MPC Markets Morning Call — 25th September 2026: Yields Hit 2007 Highs as Oil Jumps on Houthi Strikes

US equities barely budged on Thursday even as volatility roiled underneath the surface. The S&P 500 slipped 1.90 points, or 0.02%, to 7,704.13 — a third straight decline after flirting with a fresh record earlier in the week — while the Dow Jones Industrial Average fell 161.61 points, or 0.3%, to 51,349.98 and the Nasdaq Composite eked out a 3.34-point gain, or 0.01%, to 26,939.37. Eight of the S&P 500’s 11 sectors finished lower, led by materials (–1.18%) and consumer staples (–0.96%), while declining stocks outnumbered advancers by nearly two to one.

Meta Platforms was the standout gainer, climbing 4.5% on continued enthusiasm for Muse, its new AI assistant, a day after unveiling a palm-sized dedicated device for the app — which has become the top free app on Apple’s App Store. Oracle fell 3.5% after Bloomberg reported the company had issued a force majeure notice on its embattled New Mexico data centre, with developer Blue Owl also sliding sharply. Nvidia eased 0.4% as the heaviest weight on the index, with higher yields raising the cost of financing the AI data-centre buildout, while Advanced Micro Devices rose 2.4%. Elsewhere, Stitch Fix plunged 21.6% on cautious fiscal 2027 guidance, Darden Restaurants fell 3% despite in-line earnings, and MGM Resorts slumped 11% after Barry Diller’s People Inc withdrew its takeover proposal.

Strategists framed the session as a tug-of-war between resilient fundamentals and a punishing rates backdrop. “The market is wrestling with a three-headed macro headwind: higher oil, higher bond yields and a more hawkish Fed,” said King Lip, chief strategist and partner at BakerAvenue Wealth Management. “Any one of those is manageable. All three at the same time may put pressure on equity valuations.” With the index trading at just under 19 times expected earnings — its lowest valuation since 2023 — Bill Northey, senior investment director at U.S. Bank Wealth Management, said markets remain fixated on a single theme: “It’s really all about oil and inflation and the effect on interest rates, and then the interest rate cascading across the capital markets.”

Global indices, day and 5-day performance — Nasdaq and S&P outperform, China A50 and ASX 200 lag

S&P 500 forward P/E sinks to lowest since 2023 (Source: LSEG Datastream / Noel Randewich)

Geopolitics dominated the overnight narrative on two fronts. In Washington, President Donald Trump welcomed Chinese President Xi Jinping to the White House for the Chinese leader’s first US state visit since 2015 — a summit heavy on pageantry, including a South Lawn ceremony, a military flyover and a ride on the new presidential helicopter, but comparatively light on substance. Hours before the leaders met, Treasury Secretary Scott Bessent confirmed the two countries had agreed to extend their trade truce by roughly two months, to 10 January, while pressing Beijing to be “more fulsome” on agricultural and rare-earth commitments.

The two leaders directly addressed the intensifying US–China rivalry over artificial intelligence for the first time — Trump arguing for unfettered AI development to preserve America’s edge and saying he wants to keep AI “exactly where it is,” while Xi struck a more cautious tone, saying both nations have “the capability and the responsibility to develop and manage AI for good” and to ensure it remains under human control. Xi also issued his most explicit call yet for Trump to oppose Taiwanese independence, a request Washington’s official position stops short of granting.

In the Middle East, Yemen’s Iran-backed Houthi rebels fired ballistic missiles at Saudi Arabia on Thursday, with the Saudi-led coalition intercepting six aimed at Taif and the Yanbu Red Sea export terminal — the kingdom’s key alternative route while the Strait of Hormuz remains constrained. War-risk premiums on Saudi-linked tankers calling at Yanbu have risen to around 3% of vessel value, from under 1% in early July. At the same time, US and Iranian negotiators in New York were reported by Reuters to be exploring a phased path out of the conflict, under which Tehran would reopen the Strait of Hormuz in exchange for Washington lifting its economic blockade — though both sides remain unwilling to move first.

Oil extended its rebound for a second straight session, undoing much of a prior five-day slide. Brent crude settled at $106.60 a barrel, up 3.4%, its highest close since 15 September, while West Texas Intermediate finished around $94.61–$95.29 a barrel, up roughly 2.7–3.4% and posting its first gain after a near-13% slide over the previous six sessions. Both contracts traded up more than 5% intraday before paring gains on the Hormuz diplomacy headlines, then regaining into the close.

Saudi Arabia is rebuilding crude pumping volumes through its East-West Pipeline after an 11 September drone strike forced a shutdown, but tanker loadings at Yanbu had still not resumed by Thursday. Separately, US secondary sanctions barred Iranian airlines from operating in neighbouring states including the UAE and Oman, prompting Tehran to threaten to make complying airports “unusable.” Diesel markets remain tight globally, with US Energy Secretary Chris Wright reported to have contacted major refiners about a voluntary export-restriction alternative to a reported 90-day export ban the White House has disputed.

Elsewhere, spot gold slipped roughly 0.4–0.5% to around $4,267–$4,272 an ounce after Wednesday’s sharper fall on hawkish Fed commentary. The US 10-year Treasury yield extended its advance to roughly 5.20–5.21%, its highest since July 2007, while the 30-year touched as high as 5.46%, a level last seen in 2004. The Bloomberg Dollar Spot Index firmed 0.3% and the AUD eased to around US70.09¢, even after a stronger-than-expected local jobs report, as the US yield surge reasserted itself through the session.

Commodities, energy & FX, day and 5-day performance — crude and BTC lead, silver and uranium lag

The relentless rise in yields has forced some of the world’s biggest bond managers to turn defensive. Speaking to Reuters, Vanguard’s Arvind Narayan — who co-heads a $55 billion investment-grade credit fund — summed up the mood: “This is not the time to be a hero.” Narayan and seven other managers collectively overseeing nearly $700 billion said they are largely avoiding big macro bets in favour of careful, higher-quality security selection.

Vanguard is favouring shorter-dated, high-quality assets including investment-grade corporates, asset-backed securities and agency mortgage-backed securities, calling AI-related debt issuance the “elephant in the room.” PIMCO’s Dan Ivascyn said he sees opportunity in longer-dated Treasuries and views corporate bonds as richly valued, while Capital Group’s Pramod Atluri — a self-described “gradual contrarian” — is finding select AI-related corporate debt that offers “AA risk at BBB prices.” Fidelity’s Julian Potenza and PGIM’s Greg Peters both flagged a more selective approach to AI hyperscaler debt, with Peters warning that “those who simply say ‘buy credit’ will [not] be rewarded.”

Beating the benchmark: US bond fund YTD returns vs. the Bloomberg US Agg Bond index (Source: Morningstar Direct)

Australian shares are on track for a softer start to Friday’s session. S&P/ASX 200 futures pointed 32 points, or 0.4%, lower to 8,706 near 6:30am AEDT, extending Thursday’s cash close of 8,702.0, down 0.72%, after an early drawdown of more than 1% was pared back through the afternoon. Energy was the standout sector, up 1.17% as oil reclaimed the $100 handle, while REITs (–1.93%), materials (–1.46%) and financials (–0.83%) all lagged.

BHP suspended operations at its Escondida copper mine after a worker was killed during maintenance, weighing on both BHP and Rio Tinto. Elsewhere, Premier Investments posted a lower profit and smaller dividend, Soul Patts extended its dividend-growth streak to 28 straight years, and OFX flagged progress on Equals’ proposed $1-a-share takeover, while cautioning on FY27 growth.