Quarter · Market review
Quarter: agreements face a test of supply and profit
Across 90 days, hopes of normalising supply met uneven energy flows, changing trade rules and higher interest rates. Technology suppliers reported real sales while customers faced the bill for financing expansion. The latest US–China negotiating step does not finish that story: concrete terms, company orders and earnings will determine its value.
Period covered: 2026-07-01 – 2026-09-28Information as of 14 min read
Two important developments have emerged since the 25 September edition: the White House published US and Chinese product lists for proposed trade relief on 27 September, and slower August industrial profit growth in China was reported on 28 September. Friday’s US ten-year yield was 5.17%, slightly below Thursday but well above 22 September. Trade hopes therefore do not remove the need to examine costs and demand.
An announced plan, its implementation and a company’s actual earnings remain different things. Higher bond yields do not remove price volatility. More crude in storage does not automatically rebuild finished-fuel inventories, and higher production does not necessarily mean faster profit growth.
Quarter
What happened
The starting point: interest rates had already risen on 17 June
This 90-day period begins on 1 July. Before it began, on 17 June, the European Central Bank’s previously announced interest rate increase took effect. The rate on banks’ overnight deposits rose from 2.00% to 2.25%. These are the initial conditions before the period under review, not a new event within it.
Also on 17 June, the Federal Reserve left the federal funds target range at 3.50–3.75%. It made no change on 29 July. Europe also chose a pause on 23 July. For a business with debt, this meant that energy costs would not be offset by automatically and rapidly falling interest rates.
The starting backdrop: the 18 June agreement had not yet restored shipping
The US–Iran memorandum was presented as a route towards ending hostilities and reopening the Strait of Hormuz. The economic benefit depended on what happened after the signatures: could ships sail safely, would insurance be available, and would oil actually reach buyers?
More reliable deliveries would have reduced importing industries’ need to hold expensive inventories. Hauliers would have found fuel and route planning easier. But the agreement itself was not a statistical record of restored flows. July and August data later required a more cautious assessment of precisely this assumption.
July: the supply recovery was not sustained
The International Energy Agency’s 10 July review described a partial recovery in June flows and ceasefire violations on 7–8 July. Its 12 August report said Persian Gulf oil exports in July, including routes bypassing the strait, averaged 15 million barrels per day. That was 2.1 million, or about 12%, below June.
This comparison describes two monthly averages, not a one-day shipping halt. It showed that June’s hopes had not been enough to deliver a lasting improvement. US military statements on 5 and 8 September about strikes on Iranian tankers were a reminder that delivery security remained unresolved. A particular price move cannot be attributed solely to these statements.
23 July: trade rules and sanctions added to the planning burden
The European Union’s 21st sanctions package against Russia expanded restrictions on energy, financial services and the shadow fleet. For companies, this matters beyond politics: payment, insurance and cargo transport options change. But an announced restriction is not a measured fall in exports of the same size.
On the same day, the Office of the US Trade Representative announced measures concerning 60 economies under Section 301 of the Trade Act. Tariff treatment depended on the product, origin and exemptions. A broad tariff headline was therefore not enough for an importer: the specific supply chain had to be assessed. This legal and logistical burden added conditions that an oil price chart alone cannot show.
Late July and August: the technology transaction had two sides
Demand for technology was visible both in sellers’ revenue and in customers’ investment bills. On 29 July, Microsoft reported capital expenditure, including finance leases, of 41 billion US dollars for the quarter ended 30 June. Cash purchases of property and equipment were 35.8 billion dollars. These amounts must not be added together: the first includes finance leases, while the second shows asset purchases paid for in cash during the quarter.
The company generated 55.4 billion dollars in operating cash flow. Subtracting cash purchases of property and equipment left 19.6 billion dollars. This explains why a rapid pace of construction is not automatically a bad signal: what matters is how much cash the business generates and how much more it needs from outside.
On 26 August, chip designer NVIDIA reported revenue of 96.221 billion dollars for the quarter ended 26 July, up 106% year on year. Operating profit grew 124%. Some customer spending had therefore already become real earnings for the supplier. For customers to earn a return on their investments, however, their new services need demand and must cover equipment, electricity and financing costs.
