Devon Funds Morning Note - 14 September 2026

Monday 14th September 2026

Markets Look Through Inflation

Global

US equities rebounded strongly on Friday despite a slightly firmer-than-expected core inflation reading. The S&P 500 rose 0.9%, the Nasdaq gained 1.0%, and the Russell 2000 added 0.4%, after core CPI increased 0.3% month-on-month versus expectations of 0.2%. Headline CPI was in line with forecasts at 0.4% for the month and 3.4% annually, while the annual core measure eased to 2.4%, helping investors view the data as firm but not sufficiently adverse to derail risk appetite. A roughly 2% pullback in oil prices also eased immediate concerns over energy-led inflation.

The broader takeaway from the session is that US equity-market resilience remains notable. Despite Treasury yields nearing 5%, rising expectations of further Fed tightening and last week’s sharp increase in crude prices amid renewed Middle East conflict, the S&P 500 fell only 0.8% for the week and remained roughly 2% below its record high.

The market’s composition is an important factor: strong earnings expectations and continued enthusiasm around AI-related technology have supported large-cap growth stocks, reducing the influence of traditional cyclicals and interest-rate-sensitive sectors on index-level performance. This resilience is likely to persist unless higher rates, energy costs or geopolitical disruption begin to materially weaken corporate earnings.

In the bond market, US Treasury yields rose at the front end of the curve, while the 10-year yield was broadly unchanged at 4.97%. Following the firmer-than-expected core CPI result, markets have sharply increased the implied probability of a 25 basis-point Fed rate rise at this week’s FOMC meeting to around 85%–88%, from roughly 70% before the data. Pricing now also implies further tightening beyond September, with some market participants anticipating as many as three increases in the current cycle.

However, economist forecasts remain materially less hawkish than market pricing. A Bloomberg survey found that a majority expects the Fed to hold rates at this meeting and through the end of 2027, with only 13 of 48 respondents forecasting an immediate increase.

Oil prices fell around 2.5%, with WTI easing to roughly US$100/bbl and Brent to about US$104.60/bbl, after the IEA warned that high prices and the prolonged Iran conflict could drive the largest annual oil-demand contraction since the 2020 pandemic. The agency now expects global demand to fall by 2.5 million barrels per day in 2026, but supply is projected to decline far more sharply, by 5.7 million barrels per day, as disrupted Gulf flows delay a return to normal production until 2027.

In the market, US equities rebounded as oil prices eased and inflation data, while slightly firmer than expected, did not conclusively lock in a Federal Reserve rate rise this week. Technology and semiconductor stocks led the recovery, suggesting investors remain focused on earnings resilience and the AI investment theme, while performance outside growth sectors was comparatively subdued.

The Philadelphia Semiconductor Index gained 1.8%, and the Magnificent Seven rose 1.0%, with the NYSE Gold Index up 0.8%. Cyclicals added 0.8%, while software rose 0.3% and metals stocks edged 0.1% higher. The breadth of gains was therefore modest, with leadership concentrated in chips and major technology names.

New Zealand

The NZX 50 closed Friday’s session down 1.0% to its lowest level since late June, extending the weekly decline to 2.8%. The sell-off followed weaker global markets as rising oil prices and higher bond yields renewed concern that inflation could remain elevated and delay or reverse expectations for lower interest rates.

Selling was broad-based, with 34 index constituents lower, 10 higher and six unchanged. Large-cap names led the declines: Infratil fell 1.2%, Auckland International Airport declined 1.3%, and Meridian Energy lost 1.1%. Serko was the weakest NZX 50 stock, down 5.5%, followed by Vulcan Steel (-4.0%) and Sanford (-3.4%). In contrast, Briscoe Group gained 3.3%, ANZ rose 2.3%, and Mercury advanced 1.4%.

In market news, the Commerce Commission warned New Zealand’s 28 electricity distribution businesses that stronger regulation is likely unless service quality and efficiency improve. The regulator said performance across the sector is inconsistent and signalled it will use more forceful financial and reputational incentives, while encouraging smaller lines companies to consider whether consolidation could deliver better outcomes for consumers.

Elsewhere, the Glasson family has acquired GIC’s 49% stake in Westfield Albany for NZ$308 million, in what Colliers describes as New Zealand’s largest single retail-asset transaction. ASX-listed Scentre Group retains its 51% ownership stake and will continue to manage the North Shore shopping centre, which is anchored by Farmers, Kmart, New World and Event Cinemas, generated moving annual turnover of NZ$460.8 million and attracted approximately 8.4 million visits in the year to April 2026. The transaction highlights continued investor appetite for large, established retail assets with strong tenancy and customer traffic.

Lastly, New Zealand business insolvencies are tracking toward their highest annual level since the global financial crisis. The trend is concentrated among smaller businesses, particularly in construction, hospitality and retail, and suggests the economic recovery has yet to translate into broad relief for highly leveraged or margin-constrained firms.

Australia

Australian equities sold off sharply on Friday, leaving the market down 3.7% for September and around 6% below its August high near 9,300. The decline was driven by a renewed surge in oil prices, Brent reached US$108/bbl as Iran- and Houthi-linked attacks intensified, and a 11–14 basis-point rise in Australian bond yields across the curve. The combination revived concerns that energy-led inflation could prompt further policy tightening by both the RBA and the Federal Reserve, pressuring growth-sensitive and cyclical assets.

Materials was the largest sectoral drag, falling 3.6% as copper declined more than 5% amid uncertainty over potential US refined-metal tariffs. BHP fell 4.1%, Rio Tinto lost 3.5%, Sandfire declined 5.4%, and Capstone fell 8.1%, with pure-play copper exposure particularly weak. Gold miners also declined 2.6% despite Elliott increasing its Northern Star stake to 6.24%.

Technology fell 2.1%, with WiseTech, Megaport and Xero under pressure as higher-rate expectations weighed on longer-duration valuations. Uranium and coal stocks also sold off sharply, while Energy was mixed: Beach, Santos and Viva Energy outperformed, but the sector fell 0.7% overall.

Financials provided the principal offset, rising 1.1% as investors rotated toward defensive earnings. Insurers led the gains: IAG rose 4.2%, and Suncorp gained 3.7%, following reports that Tokio Marine had sent representatives to Australia for preliminary M&A discussions. Banks gained 1.3% after a difficult week, although GQG Partners fell 9.5% after reporting a 4.6% month-on-month decline in August funds under management to US$149.2 billion, driven by weak investment performance and ongoing net outflows.

Looking ahead, the focus will remain on inflation and central-bank policy. Senior RBA officials, including Governor Michele Bullock and Deputy Governor Andrew Hauser, will appear before the House of Representatives Standing Committee on Economics on Friday; the market is increasingly pricing another rate increase, with timing between September and November viewed as finely balanced.

Offshore, US CPI will be pivotal for Fed expectations, the Bank of England is expected to remain on hold, and the Bank of Japan is widely expected to raise rates.

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