Rising interest rates put pressure on stock markets

After a temporary surplus in 2025/26, the sugar market is entering a potentially tighter multi-year period. Production risks are concentrated in India and Brazil, and a strong El Niño could reduce output simultaneously in both of these major production regions. India’s decision to permit up to 1 million tonnes (MMT) of tariff-free raw sugar imports indicates domestic supply issues and may reduce export availability from one of the world’s largest producers. Meanwhile, Brazil’s ability to switch cane between sugar and ethanol production makes it sensitive to fluctuations in crude oil price fluctuations. While the USDA still forecasts a surplus and higher ending stocks, private-sector forecasts are moving sharply towards a deficit. StoneX expects a shortfall of 1.7 MMT in 2026/27, while Czarnikow projects a deficit of 2.9 MMT in 2027/28.

At the time of writing (mid-September 2026), Brazil is in the active late-season harvest phase rather than the off-season. The main harvest began in early April 2026. By the end of June, mills in the Center-South region had processed 214.47 million tonnes of cane, whithe cumulative sugar production reaching 10.75 million tonnes, marking a 12.38% year-on-year decline. Meanwhile, ethanol production was ahead of the previous season at 11.37 billion litres, marking a 20.44% year-on-year increase. Therefore, the availability of cane is not the most important feature of the current Brazilian crop; how mills allocate it between sugar and ethanol production is also important. At the start of the season, only 33% of crushed cane was allocated to sugar production, with over two-thirds going to ethanol production. This allocation depends on the interplay of prices for raw sugar, ethanol and oil, and achieving a balance between the three is key to the decision-making process. Crude oil prices have been rising sharply since July, with prices now exceeding USD 100 per barrel. This increase is relatively well tracked by with ethanol prices, as ethanol becomes a more attractive alternative when oil prices rise. The ongoing war in Iran is actively driving prices up and causing oil stockpiles in both China and the USA to dwindle, in turn creating further long-term demand for oil.

Brazil produces significantly more ethanol than India, where the current crop cycle is in its late monsoon/growing phase. In Q4, crushing will begin and the first new-season sugar will enter the market. El Niño brought below-normal rainfall during the monsoon season, which forms of the crop cycle. The market is now monitoring whether the end of the season will make up for this, or whether the dry conditions will continue. While sufficient rainfall would boost crop output, but too much could lead to waterlogging and increase the risk of diseases affecting the health of the crop. The Indian government's authorisation of up to 1 MMT of raw sugar imports without taxes may suggest that hopes for sufficient rainfall before crushing are low, at least domestically.

In the past, sugar prices have overreacted to a multi-country weather shock affecting multiple countries before the most important supply information has became available. Brazil is still in its main harvest period and lower crude oil prices could redirect cane from ethanol to sugar production. Furthermore, the USDA’s balance sheet remains much more favourable than private deficit forecasts suggest. Meanwhile, India’s monsoon season has improved significantly from its early-season low, and a larger-than-expected Indian harvest could coincide with Brazil’s ongoing supply to the export market. With speculative positioning already net long, a shift in the sugar/ethanol mix or a series of less bearish crop updates could trigger a significant fall in prices.

The price of Brent oil has been creeping upwards over the past week. Following the latest attacks, the price rose further to reach $109 per barrel on Thursday, 10 September. However, it has since fallen back to $107 per barrel.

On Wednesday, 9 September, the US Treasury announced an increase in the buyback of long-term government bonds, raising it from the previous range from $2 billion to $4 billion to $6 billion. The intention was to push down long-term interest rates. However, some investors had hoped the figure would be as high as $10 billion.

Following the release of US inflation data (producer and consumer price indices) last week, the market now anticipates a 92% probability of a 25-basis-point increase in the Fed's benchmark interest rate on Wednesday 16 September. The market also anticipates a further rate hike from the Federal Reserve later this year, followed by one more in 2027. On Monday 14 September, the yield on the US 10-year Treasury bond surpassed 5 per cent for the first time since October 2023 (see the graph below for the last five years).

Rising interest rates are putting downward pressure on global stock markets. The declines have been moderate so far, however, with the Dow Jones Global Index falling by around 2% over the past month.

Calendar

On Wednesday, 16 September, the stream of macroeconomic news begins with the release Japan’s trade balance and machinery orders figures for July and August and, respectively. Next, the UK’s consumer and producer price indices and retail sales for August, as well as Italy’s consumer price index for August, and the Eurozone’s industrial production figures for July will be examined. Next, the US for retail sales and import prices in August, the NAHB index in September, unsold inventory levels in July, and weekly oil inventory data from the Department of Energy will be released. This will be followed by the Federal Reserve's interest rate decision and forecasts.

On Thursday, 17 September, Volvo Cars will be hosting a Capital Markets Day. In terms of macroeconomic news, the Eurozone consumer price index for August, as well as a rate announcement from the Bank of England are expected. From the US data on housing starts and contracted home purchases in August, the Philadelphia Fed index in September, and weekly jobless claims will be received.

The week's macroeconomic news begins on Friday 18 September, with the release of Japan’s CPI for August and the Bank of Japan’s interest rate decision. Attention will then shift to Europe, where UK retail sales and Germany’s producer price index for August will be released. The Eurozone will release data on the current account and construction output for July. The week will conclude in the US with the release of industrial production and leading indicators for August.    

Looking at the S&P 500, the risk remains on the downside. As can be seen in the chart below, the index is trading close to the 7,600-support level, while the MACD has generated a sell signal. If it breaks below 7,600, the next support level is around 7,500.

The MACD indicator has also generated a sell signal for the Nasdaq 100. The next step could be a break below the support levels of around 28,775 and 28,100.

As the chart below shows, the OMXS30 has bounced back strongly from the MA100. However, momentum remains negative and is falling, as shown by the MACD, which has generated a sell signal. If it falls below 3,180, the next support level is around 3,120.

During yesterday’s trading, the German DAX tested the MA100, which is still serving as the first level of support. If this level is broken, the next target may be the 25,000 level.

EMA 9: 9-day exponential moving average

Fibonacci: There are several Fibonacci lines used in technical analysis. Fibonacci numbers are a sequence in which each successive number is the sum of the two previous numbers.

MA20: 20-day moving average

MA50: 50-day moving average

MA100: 100-day moving average

MA200: 200-day moving average

MACD: Moving average convergence divergence