August and September: growth continued, but costs did not disappear
Economic data showed resilience, not a general halt in growth. The second estimate of US second-quarter gross domestic product showed annualised growth of 1.5%, or about 0.4% quarter on quarter. Euro-area growth was revised to 0.6% quarter on quarter on 7 September. These figures need to be put on the same time basis before comparing the regions.
The US added 162,000 jobs in August; the data were released on 4 September. On 9 September, second-quarter revenue growth in selected US service industries was revised to 3.0% from the previous quarter. This revenue measure has not been adjusted for prices. Rising sales and a greater real volume of services delivered are therefore not the same thing.
9–11 September: the energy question reached monetary policy
On 9 September, the US Energy Information Administration raised its second-half average Brent price forecast to about 90 dollars per barrel. Model inputs were finalised on 3 September. This is a conditional average for a future period, not the oil price in a particular September session and not an already measured effect of later military action.
On 10 September, the European Central Bank announced another interest rate increase of 0.25 percentage points. The deposit facility rate rose from 2.25% to 2.50% on 16 September. On 11 September, the US Consumer Price Index showed annual inflation of 3.4% in August, the same as in July. The seasonally adjusted monthly change accelerated from 0.1% to 0.4%. These data were known before the Federal Reserve meeting of 15–16 September, which subsequently raised the target range.
? How should we read GDP and price indices?
Gross domestic product measures the value of final goods and services produced in an economy. Real growth removes the effect of prices. US quarterly growth is often reported at an annualised rate, as if the same change continued for four quarters. The Consumer Price Index measures a basket of prices weighted by consumption. Its annual and monthly changes have different comparison bases. The Personal Consumption Expenditures Price Index also includes spending made on consumers’ behalf, uses different weights and accounts for changes in the composition of consumption; these two price indices should not be treated as interchangeable.
Mid-September: June’s hopes were not enough to restore supply
The International Energy Agency’s 11 September forecast projected a larger fall in oil supply than in demand this year. This is a forecast, not the final annual result.
Lower demand does not automatically mean cheaper oil. If the volume reaching buyers falls faster, fuel bills can remain high even as the economy slows. This can help an energy producer only if it can deliver its output. For a haulier or an energy-buying factory, the same situation raises costs.
16–24 September: the relief in interest rates did not last
On 16 September the Federal Reserve raised its target range to 3.75–4.00%. An earlier European decision lifting the deposit rate to 2.50% took effect on the same day. The US ten-year yield fell to 4.96% on 21–22 September, but reached 5.18% on 24 September. A few days of easier financing conditions did not become a lasting direction.
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The preliminary US Purchasing Managers’ Index, or PMI, reached 58.4 in the release of 23 September, compared with 56.0 in August. Initial unemployment benefit claims of 197,000 for the week ending 19 September, released on 24 September, reinforced the picture of resilience. These are signals from 23–24 September, but neither a survey nor one week of claims is a final measure of an entire quarter’s growth.
? Purchasing Managers’ Index: what does the threshold mean?
The company survey compares activity with the previous month. Above 50 generally indicates expansion and below 50 contraction. A reading of 58.4 does not mean growth of 58.4%; the preliminary measure may be revised.
September’s decisions extended beyond the US and euro area. On 18 September the Bank of Japan set an overnight interest-rate target of 1.25%, effective from 24 September. On 17 September the Bank of England left Bank Rate at 3.75%. These different paths matter for Japanese bonds and yen-funded investments, as well as British companies’ borrowing costs.
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Quarter
What matters now
US–China trade relief moved closer, but tariffs have not yet been cut
The weekend brought businesses more reason to hope for easier trade, but it did not yet reduce their bills. On 27 September the White House published US and Chinese product lists under the “30 for 30” trade initiative. The trade under consideration is worth approximately $30 billion in each direction. This is a concrete negotiating step, not tariff removal already in force or money already paid. On Monday morning, the key question is not simply the size of the initiative, but which goods would qualify, when relief would begin and what conditions would apply.
