• A gradual recovery in Gulf oil supplies could bring prices lower during the winter, but the Strait of Hormuz remains a major source of risk.
• China’s strong exports are offset by persistent weakness in its property sector and domestic demand.
• US growth could reach around 2.4%-2,5% in 2026 and around 2.2-2,3% in 2027, supported in part by AI investment.
• The Fed and ECB may keep policy restrictive as energy costs sustain inflation.
• Bond yields could fall temporarily before fiscal pressures push them higher over the longer term.

The situation in the Middle East remains a focus for investors, although tensions may gradually ease following the latest escalation. In recent months, growing volumes of oil from the Gulf region have been shipped through so-called “dark transits”, partly limiting the impact of disruptions to established export routes. Supplies could gradually return to normal during the winter, allowing oil prices to decline slowly.

The geopolitical premium is unlikely to disappear quickly, however. Markets remain highly sensitive to developments around the Strait of Hormuz, energy infrastructure and talks between the United States and Iran. Any delay in restoring normal flows could trigger another sharp rise in oil prices and bond yields.

The outlook for the world’s largest economies remains mixed. In China, strong exports are not enough to fully offset structural problems. Unresolved difficulties in construction and the property market continue to constrain domestic demand and business investment. The economy therefore remains heavily dependent on exports, leaving it more exposed to trade tensions and technology restrictions.

The US economy has proved relatively resilient to the effects of the war with Iran. Investment linked to artificial intelligence remains an important source of support, driving spending on data centres, semiconductors and energy infrastructure. US GDP could grow by 2.4% in 2026 and 2.3% in 2027.

Inflation remains a concern, staying well above the Federal Reserve’s target. A meaningful easing in price pressures may not come until the spring. The Fed responded to the increased inflation risk by raising interest rates by 25 basis points in September. One more increase is likely before the end of 2026, while the first and only cut may come as late as the end of 2027.

The euro area economy is holding up better than might have been expected given the high cost of energy. GDP could grow approximetly 1.0% in 2026 and little above 1% in 2027. At the same time, the energy shock is likely to keep inflation just below 3% both this year and next.

Against this backdrop, the European Central Bank is likely to raise its deposit rate by 25 basis points to 2.75% in December, then leave it unchanged until the end of 2027. The ECB will want to reduce the risk that elevated inflation expectations become entrenched, even if that comes at the expense of weaker economic activity.

Over the medium and long term, the forces pushing bond yields higher still appear to dominate. Budget deficits remain too large in many Western countries, while growing political fragmentation makes fiscal consolidation harder. Investors may therefore continue to demand a higher premium to finance government debt.

A temporary calm in bond markets is possible before next spring. Current prices may reflect too many expected rate increases from both the Fed and the ECB. If energy prices begin to fall and inflation stops rising, some of those expectations could be revised. That would allow yields to decline for a time and could improve sentiment in equity markets.

In the coming quarters, the dollar may come under pressure from attempts by Donald Trump’s administration to limit the Federal Reserve’s independence, as well as its aggressive approach to trading partners. More countries may consequently look for alternatives to the US currency. This would be a slow process, but it could support the euro against the dollar over the longer term.

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• Trump–Xi may extend the trade truce, but firm tariff cuts and timelines are needed to prevent a sell-the-fact reversal.
• Rare-earth licences and AI-chip rules are the key swing factors for USD/CNH, Hong Kong 33 and the Nasdaq 100.
• AUD/USD is the cleaner China-growth trade, while the Singapore 30 provides lower-beta regional exposure. Look for yuan confirmation.

President Trump will host President Xi in Washington on 24 September 2026. Markets are already leaning towards a constructive outcome, with US semiconductor stocks, Asian technology stocks, the yuan, and Hong Kong equities strengthening ahead of the meeting.

The catalysts for the current bullish tone have been “smoothing rhetoric” from US and Chinese officials ahead of the Trump-Xi summit meet-up.

Last weekend’s “warm-up meeting” between the US Treasury Secretary Scott Bessent and China’s top trade negotiator, Li Chenggang, was peppered with encouraging signs of engagement on Artificial Intelligence (AI), a key sensitive technological issue where both sides are now vying for a supremacy position in that will likely allow the leading country to reign over geopolitics, international finance and military affairs.

Bessent said both sides have agreed to create a “US-China AI dialogue” that is intended to develop a common understanding of the cutting-edge technology’s benefits and threats.

In addition, US Trade Representative Jamieson Greer told media outlets that while the US remains divided on the terms of a US-China trade truce extension, with the current deadline set on 10 November 2026, but expressed optimism that Washington could support a further extension of three to six months.

This raises the hurdle for further gains: an extension of the existing truce may be treated as a “sell-the-fact” outcome unless it includes measurable commitments.

Duration and scope of the trade truce

The current truce expires on 10 November. The immediate question is whether it is extended for six months, one year or longer, and whether the extension prevents new tariffs and export controls.

Watch for progress on the proposed Board of Trade and reciprocal tariff reductions covering roughly US$30 billion of goods.

Rare-earth exports and critical-mineral licences

Washington wants more reliable flows of Chinese rare-earth magnets and critical minerals. China controls around 70% of global mining and more than 85% of refining and production, giving Beijing significant negotiating leverage.

A concrete licensing mechanism would be more market-positive than another general promise to maintain supplies.

AI chips and technology restrictions

The critical issue is whether the AI dialogue remains focused on safety or expands into semiconductor export licensing.

Any easing of access to advanced US chips would support semiconductor sentiment, while tighter controls or accusations of model theft would weigh on the Nasdaq 100 and chipmakers.

Soybeans, Boeing and measurable Chinese purchases

Markets will look for specific purchase volumes and implementation dates. Earlier commitments included additional US agricultural purchases and more than 200 Boeing aircraft, but several elements remain incomplete.

A headline without tonnage, dollar value or delivery schedules is unlikely to sustain a rally.

Taiwan and Iran are the geopolitical tail risks

Taiwan remains the most dangerous issue because a shift in US language or new arms-sale threats could overwhelm progress on trade.

China’s economic relationship with Iran is another potential source of friction. These issues matter because they could turn a commercially constructive summit into a broader strategic confrontation.

The critical price actions confirmation would be simultaneous strength in AUD/USD and Hong Kong equities alongside a decline in USD/CNH. If that cross-asset confirmation is absent, any initial risk-on reaction may be vulnerable to reversal.

Opinions are the authors'; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. The provided publication is for informational and educational purposes only.
If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please refer to the MarketPulse Terms of Use.
Visit https://www.marketpulse.com/ to find out more about the beat of the global markets.
© 2026 OANDA Business Information & Services Inc.