2026 Weekly Update

Market update

The S&P 500 closed the week at 7’743.41, +1.21% higher. The Dow Jones closed at 51’828.62, +0.28%, with the Nasdaq higher by +2.06%. The volatility index VIX closed the week at 14.87, up from 14.81. The Euro Stoxx 600 rose +0.50%. 

The 10-year UST closed at 5.16%, up from 5% a week before. The yield curve is upward sloping with the yield spread between the 3-month and 10-year UST at 98bps. US Corporate Bond spreads: Investment Grade spreads stayed flat at 80bps and High Yield spreads widened 8bps at 315bps. German 10-year Bunds yield closed at +3.60% up from +3.52% a week before. In Europe, Corporate Investment Grade spreads widened 3bps at 99bps and High Yield widened 8bps at 322bps. 

The US Dollar Index (DXY) appreciated +0.75% last week and closed at 100.97. The Euro closed at 1.1391 (-0.83%); the Yen depreciated -0.25%, closing at 157.28 and the Swiss Franc depreciated -0.72%, closing at 0.8283. Gold closed at $’4284.81, depreciating -2.14%. Oil was mixed, Brent closed at $104.32 (+0.43%) and WTI at $92.41 (-7.87%).

Macroeconomy

The Fed

There was no FOMC meeting this week, but a heavy schedule of Fed speakers followed last week's hike, and the tone leaned hawkish. Chicago Fed President Goolsbee pointed to signs of classic demand overheating linked to the AI investment boom. St. Louis Fed President Musalem described the current fed funds range of 3.75-4.00% as still on the accommodative side. Richmond Fed President Barkin warned that today's elevated inflation could feed into future inflation. Together with a string of strong US data, this pushed markets to price a probability of around 70% for another 25bps hike in October, up from 53% at the start of the week. Around 37bps of further tightening is now priced by year-end, the most hawkish pricing for December 2026 so far and close to an even chance of two more hikes. Next week's payrolls report will be the key release before the October FOMC.

European Central Bank

September's data gave the ECB hawks more ammunition. Bundesbank President Nagel said the ECB may need to move from its current neutral stance into mildly restrictive territory if high energy prices persist. The market-implied probability of an October hike rose from 48% to 66% over the week, and a further hike is fully priced by year-end. In our view, resilient activity and renewed price pressures reinforce the ECB's hawkish bias and materially raise the odds of another hike, although December looks more likely than October.

Swiss National Bank

As expected, the SNB kept its policy rate unchanged at 0%. It adjusted its guidance on FX interventions to reflect reduced pressure on the franc. The inflation forecast was revised higher, in the near term because of higher oil prices and over the medium term because of the weaker franc. The decision held no major surprises and supports our view that it is still too early for the SNB to turn more hawkish. Switzerland is not facing the same inflation dynamics as the US or the euro area, and domestic price pressures remain subdued. However, persistently high energy prices, a resilient economy and a franc weakening as rate differentials widen could gradually build inflationary pressure. December is probably too early for a hike, although the conditions for one are slowly falling into place. Any Swiss tightening cycle is likely to be modest.

US-China trade

The Trump-Xi meeting produced more goodwill than policy substance. The only tangible outcome was a two-month extension of the trade truce, keeping tariffs lower until January 10 under a new joint trade arrangement that still lacks operational detail. The extension was shorter than the three to six months floated by US officials beforehand, and the tariff reductions some had hoped for did not materialize. On strategic issues, Beijing restated its established positions. Attention focused on whether US wording on Taiwan might shift from "not supporting" to "opposing" independence, though no such change is official. The main market takeaway is a temporary reduction in near-term trade escalation risk rather than new policy guidance.

US data

US activity data continued to surprise on the upside. The flash composite PMI jumped unexpectedly to a five-year high of 58.4 in September (vs. 55.3 expected). Weekly initial jobless claims came in at 197k in the week ending September 19 (vs. 200k expected), pulling the four-week moving average, a gauge Chair Warsh has cited, down to 202.25k. New home sales rose to an eight-month high of 684k annualized in August (vs. 616k expected), although higher rates continue to weigh on the housing market more broadly.

European data

The euro area flash composite PMI rose 1.1 points to a three-year high of 53.1 in September (vs. 51.7 expected). Growth was broad-based across manufacturing and services, and activity improved in both Germany and France. Price pressures intensified, however. Overall, Q3 surveys point to euro area GDP growth of around 0.4% q-o-q, though firms remain cautious about the next 12 months given elevated uncertainty. In Germany, the Ifo business climate index beat expectations at 89.9 (vs. 89.0 expected), its highest since 2023, and the current assessment component also rose to a post-2023 high of 89.5.

