Muzinich Weekly Market Comment: First Time Ever

September 21, 2026

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Sentiment improved this week after a fortnight of soft price action, with our preferred gauge, the VIX, drifting back down toward 15, a level typically associated with a balanced read on risk. Two forces drove the move. The first was renewed confidence that central banks will do the right thing. The second was a worst-case scenario avoided at Saudi Arabia's East-West pipeline, where flow was halted following drone attacks.

Government curves flattened, in testament to renewed confidence in central banks, with UK Gilts outperforming. Corporate credit closed the week positive, with US credit a slight outperformer. The US dollar appreciated against almost all global currencies, the notable exception being the yuan, which is at its strongest level since 2022, possibly positioning ahead of next week's planned meeting between Xi Jinping and Donald Trump, where trade relations are expected to be a key focus.

It was a choppy week for energy markets, with Brent crude rising close to US$110 a barrel on Monday (14 September), before reversing after Saudi Arabia announced it was seeking to restore about half the capacity of its cross-country pipeline within days. State-run Saudi Aramco is working to bypass the damaged section to resume part of the route's throughput, with plans to return the conduit to full capability in roughly six weeks. Aramco has also announced that it has been ramping up sales from outside the Strait of Hormuz to offset some of the lost volumes.¹  

While equity markets finished the week range-bound, it was notable that the markets whose central banks met over the course of the week slightly outperformed.

The main central bank in Asia to meet last week was the Bank of Japan (BoJ), which delivered a dovish hike due to a split decision with two board members dissenting, although the central bank’s communication was anything but dovish. The benchmark rate was raised to 1.25%, its highest level in 31 years. It is the sixth increase under Governor Ueda and, at a three-month interval, the fastest back-to-back pace since 1990. In its policy statement, the BoJ flagged the risk that underlying consumer price inflation deviates above the 2% price stability target.²   Meanwhile at the press conference, Governor Ueda remarked that the “stage for policy conduct has changed,” a signal that after three decades of fighting deflation – with policy set accordingly – inflation risk might finally be two-sided.³ 

In Europe, the Bank of England (BoE) continues to balance sluggish domestic conditions against an inflationary supply shock from the Middle East. Against that backdrop, the committee left the bank rate unchanged at 3.75%, as expected, on a 6-3 vote. The Monetary Policy Summary judged that the risks to the inflation outlook are tilted to the upside – more so than at the time of the July Monetary Policy Report – with the blame placed squarely on geopolitics. As Governor Bailey put it, "if the conflict in the Middle East persists for an extended period, as appears to be the case, and the risk of second-round effects emerging increases, it is likely that policy may have to tighten."⁴

Staff now see inflation at around 3.75% in Q4 2026, and slightly above 4% in Q1 2027, against 3.2% in both quarters in the July baseline.   The key judgment for the Monetary Policy Committee is whether the labour market is weak enough to give confidence that a bigger-than-expected inflation spike will not become a more prolonged problem, a harder call with the headline Consumer Price Index above target for most of the past five years and now on course above 4%.

However, positive news came from the BoE's announcement of a major overhaul of its quantitative tightening programme. Under the new schedule, the Bank will pause all Gilt sales from its £488 billion Asset Purchase Facility (APF) portfolio until April 2027 and stop selling long-dated bonds altogether. Under proposals yet to be finalized, it will retain £120 billion of Gilts maturing in 2049 or later as the matching asset against future banknote issuance, while a further £222 billion maturing by 2035 will be held to maturity and allowed to run off. The remaining £146 billion will be sold at roughly £20 billion a year until 2034. Holdings have fallen from a peak of around £895 billion when quantitative tightening (QT) began in 2022.⁵

At the same time, the much-anticipated meeting in the US saw the Federal Open Market Committee deliver the Federal Reserve's first interest-rate hike since 2023, voting 12-0 to raise the target range for the federal funds rate by 25 basis points (bps) to 3.75%–4.00%.

In its communication, the committee framed the decision around three points. Geopolitical risks have risen, the economy has strengthened and inflation trends are failing to improve. It presented the hike as insurance against supply shocks spreading into broader inflation, while stressing that policy is still not restrictive; Chair Warsh described the move as removing a "dose of accommodation".

