weekly 21sep26

Kevin Warsh the hawk By Gustavo Medeiros and Ben Underhill

• The Fed hiked rates 25bps, as widely expected. Contents Page

• The Bank of Japan also hiked, while the Bank of England held. Global Macro 2

• Oil prices declined on better Hormuz flows, but escalation risks remain high. EM Asia 4 • Trump and Xi due to meet in Washington on Thursday. Latin America 5 • The memory semiconductor market could surpass non-memory in size this year. • Brazil’s presidential polls diverged as a Supreme Court crisis reshaped the race. Central and Eastern Europe 6

• Colombia’s de la Espriella fired DANE chief Ricardo Valencia. Central Asia, Middle East & Africa 7 • Fitch affirmed Morocco’s ‘BB+’ rating with a stable outlook. Developed Markets 9 • The Central Bank of Kenya kept rates at 8.75% for third consecutive meeting. Benchmark Performance 11

Last Week Performance and Comments Change 5 day PE 5 day EM Debt Yield (bp) Spread Change EM Equity* 1yr BF Change Comments

GBI-EM GD 6.44% 1 – -1.0% MSCI EM 9.8 -0.6% • EM local currency bonds fell 1.0%, driven by FX with rates stable. GBI-EM FX Spot – – – -1.1% MSCI EM ex-China 9.7 -0.7% • EM USD sovereign bonds fell 0.2%. ELMI+ 5.82% 42 – -1.0% MSCI EMEA 10.3 -2.5% • EM equities fell 0.6%, with China EMBI GD 6.83% -5 217 bps -0.2% MSCI Latam 9.7 -2.5% outperforming. EMBI GD IG 6.08% -5 142 bps 0.0% MSCI EM Asia 10.0 -0.2%

EMBI GD HY 7.69% -5 303 bps -0.3% MSCI China 10.1 -0.1%

CEMBI BD 6.54% -1 190 bps -0.2% MSCI India 19.2 -1.0%

CEMBI BD IG 5.99% -2 134 bps -0.1% MSCI EM Small Cap 13.9 -0.4%

CEMBI BD HY 7.67% 2 304 bps -0.2% MSCI Frontier 10.7 -1.4%

Change 5 day PE 5 day Global Debt Yield (bp) Spread Change Global Backdrop* 1yr BF Change Comments

2yr UST 4.72% 6 – -0.1% MSCI ACWI 16.4 -0.5% • UST curve flattened with 2-yr yields moving up and 10-yr yields marginally compressing. 5yr UST 4.81% -1 – -0.3% MSCI World (DM) 18.0 -0.5% • US stocks fell 0.1%, with higher energy prices 10yr UST 4.95% -4 – -0.2% S&P 500 19.1 -0.1% dampening sentiment. 30yr UST 5.29% -6 – 0.3% VIX Fut.** 17.8 0.9% • Brent prices rose 4% to USD 102 per barrel. 10yr Germany 3.45% -7 – 0.6% DXY Index** 100.2 0.8%

10yr Japan 2.99% -1 – 0.0% EUR* 1.149 -0.5%

Global Agg.*** 4.31% 4 29 bps -0.6% JPY* 157.3 -1.9%

US Agg. IG*** 5.77% 3 70 bps 0.0% CRY Index** 422.6 -0.1%

EU Agg. IG*** 4.24% 9 65 bps -0.2% Brent** 101.1 -4.3%

US Corp HY*** 7.73% 11 267 bps -0.3% Gold** 4,361 1.4%

EU Corp HY*** 6.80% 9 287 bps -0.1% Bitcoin** 85,250 12.0%

Source & Notations: See end of document.

WEEKLY INVESTOR RESEARCH 21 September 2026

The US Federal Reserve (Fed) hiked interest rates last week as widely expected, raising the upper band from 3.5% to 3.75%. Given the 90% probability of a hike priced into interest rate swaps, any other decision would have been a major surprise, so markets were more focused on the detail than the decision itself. On balance, this was more hawkish than expected. The Federal Open Market Committee (FOMC) statement and Fed Chair Kevin Warsh’s personal commentary both emphasised the strength of the US economy, the solidity of the jobs market and the continuing rise in AI-related investment.

This reflects a view that economic resilience in the face of higher energy prices and geopolitical uncertainty highlights underlying strength rather than exposing fragilities. The prevailing view on the FOMC seems to be that because employment and growth look robust, there is scope to focus fully on the inflation side of the mandate. Its statement said: “Today’s policy action will support a timelier return to the Committee’s 2% goal. The Committee will deliver price stability.”

This move and firm language should put to bed any fears of an imminent loss of Fed independence and credibility. The other uncertainty which Warsh and the FOMC appear to have answered was how the anticipation of AI-related disinflation (via the jobs market) would impact monetary policy decision making. For now, Warsh was clear that the investment surge driven by AI capital expenditure was the primary macro lever, rather than wage compression or labour disruption, and monetary policy will respond as such. There was no suggestion that this was a one-off. Warsh said the FOMC had…