2026 Weekly Update

Market update

The S&P 500 closed the week at 7’811.54, +1.15% higher. The Dow Jones closed at 51’654.95, +0.93%, with the Nasdaq higher by +0.64%. The volatility index VIX closed the week at 14.84, down from 15.31. The Euro Stoxx 600 rose +0.03%.

The 10-year UST closed at 5.24%, down from 5.27% a week before. The yield curve is upward sloping with the yield spread between the 3-month and 10-year UST at 108bps. US Corporate Bond spreads: Investment Grade spreads narrowed -3bps at 85bps and High Yield spreads narrowed -7bps at 347bps. German 10-year Bunds yield closed at +3.48% up from +3.46% a week before. In Europe, Corporate Investment Grade spreads widened 1bp at 109bps and High Yield widened 10bps at 369bps. 

The US Dollar Index (DXY) appreciated +0.28% last week and closed at 102.21. The Euro closed at 1.12 (-0.49%); the Yen depreciated -0.29%, closing at 158.31 and the Swiss Franc depreciated -0.16%, closing at 0.8301. Gold closed at $4’194.24, appreciating +1.28%. Oil was higher, Brent closed at $104.72 (+2.42%) and WTI at $91.85 (+0.81%).

Macroeconomy

FOMC minutes

The minutes of the September FOMC meeting shed more light on the reasoning behind the rate hike. Many participants stressed that a higher policy rate path "would be prudent on risk-management grounds", while others saw it as necessary under their central outlook. Participants noted that underlying momentum in the economy appeared to have strengthened, and Fed staff forecasts do not see inflation returning to the 2% target until 2029. Still, nothing in the minutes pointed to urgency for the next move. The market-implied probability of an October hike fell to around 17%, with exactly 25bps of tightening priced by December.

Fedspeak

Fed Governor Waller said further hikes "do not need to come at consecutive meetings", reinforcing the message from Vice Chair Jefferson and NY Fed President Williams that the Committee prefers to take time to assess incoming data. Several other officials continue to argue for additional tightening, and the September Summary of Economic Projections implies a broadly quarterly pace of hikes.

US data

The ISM services index came in at 54.9 in September (vs. 55.0 expected), while the prices paid component rose to a new post-2022 high of 74.0 (vs. 73.3 expected), adding to evidence of persistent price pressures. The labor market continues to look resilient beneath last week's soft payrolls headline. The broader U-6 unemployment rate fell a tenth to 7.6%, the participation rate reached its highest level since May last year, and prime-age participation and the employment-to-population ratio recovered further. Weekly initial jobless claims fell to 197k in the week ending October 3 (vs. 200k expected), pulling the four-week moving average down to 198k, its lowest since September 2022, when the unemployment rate stood at 3.5%.

European Central Bank

The renewed widening in French and Italian spreads has led markets to question how much further the ECB can tighten. Bank of France Governor Moulin said that while the situation in the French bond market is complicated, "the conditions are not met today for an intervention from the ECB", which did little to calm investors mid-week. Later in the week, President Lagarde reportedly told euro area finance ministers that the ECB has instruments to deal with unwarranted and disorderly market dynamics, the first sign of soft verbal intervention. The market-implied probability of another hike by December fell to 85% on Wednesday, the most dovish 2026 profile in a month, and the terminal rate has been repriced towards 3%. Inflation pressures have not gone away, however: the one-year euro inflation swap jumped to 3.49% on Thursday, European gas prices rose back to around EUR78/MWh, close to their September high, and diesel prices climbed again. Investors still expect the ECB to hike once more, to 2.75%, but a pause becomes more plausible if the bond sell-off intensifies. Underlying activity remains resilient, with export orders still trending higher year on year and lending and trade data holding up, although the deterioration in Europe's terms of trade since the Iran conflict is becoming a headwind.

European politics

Political risk moved further up the agenda. In France, RN leader Marine Le Pen, who currently leads opinion polls ahead of next April's presidential election, pledged to bring the deficit below 3% within the first 18 months of a mandate, to eliminate the primary deficit before end-2028 and to reduce public spending below 50% of GDP by the end of her term. Questions remain over the feasibility and credibility of these targets, which would far exceed any consolidation France has delivered in recent history, but the focus on fiscal discipline offered some reassurance. Spillovers from France should remain broadly contained given the domestic nature of the risk, in contrast with the systemic crisis of 2010-2012. In Spain, Prime Minister Sánchez called an early general election for 29 November after Parliament rejected his minority government's housing plan. Italy's general election is due by the end of next year. On trade, EU Trade Commissioner Šefčovič visited China for talks with Commerce Minister Wang Wentao ahead of next week's EU leaders' summit, where a minimalist approach relying on established trade defense tools is expected.