On growth, Warsh emphasized how well the US economy is performing. The expansion is solid, driven by resilient consumption, strong productivity, and robust capital investment, with the economy reaching full employment.

On inflation, he restated his concerns, noting that too many categories of goods and services are showing annualized price gains above 3% on both a 6- and 12-month basis. "This summer's inflation readings do not tell me that underlying trends have meaningfully improved," he said.⁶

The September Summary of Economic Projections (SEP) was revised in a hawkish direction.⁷ Growth was lifted to 2.3% for 2026 (from 2.2%) and 2.4% for 2027 (from 2.3%), both above the economy's 2.0% potential, suggesting the median participant sees no drag from the tighter financial conditions stemming from the sharp increase in long-term Treasury yields. Labour-market projections also improved, with the unemployment rate lowered to 4.1% for 2026, 2027, and 2028, implying limited disruption from AI ahead.

Projections for both headline and core Personal Consumption Expenditures (PCE) inflation were revised up by 0.1% Headline PCE is now seen closing this year at 3.7%, reflecting the resurgence in gasoline prices, while core PCE was lifted to 3.4% from 3.3%. On these projections, the 2% target is not reached until 2029.

There was a clear consensus for a further 25bps hike in 2026, but not for 2027, where the committee was split, leaving the 2027 median dot unchanged. That marks a clear divergence from current overnight index swap pricing, which implies a further 25bps hike in 2027. Policy rates are nonetheless still projected to sit above the median neutral rate across the whole projection horizon, suggesting the path of least resistance for the committee remains tighter rather than easier, a point compounded by the upward nudge to the longer-run neutral rate, now 3.2%.

This was the first time ever that the FOMC, European Central Bank (ECB), and BoJ have all hiked in the same month. Add in the communication from the BoE – arguably the first modern central bank, the institution that developed the model we now recognize as central banking including a monopoly on notes issued, the role of banker to government, and crucially, the lender-of-last-resort function – and the message across all four is consistent.

This is not 2022. There is no wage-price spiral, no massive money printing, and policy is not highly accommodative. The issue is that inflation targets are not being met, with the blame placed firmly on the energy supply shock and the risk of second-round effects that could follow. All four are determined to keep long-term expectations anchored, and to varying degrees, are confident that modest tightening can be absorbed given the positive momentum in underlying growth.

This leaves fixed income investors watching energy prices to gauge the pace and scale of the tightening cycle. See Chart of the Week. Terminal rates are currently priced at 2.00% for the BoJ, 3.25% for the ECB, 4.75% for the MPC, and 4.50% for the FOMC.⁸ 

Chart of the Week: All eyes on energy

Source: Bloomberg, as of September 18, 2026. Muzinich views and opinions are subject to change. For illustrative purposes only, not to be construed as investment advice or an invitation to engage in any investment activity.

Past performance is not a reliable indicator of current or future results.

References to specific companies is for illustrative purposes only and does not reflect the holdings of any specific past or current portfolio or account.

References

1. Bloomberg, “Saudis Seek to Resume Half of Key Oil Pipeline Within Days,” September 16, 2026
2. Bloomberg, “BoJ Hikes Rates in Split Decision After Bessent’s Pressure,” September 18, 2026
3. Bloomberg, “Dollar-Yen Dips After Ueda Says Stage for Policy Conduct Changed,” September 18, 2026
4. Bloomberg, “Bank of England Minutes: Policymakers’ Views on Rates,” September 17, 2026
5. Bank of England, “Monetary Policy Summary September 2026,” published September 17, 2026
6. Bloomberg, “Fed Raises Rates to Curb Inflation, Drawing Rebuke from Trump,” September 16, 2026
7. Federal Reserve, “Summary of Economic Projections,“ September 16, 2026

This material is not intended to be relied upon as a forecast, research, or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed by Muzinich & Co. are as of September 18, 2026, and may change without notice. All data figures are from Bloomberg, as of September 18, 2026, unless otherwise stated.

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