Markets Buckle Under High Borrowing Costs and Rising Oil Prices

Global markets are facing significant pressure due to high borrowing costs, rising oil prices, and central bank rate hikes. This has led to a decline in enthusiasm for equities, particularly those driven by AI.

In France, the minority government's proposed budget bill is causing tension among opposition parties ahead of next year's presidential election. The country's 10-year bond yield has reached its highest since 2002, at around 5%, and its debt as a share of economic output is at a record high of almost 120%. The Bank of France chief warns that the country cannot rely on the European Central Bank to solve its debt problems.

The dollar index is rising for a third consecutive week, driven by strong US growth, high yields, and elevated oil prices. However, the euro is struggling, with the currency falling below $1.13 for the first time since May 2025. The eurozone's heavily indebted bond markets are blowing up, and energy costs will weigh on growth.

Brazil goes to the polls this week in an election that could determine whether the country joins a rightward shift in Latin American politics or carves its own path. Leftist President Luiz Inacio Lula da Silva is expected to lead, but may not win outright, setting up a runoff against Flavio Bolsonaro.

The Federal Reserve's next rate hike decision will be closely watched, with investors seeking clues about the central bank's plans. The US inflation data for August showed a lower-than-expected rise in prices, and New York Fed President John Williams suggested that the Fed has time to consider economic data before deciding on further hikes.