Japan data

Japan's services PMI slowed to 51.3 in September from 52.5 in August, as weaker activity and softer new orders offset stronger employment. Wage growth remained solid, with nominal earnings up 3.8% y-o-y in August, the seventh consecutive month above 3% and the longest such run since 1992, and real wages up 1.5%. Consumption remains the weak spot: household spending fell 3.1% y-o-y in August, a ninth consecutive month of contraction. On policy, newly appointed BoJ board member Ayano Sato signaled support for a gradual, multi-stage approach to further rate hikes, and the yen weakened for three straight sessions to around 158.40 per dollar.

Brazil

Brazil's first-round presidential election delivered a sizeable surprise, with right-wing Senator Flávio Bolsonaro finishing ahead of President Lula with around 47.0% of valid votes against 45.1%, while polls had generally shown Lula ahead. The run-off is scheduled for 25 October. Right-leaning parties also increased their share of Senate seats from 47% to 63%, improving the prospects for passing fiscal measures. Markets welcomed the outcome, with the Ibovespa up 7.7% and the real gaining 4.4% against the dollar on Monday, its best day since June 2018.

Highlights

On oil

Oil markets remained elevated last week, with Brent holding around $100 as the market continued to price geopolitical risk rather than actual barrel availability. Middle East crude exports have largely recovered, reaching 16.6 million barrels per day, just below the 17mbd pre-war pace, as Hormuz flows rebounded with Oman and Red Sea routes absorbing roughly 3.5mbd of previously disrupted transits. Yet the recovery in crude flows has failed to resolve the more acute problem in refined products: Middle East refined-product exports remain 2.5mbd below pre-war levels, longer voyage routes are straining tanker capacity, and strategic reserves remain depleted. Russia compounds the downstream shortage, with Ukrainian drone strikes having cut refinery runs from 5.6mbd to 4.0mbd and pushing Russian product exports more than 1mbd below normal. A potential shift emerged on the Russia-Ukraine front, however: reports of a proposed ceasefire are closely linked to an extraordinary US pivot on Russian diesel, with the Trump administration reportedly negotiating a temporary sanctions waiver that would allow approximately 13.5 million barrels of Russian diesel back into global markets this month, potentially including the first US imports of Russian fuel since March 2022.     

On rates

Last week offered some relief after the previous week's historic moves, with global bond markets stabilizing after weeks of selling. The 10-year Treasury declined 3.3bps to 5.24%, though it briefly touched 5.36% intraday on Wednesday, its highest level since 2002, before retreating following stronger-than-expected auctions and President Trump's statement that he would not attack Iran ahead of the midterm elections, which provided additional support to bonds. Investment-grade corporate bonds outperformed Treasuries for most of the week with new issues oversubscribed, while high yield remained volatile amid persistent inflation concerns and energy price pressures. In Europe, Eurozone financial stress began to moderate, with the Franco-German 10-year spread tightening 3.7bps to 137bps and the 2-year spread narrowing a more significant 14.6bps to 52bps, suggesting the acute phase of the contagion may be easing. The 10-year Bund edged up 1.9bps to 3.48%, a muted move consistent with the broader stabilization. In Japan, the 10-year JGB fell to 3.01% from 3.09%, though yields remained elevated as concerns over Japan's fiscal trajectory persisted. Prime Minister Takaichi sought to reassure markets by pledging to control bond issuance and reaffirming fiscal sustainability as a government priority, though the broader debate over the pace of BoJ normalization continues to keep Japanese rates in focus.

On earnings

Earnings season gets underway this week, with the major US financials reporting over the next two days: JPMorgan, Goldman Sachs, Wells Fargo and Citigroup Monday, followed by Bank of America, Morgan Stanley and BlackRock Tuesday. On the technology side, ASML reports Wednesday and TSMC Thursday. Expectations are high: consensus forecasts S&P 500 earnings growth of 27% y-o-y in Q3, while in Europe, strategists similarly see 25% earnings growth. Among sectors, Energy is expected to lead all eleven S&P sectors on y-o-y earnings growth, reflecting the sustained elevation in oil prices. With results still limited at this stage, the direction of travel should become clearer by end of week.

What to watch

• Monday: US Export and Import Price Index; Singapore Exports
• Tuesday: US Retail Sales, PPI, Initial Jobless Claims; UK GDP and Industrial Production; France Final September CPI; Australia Employment; Japan Core Machine Orders
• Wednesday: US CPI, Mortgage Applications, Fed Beige Book; China CPI, PPI and Exports
• Thursday: US NFIB Small Business Optimism, ADP Employment, Existing Home Sales; Australia RBA Policy Minutes
• Friday: South Korea Exports