? “30 for 30”: what does the amount mean?
The $30 billion on each side refers to the scope of its product list. It is neither a 30% tariff nor additional corporate profit of that amount. Exchanging lists and bringing final tariff changes into force are separate stages.
If lower tariffs take effect, an importer could pay less for the same goods. Some of the benefit might remain in profit and some might reach customers through lower prices. Clearer rules could also reduce the need to hold large inventories. That would help industrial suppliers and retailers dependent on bilateral trade; logistics businesses need to see whether an agreement generates actual additional orders.
The opportunity is lower costs in specific supply chains, not a uniform rise in all US and Chinese shares. Exemptions, delayed implementation and conflicting conditions remain risks. An exporter whose products are not included may see no benefit. Final product codes, tariff rates and effective dates will be the next evidence capable of changing the assessment. Until then, a promise should not be counted as profit already earned.
A 5.17% US yield: trade hopes do not guarantee cheaper loans
Trade conditions can improve while borrowing remains expensive. On Friday, 25 September, the US ten-year Treasury yield stood at 5.17%. That was 0.01 percentage points below Thursday, but 0.21 points above the 4.96% recorded on 22 September. The small final-session decline therefore did not undo the earlier rise. These readings describe completed US sessions, not a supposed Monday morning response to Sunday’s negotiations.
? Bond yields: how should 5.17% be read?
A yield relates a bond’s market price to its future payments; this is the US Treasury’s standardised ten-year measure. A move of 0.21 percentage points is 21 basis points, not a 21% investment return. When yields rise, the prices of existing fixed-rate bonds generally fall.
Business demand is not uniformly weak either. Figures released on 25 September showed August US durable-goods orders of $338.6 billion, virtually unchanged from revised July. Orders for non-defence capital goods excluding aircraft, however, rose 1.6%, while shipments increased 0.6%. That is a more favourable signal for equipment suppliers than the flat headline alone suggests. An order is nevertheless not yet a delivery or an earned profit.
? Business-equipment orders: what does the comparison show?
The narrower category excludes defence and aircraft, helping separate some large, irregular orders. Changes compare August with revised July, adjusting for normal seasonality but not for prices. This is not a measure of all business investment: for example, new semiconductor orders are excluded.
Investors therefore face two different tests. Industrial-equipment suppliers need orders that turn into deliveries, while property companies and rapidly expanding technology businesses also depend on the price of new debt. Longer-maturity bonds could benefit if price growth slows and yields decline. But resilient demand and rising input costs could postpone that relief. US spending and price data on 30 September will help test whether sales remain supported without strengthening inflation.
Chinese industrial profit growth slowed: trade promises cannot replace demand
The latest Chinese figures are a reminder that proposed easier trade rules still have to turn into earnings. Data released on 28 September showed that profit at larger industrial enterprises was 4.2% higher than a year earlier in August. July’s annual increase was 11.2%. Profit was therefore still growing, but at a slower pace. These figures do not mean profit fell 7% month on month: the difference between the two annual growth rates is 7.0 percentage points.
? Industrial profit: what does the measure cover?
China’s statistics cover industrial enterprises with annual revenue from principal activities of at least 20 million yuan, with growth calculated on a comparable sample. August’s annual change compares it with August a year earlier, not with July. This is not a measure of every Chinese company or of stock-market returns.
The economic link is straightforward: selling more goods can lift revenue, but lower selling prices or higher costs can absorb part of the benefit. Output alone therefore does not tell us how much money a business keeps. Chinese customers’ profitability matters to European industrial and commodity suppliers because it affects their ability to order equipment and raw materials. Export relief would be more helpful to Chinese manufacturers if genuine end demand also strengthened.
The opportunity would improve if trade relief and recovering orders allowed businesses to protect prices and profit. The opposite is the risk: higher output can come with excess supply and larger discounts. Holdings in equipment suppliers and metals producers therefore depend on more than China’s economic growth targets. The next manufacturing and orders surveys, followed by sales and profit data, will help show whether August’s slower pace was temporary.
