Escalation after mid-terms?

Energy-driven inflation and geopolitical escalation are likely to keep monetary policy tighter and make a defensive stance in developed-market duration appropriate.

• The Federal Reserve held rates at 3.88%, but markets expect three cumulative hikes through Q1 2027 after US inflation remained above target for nearly six years.
• A possible post-election escalation between the US and Iran could push energy prices higher, adding to an inflation shock that the author estimates carries a 30% risk over the coming month.
• Eurozone CPI is already 3.8%, while TTF gas futures have exceeded €100; the resulting inflation could reach 4.5%, prompting ECB hikes in December and Q1 2027.
• UK energy bills are expected to rise 38.6% by next April, making UK CPI above 5% plausible and supporting expectations of several Bank of England rate increases.
• Brazilian assets sharply repriced after Lula's election, with the currency falling 10% and local rates rising more than 250 basis points, although the author considers the move excessive and sees scope for a recovery.

Takeaway: Investors should reduce long-duration exposure and remain selective in rates and credit, while recognising that current yields and spreads offer more value than earlier in 2026 and that Brazilian markets could rebound if Lula appoints a fiscal conservative finance minister.