This report reviews developments in August and September 2026. The dominant themes were renewed escalation in the Middle East conflict, persistent supply disruptions in global energy markets, and continued strength in AI-driven equity markets. Higher oil prices pushed inflation higher and prompted both the Federal Reserve and the ECB to tighten monetary policy.
In the US, payroll growth remained strong with 162,000 jobs added in August, while unemployment held at 4.1%. Inflation rose to 3.4%, driven primarily by higher energy costs. The Federal Reserve raised interest rates by 25 basis points to 3.75%–4.00%, its first increase since 2023, and signaled that further hikes remain possible.
Eurozone inflation increased to 3.2%, prompting the ECB to raise its deposit rate by 25 basis points to 2.5%. Policymakers warned that elevated energy prices and geopolitical tensions are likely to keep inflation above target for an extended period.
Global equity markets delivered mixed performance. The S&P 500 reached a new record high, with gains driven almost entirely by AI-related companies, while most traditional sectors lagged. European markets were broadly flat as higher energy costs weighed on earnings expectations.
Oil prices remained elevated as the Strait of Hormuz stayed closed and disruptions spread to the Bab al-Mandab shipping route. Brent crude rose to around $98 per barrel, while gold gained 7.4% and Bitcoin surged nearly 30%, despite continued volatility.
Bond yields climbed across the US and Europe as markets priced in higher inflation and additional interest rate increases. In Cyprus, inflation rose to 5.2%, while Bank of Cyprus reported another strong quarter, with higher profitability, improved asset quality, and robust capital and liquidity ratios.
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