Devon Funds Morning Note - 17 September 2026

Thursday 17th September 2026

First Hike Since 2023 as Fed Turns Hawkish

Global

The FOMC raised rates by 25 basis points to a 3.75-4% range overnight, its first hike since January 2023, in a unanimous 12-nil vote that saw Chair Kevin Warsh side with the broader Committee despite the potential for political pushback. The statement struck a confident tone on growth, noting activity is "expanding at a solid pace," with resilient domestic spending, strong productivity growth and robust capital investment, while job gains have kept pace with the workforce and unemployment has changed little.

On inflation, the Committee said today's move would "support a timelier return" to its 2% goal, though the Summary of Economic Projections shows core PCE inflation still at an above-target 2.2% in 2028, only reaching target in 2029, a strikingly slow glide path given core PCE has already sat above 2% for roughly five years.

At his press conference, Warsh was direct about the Committee's focus on reducing underlying inflation "with sufficient speed," noting 55% of CPI basket items are still posting increases above 3%, and that "inflation is too high and has been for too long." Importantly, he said he would be "hard pressed to describe broad financial conditions as restrictive," framing the hike as removing "a dose of accommodation" rather than tightening into restrictive territory, implying policy needs to reach at least neutral before core inflation meaningfully declines. He acknowledged the Fed has no tool to reopen the Strait of Hormuz or the Bab el-Mandeb, but said the Committee will "stay in their lane" and leave geopolitics to the administration, hiking now to limit second and third-order inflation effects rather than waiting to see if Middle East oil flows normalise. He declined to comment on a one-and-done scenario or on the White House directly.

Bond yields were little changed given the outcome was widely expected, though the market continues to price around three further hikes over the next 12 months versus the Fed's one, with pricing likely to stay sensitive to any sustained move in the oil price.

US equities were choppy into and out of the decision. Wall Street had sold off into the meeting, with the Dow down 0.63%, the Nasdaq off 0.78% and the S&P 500 down 0.45% in the prior session as investors braced for the hike and Warsh's inflation commentary. On the day, the reaction was mixed rather than a clean risk-off move: the S&P 500 closed at 7,580.76, down a marginal 0.07%, the Dow fell 0.53% to 51,816.98, while the Nasdaq bucked the trend to close up 0.29% at 26,056.56 and the Russell 2000 added 0.27%. In the immediate aftermath of the announcement, both the S&P 500 and Nasdaq briefly accelerated their gains, up around 0.3% and 0.7% respectively, before the Dow settled largely flat, as Treasury yields eased across the curve, with the longest-dated bonds seeing the most pronounced moves. The divergence suggests investors read the hike, the unanimous vote and Warsh's hawkish tone as broadly in line with expectations rather than a fresh shock, with growth and tech names holding up better than cyclicals and industrials. Goldman Sachs strategists flagged potential "speed bumps" ahead given the inflation backdrop, but continued to see "terrific opportunities" in select AI-linked consumer names, a reminder that positioning around the AI theme remains a key swing factor for sentiment regardless of the rates path.

New Zealand

The NZX 50 rose 0.6% on Wednesday, though the index remains down 1.9% over the past five days and 1.1% for the month, while still up 3.1% over six months and 2.5% year-on-year. Infratil led the market, up 4%, after lifting its FY27 EBITDAF guidance to $1,320-1,420 million from $1,300-1,400 million, with CDC Data Centres signing a further 70MW of contracts for delivery across late FY27 and early FY28, taking contracted capacity to 1.1GW as data centre investments now make up more than half its $22 billion asset base. F&P Healthcare and Vector each added 2%, while Goodman Property Trust, Vista Group, Precinct Properties and Stride Property Group each slipped 1%.

Briscoe Group also featured, up 3% on the day despite a mixed result, with 1H27 sales up 0.8% year-on-year to $374 million, a first-half record, though NPAT fell 5.9% to $27.6 million. Sporting goods revenue grew 2.6% while Homeware slipped 0.3%, and gross margin contracted 58 basis points to 40.9%. The CEO said the pace of the consumer recovery remains difficult to predict, a cautious tone that chimes with the latest sentiment data. The Westpac-McDermott Miller Consumer Confidence Index rose 9.1 points to 89.5 in the September quarter, an improvement but still firmly in pessimistic territory, with Westpac noting nervousness remains widespread among households.

Elsewhere, CentrePort posted strong FY26 results, with revenue up 16% to $109 million and NPAT up 19% to $21 million, driven in part by a 69% jump in container TEUs. On the agricultural front, DairyNZ modelling flagged that a very strong El Nino could push farm working expenses to $6.78 per kilogram of milksolids and lift the national break-even milk price to $9.07/kgMS, sitting toward the upper half of Fonterra's 2026/27 forecast range of $8.00-$10.50/kgMS, a reminder of the cost pressures still facing the dairy sector heading into the new season.

Australia

The ASX 200 closed up 0.28% to 8,696 points, clawing back some ground after touching a three-month low, though the recovery was uneven, with around 57% of stocks still finishing lower on the day.

Energy was the standout sector as oil prices spiked again. Brent crude traded around $107.88 a barrel and WTI at $104.59. Beach Energy, Karoon Energy and Viva Energy all rallied on the move. Mining, technology and healthcare were the weakest pockets of the market, with Life360 down 6.2%, Telix Pharmaceuticals off 5.2% and Capricorn Metals down 3.1%. Reliance Worldwide was a bright spot, surging 5% after accepting a $4 billion takeover bid from Brookfield.

In technology and infrastructure news, Anthropic has signed its first Australian data centre deal, agreeing to take the entire capacity of Zerra DC's proposed AI factory in Queensland's Western Downs region near Dalby. The project, dubbed the Western Downs Digital Park, is reported to be worth around $32 billion and remains subject to Foreign Investment Review Board approval. The facility is intended to support inference workloads for Anthropic's Claude models rather than training, with operations targeted to begin in 2027, and construction expected to take four to six years. The deal underscores the scale of capital now flowing into Australian data centre infrastructure as AI providers lock in long-term capacity, and comes as AI data centre provider Firmus was reported to be courting investors ahead of an anticipated multi-billion-dollar IPO, highlighting continued momentum in the sector.

Elsewhere, Brisbane property resales continued to show strong profitability, with a median gain of $525,000, a reminder that pockets of the domestic property market remain resilient even as broader macro conditions stay mixed.

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