Market moment
On Wednesday, bonds set the direction, not stocks. The US 10-year Treasury yield jumped from 4.96% on Tuesday evening to 5.07% at the close, touching 5.12% at the intraday peak. It has not been higher since July 2007, the days before the financial crisis.
Indices followed. The S&P 500 fell 0.65% to 7,714.44, the Nasdaq lost 1.09% to close at 26,946.49, and the Dow Jones slipped 0.49% to 51,607.29. Only yesterday the Nasdaq closed at a record; today almost three hundred points came off it.
The trigger was the business activity index (PMI). The composite reading rose to 58.4 against an expected 55.3, the strongest in more than five years. Company costs are rising at the fastest pace in four years, partly because of expensive oil. A strong economy today means not more profit, but more rate hikes.
Oil recovered after five days of losses. WTI gained 1.25% to $91.65 a barrel, and the November Brent contract rose 3.5% to $102.78. The turn coincided with news that an unidentified projectile struck a cargo ship in the Strait of Hormuz.
Gold fell 1.08% to $4,329 an ounce, bitcoin dropped 2.56% to $84,258, and the dollar index rose to 100.56, near a two-month high. When real rates climb, hedging assets end up under the same press.
Lithuania and the Baltics
A staff party at the Ministry of National Defence cost €47,559. The event for roughly two hundred people was held on Bokšto Square on September 10; the ministry paid €44,994, while attendees paid €15 each for alcohol. Prime Minister Mindaugas Sinkevičius is demanding explanations, and President Gitanas Nausėda says such things discredit all defence financing. Minister Robertas Kaunas replies that such team events are normal in any organisation.
The ministry drew other criticism on the same day. It proposes allowing the military to buy drones with Chinese components, which public procurement law currently prohibits. Tomas Milašauskas, head of RSI Europe, Lithuania’s largest drone maker, calls it a step backwards, while former ministers Laurynas Kasčiūnas and Dovilė Šakalienė point out that Russia fights with Chinese support. The ministry’s argument is simple: drones almost never come without Chinese parts. The draft has been sent back for revision before the government considers it.
The Baltic states are asking the European Commission for €500 million for drone defence. The initiative is Lithuanian; the system would combine detection, artificial intelligence and kinetic interceptors. In Kaunas’s words, “we are that barrier, that border, which protects the rest of Europe.” A response from Brussels is expected within weeks.
The energy regulator VERT forecasts heating prices will rise 13–25% this season. The most likely scenario is 22.7%, because biofuel is 40–50% more expensive than a year ago and less than a third of the season’s needs has been purchased. The steepest increases will hit gas-heated areas: Vilnius district, Trakai, Ignalina, Lazdijai and Jonava. The Iran war reaches the Lithuanian household bill with a six-month lag.
Europe
The EU removed Alisher Usmanov and Mikhail Fridman from its sanctions list, while keeping around three thousand other Russian individuals and entities listed for another 36 months. France, Luxembourg and Slovakia pushed for it; Latvia, Estonia and Belgium abstained on the question. Lithuania responded on its own with a proposed five-year entry ban on both oligarchs, and the UK publicly opposed the EU decision. Meanwhile, the Commission is preparing a record new list of 827 entities and 744 individuals linked to weapons production.
The European Commission is seeking to unfreeze €4.2 billion for Hungary after pro-European reforms, and German Foreign Minister Johann Wadephul rejected Trump’s call for countries to leave the International Criminal Court. Slovakia, meanwhile, is asking for an EU meeting on fuel prices.
Ukraine
After Tuesday’s meeting with Trump, Volodymyr Zelensky said Ukraine is ready for an energy ceasefire if Russia stops attacking critical infrastructure. He added he is not sure Moscow is ready for it today. He asked Trump to arrange a trilateral meeting with Putin and to involve Xi Jinping, since Beijing has influence over the Kremlin.
Trump signed a law granting authority to impose 100% tariffs on major buyers of Russian energy. Zelensky calls it a potentially decisive lever. Secretary of State Marco Rubio confirmed on Wednesday that Putin has been invited to the G20 summit in Miami on December 14–15.
On Wednesday, waves of Russian drones hit Kyiv again, killing two people, injuring more than forty and setting a historic market on fire. A Russian military helicopter spent 42 seconds in Polish airspace near Kaliningrad. Ukraine, meanwhile, is considering exporting agricultural products through Baltic ports.
Geopolitics
An unidentified projectile struck a cargo ship in the Strait of Hormuz, the UK Maritime Trade Operations centre (UKMTO) reported. The ship is drifting and on fire, the crew has been evacuated, and two casualties were reported. Yesterday the market bought Iran’s offer to reopen the strait within seven days; today the strait reminded everyone that an offer is not yet an agreement.
Saudi Arabia restarted its East-West pipeline, shut on September 13 after drone attacks. It normally carries about 4 million barrels a day, roughly 4% of global supply, to the Red Sea port of Yanbu, bypassing Hormuz. Flows are lower in the first days. This pipe is today the only serious backup route for Gulf oil.
Xi Jinping arrived in Washington on Wednesday, his first visit in eleven years. Trump greeted him in person at Joint Base Andrews, a very rare gesture. The agenda includes trade, rare earths, artificial intelligence and the Middle East; experts do not expect major breakthroughs. It is the third meeting between the two leaders in eleven months.
NATO Secretary General Mark Rutte says Putin “clearly understands” what would trigger Article 5, while Latvia’s president says no Russian preparation for a military operation against NATO has been detected.
Central banks
Fed Governor Michael Barr said further policy adjustments are likely to be needed to bring inflation back to target in a timely fashion. That is an open signal for another hike. CME FedWatch shows a 70–71% probability that the Fed raises rates by 25 basis points in October. After the September 16 hike the policy rate stands at 3.75–4.00%, while 10-year bonds already pay over 5%.
The ECB says it will decide on a new euro banknote design at the end of the year. On rates it is quiet today.
What to watch tomorrow
The outcome of Trump-Xi talks. Rare earths and tariffs are where Beijing can offer a concession and Washington can sell it as a win before the November elections.
Whether the 10-year yield holds above 5%. If so, equity valuations and mortgages get a new reference point, and the Fed’s October decision becomes a formality.
Hormuz and Yanbu. Another attack or higher flows through the Saudi pipe will decide whether Brent returns below $100.
The defence ministry’s answers to the Prime Minister. The party case and the Chinese drone parts draft rest on the same argument, that defence money is special.
Brussels’s answer on the €500 million drone shield. It will be the first test of whether EU defence money goes to the front line.
Meška’s comment
A 10-year yield above 5% matters more than all of today’s political events combined. When the state’s borrowing cost returns to 2007 levels while the economy runs hot (PMI 58.4), that signals not a crisis but inflationary overheating fed by war, oil and deficits. The Fed is hiking, but the bond market is saying it does not believe that is enough.
Xi’s plane landed at Andrews on the same day US borrowing costs hit a nineteen-year high. China is still one of the largest holders of US Treasuries and at the same time dominates rare earth processing, without which neither drones nor Patriot systems work. On the same day in Vilnius, the ministry was explaining why drones almost never come without Chinese parts. The hegemon does not greet its rival on the tarmac out of politeness. The question is what it will have to offer so that the rival does not start selling bonds.