Templeton Global Macro backs country-by-country calls as rates turn higher

Interest rates are turning higher across most of the developed world, and Templeton Global Macro argues the right response is to look country by country rather than region by region. Its September 2026 Global Macro Insights note makes the case that most countries are in, or heading toward, a hiking cycle.

The note comes from the team led by Michael Hasenstab, chief investment officer and portfolio manager at Templeton Global Macro, with Calvin Ho, portfolio manager and director of research. It ties September’s market movement to two forces.

The first is a continued stalemate in the Middle East, which sent oil prices higher and reignited inflation fears. The second is the US Federal Reserve’s September rate hike.

For advisers, the note speaks to two live portfolio questions. The first is how much duration to hold in the defensive part of client portfolios. The second is how much offshore exposure to hedge back into Australian dollars.

Rates on the rise

The note tracks a broad turn in central bank policy. The Fed lifted its target range by 25 basis points to 3.75 to 4.00 per cent in September 2026 on a unanimous 12-0 vote, and markets read Kevin Warsh’s press conference as hawkish on the path ahead.

The European Central Bank raised its main refinancing rate by 25 basis points to 2.65 per cent, taking the deposit facility to 2.50 per cent. The Bank of Japan moved by the same amount to 1.25 per cent, though a split 7-2 vote and softer guidance landed below what markets had expected.

Australia is part of the same story. Australia, Norway and New Zealand each raised rates by 25 basis points, and the note shows August inflation rising in both Australia and Norway, where it remains well above target.

Hasenstab and Ho describe a global monetary policy cycle that has shifted into tightening, even where individual countries have yet to start raising rates.

The weeks since have confirmed that reading. The Fed held on 28 October with two members dissenting in favour of another increase, and by mid-November futures fully priced a December rise. The Bank of England joined the cycle with a lift to 4 per cent on 4 November.

The Bank of Japan held on 30 October and raised its 2027 inflation outlook, while the ECB held on 29 October and left the door open, which is the data-dependent stance the note described.

Bond markets feel the shift

The US 10-year Treasury note yield rose 53 basis points to 5.28 per cent in September 2026, its highest level since mid-2007. Japan’s 10-year government bond yield climbed 11 basis points to 3.05 per cent, its highest since 1996. The benchmark German yield rose 26 basis points to 3.59 per cent, its highest level since 2009.

The team’s caution extends to the long end of the curve. It names the global fiscal outlook as one of its key structural concerns, particularly among core developed markets.

“We remain wary of longer-term bonds, which we would expect to bear the brunt of the implications of fiscal loosening,” Hasenstab writes.

That caution was well placed into early October, when the US 10-year reached 5.31 per cent, its highest level since 2007. Yields have since eased back toward 5 per cent, though the concern behind the position is structural rather than a call on any single month.

The oil move cuts both ways

Brent crude rose to over US$100 a barrel in September 2026, up from around US$90 at the end of August and around US$72 in early July. It has since fallen back toward US$91 as Middle East supply recovers and Saudi output lifts.

That reversal tests the method rather than the thesis. Templeton Global Macro argues an oil move of that size lands unevenly, relieving importers tied to the technology upturn and trimming the terms of trade benefit flowing to exporters. A swing from US$72 to above US$100 and back toward US$90 inside five months is the pattern that punishes bucketed regional exposure and rewards country-level work.

Overvalued greenback

The US dollar strengthened in September as perceptions of the Fed turned more hawkish. The USD Index, which measures the dollar against six major currencies, rose 2.0 per cent. Templeton Global Macro expects the currency to weaken over the medium term.

“We continue to regard the USD as broadly overvalued, despite some current support from the geopolitical backdrop and tighter Fed policy. We expect further depreciation over the medium term,” Hasenstab writes.

The dollar has held its ground since, which matches the near-term support the note identified. The medium-term view rests on relative interest-rate differentials turning less favourable as other countries raise rates alongside the Fed, and the November move in Britain adds to that argument.

Hasenstab and Ho read the rotation out of US dollar assets as a lasting shift rather than a trade, and they tie it to structural improvement in emerging markets as much as to the rate cycle.

Global rewiring

Beneath the headline moves, the note sees outcomes splitting by country. Drawing on the International Monetary Fund’s latest outlook, it expects the Middle East conflict to weigh on oil importers and vulnerable economies.

AI-driven demand, meanwhile, supports countries well integrated into the global technology value chain. Among the countries in Templeton Global Macro’s portfolios, South Korea and Malaysia belong to that second group. Japanese exports of semiconductors and electronic components rose more than 52 per cent year on year in August, which puts a number on it.

Energy exporters outside the conflict zone, such as Colombia, Brazil and Ecuador, should benefit from favourable terms of trade, according to the note. Closer to home, the team sees value in specific countries within the Asia-Pacific region, including Australia, as well as in Latin America. That selectivity underpins its longer-term view of how the global economy is reorganising.

“Despite the current geopolitical backdrop, our thesis of ‘global rewiring’ remains intact, and we expect global relations to continue shifting and realigning for some time yet,” Hasenstab and Ho write.