More crude in storage does not mean an equally large fuel cushion
Energy risk should not be reduced to a single total for crude oil in storage. The latest US weekly report available this morning was released on 23 September and covers the week ending 18 September. Commercial crude stocks excluding the strategic reserve stood at 426.4 million barrels, around 2% above their five-year seasonal average. Petrol stocks were 6% below their own average and distillates 12% below theirs. These are neither 28 September prices nor a new weekend measurement of inventories.
? Distillates and seasonal averages: what is being compared?
Distillates include diesel and heating-oil products. Each product’s inventory is compared with its own average at the same time of year over five years. A 12% shortfall in stocks is neither an equivalent price rise nor an equivalent shortfall in total demand.
The refining chain explains why these figures can move in different directions. Crude still has to be turned into a specific fuel and delivered to its buyer. If less is processed, crude can build up in storage while finished-product stocks are replenished more slowly. For a haulier, airline or chemical plant, the final fuel bill matters; for a refiner, the gap between crude purchase prices and product selling prices matters.
Rebuilding fuel stocks would help the profitability of transport and energy-intensive industry. Another supply disruption while inventories remain below normal could raise costs and prolong the inflation problem. The next weekly US report needs to be read across refining throughput, petrol and distillate stocks together. More crude alone is not an improvement across the whole supply chain.
Consumer views caution against calling all demand strong
Consumer sentiment provides a counterweight to business orders. The University of Michigan’s final September index, released on 25 September, fell from 51.7 to 48.1. Respondents’ expectations for price growth over the year ahead increased from 4.0% to 4.6%. This is not measured inflation, but households’ assessment. An equipment maker and a retailer dependent on discretionary purchases can therefore receive different signals from the same US economy.
? Consumer sentiment: what does an index of 48.1 mean?
The University of Michigan survey summarises households’ views of their finances and economic prospects. A higher reading means a more favourable assessment; it does not use the Purchasing Managers’ Index threshold of 50 for expansion. Survey inflation expectations are neither actual price statistics nor a central-bank forecast.
The week’s question: will lower trade barriers turn into higher profit?
Monday’s thesis is not that better negotiations make every asset rise. Trade relief could lower some business costs, but expensive debt, slower customer profit growth and fuel bills can offset that benefit. Implementation of relief and stronger orders would support the thesis. Larger discounts and deteriorating earnings would weaken it. Final trade terms and this week’s price and spending data therefore need to be assessed together.
For industrial and retail holdings, the products covered by any agreement matter. For longer-maturity bonds and companies financing expansion with debt, the persistence of high yields matters. For transport and chemicals, fuel supply matters. A business with less debt and more cash reserves may withstand the same cost change more easily. Exchange rates also affect a euro investor’s unhedged dollar investments; this review makes no claim about an unverified currency move.
Quarter
What comes next
Three tests to watch next
- Final US–China trade terms. Product codes, tariff rates, exemptions and effective dates matter. Exchanging lists is not the same as cheaper goods already delivered.
- US spending and price data on 30 September. August’s Personal Consumption Expenditures Price Index will test inflation, while real expenditure will show changes in the volume purchased rather than simply the money spent.
- Manufacturing demand and fuel stocks. New business surveys and the next weekly US energy report will show whether orders and supply buffers are improving together. Until publication, these are signals to watch, not reported results.
? Personal Consumption Expenditures Price Index: what does it measure?
The index measures changes in the prices of goods and services consumed, including spending made by others on consumers’ behalf. Its weights adjust with the composition of spending. Real consumption expenditure removes the effect of price changes, so it answers a different question from inflation.
Important. This is general market analysis, not a personal recommendation to buy or sell. Historical data and company results do not guarantee future returns. Forecasts and conditional scenarios may not materialise.
How is the history preserved and updated?
All five periods in this edition share one information date. Week means the latest 7 days, quarter means 90 days, and year means the trailing 12 months. The next dated edition will have a separate URL. This text keeps its date and assessment; later events are not silently inserted into an older edition. Longer periods assess new evidence alongside earlier developments without repeating every headline.
