September Risks: Hormuz Disruption, Interest Rates, and AI Valuations

Global markets are bracing for a challenging September, as investors return from their summer break to face a crowded risk agenda. The conflict in the Strait of Hormuz has been a major driver of market volatility, with oil and gas prices swinging as investors assess the impact on shipping routes.

The disruption has supported energy stocks while weighing on major energy consumers, putting government bonds under strain due to inflationary pressure. However, the global economy has so far absorbed higher prices, but buffers that cushioned the shock are beginning to diminish.

Attention is focused on talks between Iran and Oman over managing maritime traffic through the Strait of Hormuz, while investors assess potential long-term geopolitical and economic restructuring.

The Federal Reserve and Bank of Japan will hold policy meetings in the same week, potentially creating a double dose of volatility. Markets see roughly a 40% probability of a rate increase, with Fed Chair Kevin Warsh's communication style generating uncertainty.