiscal strains as well as high energy prices (and associated costly fuel tax cuts and/or subsidies), with a lack of any desire (even ideas) to co-ordinate countermeasures for this or to improve poor energy infrastructure, and rising trade tensions with China, in addition to the USA making for an adverse backdrop, however resilient growth has been this year (underlined by much stronger than expected Swedish monthly GDP this morning). Be that as it may, the day’s calendar of data and events is rather light, with Japan’s Household Spending to digest ahead of Canada’s labour market report and preliminary US Michigan confidence this afternoon, while agricultural commodities look to the USDA’s World Agricultural Supply & Demand Estimates (WASDE), which is accompanied by some further central bank speakers and an EU Finance Ministers meeting. The focus is already to a busier week of scheduled major data and events next week, which in addition to an array of major earnings has US, China and Indian inflation reports, China Trade, US Retail Sales and Industrial Production, as well as annual IMF/World Bank meetings and accompanying Economic Forecasts update and Financial Stability Review.Disclaimer:
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