Scandinavian central banks

Norway's central bank raised its policy interest rate ‌by 25bps to 4.50% on Thursday as expected by a narrow majority of analysts and said it may hike again to contain inflation. Norway's core consumer prices rose by 3% y-o-y in August and have exceeded the central bank's target of around 2% each month since early 2022. "We believe it will be necessary to maintain elevated interest rates for a time to come, and we are prepared to raise them again if the inflation outlook warrants it", Norges Bank Governor Ida Wolden Bache told ⁠a press conference. Still, the August inflation of 3% was below Norges ⁠Bank's official forecast of 3.3%. "Over the summer, underlying inflation moderated and was lower than expected. But the inflation outlook somewhat further ahead does not appear to have changed materially", Bache said in the statement. With the new policy rate path, inflation is projected to slow from next year and move down to 2% ⁠in 2029, the central bank said. Growth in mainland GDP, which strips out the country's oil and gas production, was forecast at 0.9% for 2026, in line with a June projection and down from a growth rate of 1.7% in 2025. The mainland economy is projected to expand ⁠by 1% in each of the two coming years, while core inflation will ease to 2.7% next year, 2.4% in 2028 and 2.1% in 2029, Norges Bank added. "The economy is expected to cool somewhat further, and registered unemployment is projected to edge up to slightly above pre-pandemic levels", it said. In Sweden, Sveriges Riksbank left its policy rate unchanged at 1.75% following its Wednesday monetary policy. In terms of economic outlook, Swedish GDP has grown faster than expected, moving the Swedish economy closer to normal conditions. Measured inflation remains low (partly due to temporary fiscal measures/tax cuts), but stronger activity, a weaker krona, and ongoing energy supply shocks increase the upside risk to underlying inflation. Adopting a hawkish hold, the Executive Board signaled that the rate path will likely need to be tighter than previously projected. If the economic outlook holds, rate increases are expected to begin later in the year.

Highlights

On oil

Reports of a first US-Iran deal have emerged, but the more likely path remains one of alternating and inconclusive negotiations rather than a clean resolution. On the crude side, the picture has stabilized somewhat: Gulf producers have exported slightly above 10 million barrels per day in September, and combined with reserve releases, global needs are broadly being met for now. The stress has therefore migrated to refined products, where diesel prices have hit all-time highs. Two factors are amplifying the squeeze: the prospect of a US diesel export ban and Russia's signal that its export restrictions could extend beyond end-September, with 40% of Russian refining capacity having been offline in July following Ukrainian strikes. Europe remains the most exposed region given its structural reliance on diesel imports. A US ban is still seen as unlikely, it would backfire domestically by forcing refinery cutbacks, tightening gasoline supply and raising prices ahead of the midterms, but rumors alone have been enough to dislocate markets, with the Brent-WTI spread approaching levels last seen at the start of the Gulf war and US distillate exports already rising pre-emptively.      

On rates

Sovereign bond yields extended their rise last week, with US rates reaching fresh multi-year highs as October Fed hike expectations continued to build. The 10-year Treasury rose 16.6bps to 5.16%, its highest level since 2007, while the 30-year surged 16.5bps to 5.49%, its highest since 2004 and its biggest weekly jump since May, as the probability of an October hike climbed from 53% to 70%. The move rippled across asset classes: the dollar strengthened to become the top-performing G10 currency, gold fell 2.14% as higher real yields weighed on non-interest-bearing assets, and credit markets showed signs of strain, with US HY spreads having the biggest weekly move in almost a year. In Europe, the 10-year Bund rose 8.3bps to a post-2009 high of 3.60%, tracking the broader global selloff though with less force than US rates. In Japan, the 10-year JGB was pulled higher by the US Treasury selloff and yen weakness, which amplified domestic inflation concerns. Governor Ueda kept the prospect of further BoJ tightening alive and underlined upside inflation risks, even as last week's decision was broadly read as less hawkish than expected given the two dissenting votes and limited forward guidance.

What to watch

• Monday: Germany Retail Sales; China Industrial Profits
• Tuesday: US JOLTS, Conference Board Consumer Confidence; Canada July GDP; Australia RBA Policy Meeting
• Wednesday: US ADP Employment, PCE, Personal Income; France and Germany CPI; Australia CPI; China PMI
• Thursday: US Initial Jobless Claims, ISM Manufacturing; Switzerland CPI; Japan Tankan Business Survey; South Korea Exports
• Friday: US Nonfarm Payrolls, Hourly Earnings, Durable Goods Orders; Eurozone CPI; Japan CPI