Rising oil prices put inflation back at the centre of attention in September 2026, and central banks and bond markets reacted sharply. Conflict in the Middle East kept Brent crude (the global oil benchmark) above US$100 a barrel for much of the month, at times touching US$108 to US$110. The US Federal Reserve, the European Central Bank, the Bank of Japan and the Reserve Bank of New Zealand all raised interest rates, and global government bonds had their worst quarter since late 2024.

Most share markets outside Asia fell. The US S&P 500 dropped 0.4%, Europe's STOXX 600 fell 1.9%, the UK's FTSE 100 was down 1.7% and Australia's ASX 200 fell about 3%, while the NZX 50 Index slipped 0.6% for the month. Shares linked to AI spiked down on the 14th September, when calls from AI leaders for slower development of new models knocked a closely watched chip index down 5% in a day - but sentiment recovered by month-end after an upbeat forecast from US chipmaker Micron.

Central bank movements

The Reserve Bank of New Zealand (RBNZ) raised the Official Cash Rate (OCR) by 0.25% to 2.75%. In its statement, the RBNZ pointed to the recent higher inflation reading and concerns about rising fuel prices as the main reasons for its decision.

Elsewhere, central banks also raised rates to fight oil-driven inflation. The US Federal Reserve (aka The Fed) lifted its interest rate in a unanimous vote, its first increase since 2023. Several officials, including New York Fed President John Williams, signalled that another rise is likely later this year, though with no rush at the October meeting.

The European Central Bank raised its deposit rate by 0.25% to 2.5%, its second rise since the Middle East conflict began, and markets are now pricing in four more quarter-point rises over the next year. The Bank of Japan raised its rate by 0.25% to 1.25%, in a split decision where two board members disagreed, and the yen weakened afterwards.

United States

America's economy was surprisingly sturdy in September. Employers added 162,000 jobs in August, more than almost every forecast, and unemployment held still at 4.1%. US consumer spending rose 0.6% after inflation, the biggest monthly spending gain since March 2025. A survey of business activity (known as the PMI, where readings above 50 signal growth) jumped to 58.4 in September, its highest since July 2021.

The catch was inflation. Prices rose 0.4% in August and 3.4% over the year, driven by energy, while inflation excluding food and energy was 2.4% over the year. That combination helps explain the Fed's decision to raise rates.

The S&P 500 fell 0.4% in US dollar terms. A strong economy and heavy AI spending were offset by higher bond yields and energy costs, and smaller companies struggled. Demand for AI held up though, with chipmaker TSMC reporting August revenue up 53% on a year earlier, and Dell lifting its annual revenue forecast by US$25 billion to about US$192 billion.

Europe and the United Kingdom

European shares had a tough month. Europe's STOXX 600 index fell 1.9% and the UK's FTSE 100 fell 1.7%, both in local currency, weighed down by higher oil costs and rising interest rates.

In the UK, the 10-year government bond yield rose above 5.25%, its highest since 2007 and another example of bond markets around the world seeing major headwinds.

Asia and emerging markets

Asia split in two. Technology-heavy Taiwan's TAIEX index rose 2.3% on strong chip demand, and Japan's Nikkei 225 index gained 0.7%, helped by the weaker yen and Japanese manufacturers feeling their most confident in more than eight years. 

China struggled. The CSI 300 fell 5.3%, while Chinese AI hardware shares had their worst quarter on record. Two technology-focused Chinese indices were each down about 30% since the end of June as investors questioned AI valuations, and weak demand at home added to the gloom. The broader MSCI Emerging Markets index lost 1.1%, as rising US yields, a stronger US dollar and dearer oil put pressure on developing economies.

Australia and New Zealand

The NZX 50 Index finished the month 0.6% lower, breaking its recent run of monthly gains. The RBNZ's interest rate rise weighed on the parts of our market most sensitive to interest rates, namely utilities, property and infrastructure. The fall would have been bigger without Auckland Airport, which benefited from a larger weighting in a global infrastructure index, along with strong performances from Fisher & Paykel Healthcare and Meridian.

Across the Tasman, the ASX 200 fell roughly 3% after touching a three-month low near 8,650 on 24 September. Australia's economy grew 0.4% in the June quarter (2.1% over the year), ahead of most economic forecasts. Australian shares matter to many New Zealanders, because diversified funds often hold some, so a month like this can show up in KiwiSaver balances.

Interest rates and bonds

It was a painful month for bonds. Just a reminder, bond prices move in the opposite direction to yields, so prices fall when yields rise, and rise when yields fall. The US 10-year bond yield climbed from about 4.78% to 5.29%, and the 30-year closed near 5.63%, its highest since 2002. UK 30-year yields reached 5.89%, the highest since 1998, and Japan's 10-year yield touched 3% for the first time since 1996. For NZ investors, returns from overseas bonds and shares also depend on currency moves and whether a fund is hedged (protected against currency changes).

New Zealand wasn't immune to the global bond sell-off, with government bond returns ending the month 1.2% lower. Higher risk corporate bonds also struggled. The extra yield on the riskiest US company bonds (rated CCC) rose above 10 percentage points over US government bonds, the widest gap since March 2023, and emerging market bonds issued in US dollars fell to six-month lows in terms of returns.

What investors are watching next

Oil remains front of mind, as whether crude stays above US$100 will influence inflation and interest rates everywhere. Investors are also watching for further interest rate rises, with the European Central Bank's October meeting a possible one for another increase and the Fed signalling an upward move later in the year. Worries about government borrowing in the US, UK and France could keep pushing bond yields up. Company results will show whether AI demand is holding up, while local inflation figures to come will shape interest rate decisions both here and in Australia.

TL;DR - September 2026 summary

• Oil above US$100 a barrel revived inflation worries, and the Fed, ECB, Bank of Japan and RBNZ all raised interest rates.
• The RBNZ lifted the OCR by 0.25% to 2.75%, and the NZX 50 Gross Index fell 0.6%.
• The S&P 500 fell 0.4%, the STOXX Europe 600 1.9% and the FTSE 100 1.7% (local currency), while Australia's ASX 200 fell about 3%.
• Taiwan rose 2.3% and Japan 0.7%, while China's CSI 300 fell 5.3% and emerging markets lost 1.1%.
• Global government bonds had their worst quarter since late 2024, with the US 30-year yield closing near 5.63% and NZ government bonds down 1.2%.

Months like this can feel unsettling, but they're a normal part of investing. Markets moved in different directions, which is exactly why diversification (spreading investments across regions, sectors and asset classes) matters.

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