2026 Weekly Update

Market update

The S&P 500 closed the week at 7’659.44, -1.95% lower. The Dow Jones closed at 52’002.41, +0.67%, with the Nasdaq lower by -4.48%. The volatility index VIX closed the week at 19.99, up from 14.84. The Euro Stoxx 600 rose +2.09%. 

The 10-year UST closed at 5.07%, down from 5.24% a week before. The yield curve is upward sloping with the yield spread between the 3-month and 10-year UST at 90bps. US Corporate Bond spreads: Investment Grade spreads widened 3bps at 88bps and High Yield spreads widened 10bps at 357bps. German 10-year Bunds yield closed at +3.42% down from +3.48% a week before. In Europe, Corporate Investment Grade spreads narrowed -4bps at 105bps and High Yield widened 13bps at 382bps. 

The US Dollar Index (DXY) depreciated -0.37% last week and closed at 101.84. The Euro closed at 1.1239 (+0.35%); the Yen appreciated +0.18%, closing at 158.02 and the Swiss Franc appreciated +0.73%, closing at 0.824. Gold closed at $4’165.58, depreciating -0.68%. Oil was higher, Brent closed at $109.86 (+4.91%) and WTI at $101.41 (+10.41%).

Macroeconomy

US prices

The September CPI came in hotter than expected on both headline and core. Headline CPI rose +0.65% m-o-m (vs. +0.6% expected), just short of rounding up to +0.7%, lifting the annual rate to +3.7%. Energy was the main driver, with gasoline pushing energy inflation materially higher, while food inflation remained contained. The more important concern is core, which rose +0.34% m-o-m (vs. +0.2% expected) and +2.6% y-o-y (vs. +2.5% expected), with price increases becoming broader-based across the basket. Core goods prices remained positive on a monthly basis, shelter is still elevated, and supercore services have stabilized at levels inconsistent with a rapid return to target. Producer prices reinforced the message: headline PPI jumped +1.3% m-o-m in September (vs. +0.6% expected), the strongest monthly increase since March 2022, and the core measure excluding food, energy and trade services rose +0.5% (vs. +0.3% expected). Mapping these components into the Fed's preferred gauge, core PCE is expected at around +0.35% m-o-m, taking the three-month annualized pace to about 3%. AI-related investment is also increasingly seen as a source of cost pressure spreading to other parts of the economy, adding to concerns that inflation drivers are becoming entrenched beyond energy.

Fedspeak

Ahead of the blackout period for the October 27-28 FOMC meeting, Fed communication remained hawkish in tone but without urgency. NY Fed President Williams reiterated his support for one more 25bps hike this year, in line with the September dot plot median, adding that he currently sees no reason to believe more would be needed. Richmond Fed President Barkin said that shocks are continuing and inflation is enduring, so "doing something about it makes some sense". San Francisco Fed President Daly said she had changed her earlier view that the Fed should look through supply shocks, questioning whether that logic holds when shocks overlap and persist, while Cleveland Fed President Hammack warned that businesses may start building in expectations of further price increases. Chair Warsh, speaking at the IMF meetings on Friday, declined to push back against market pricing, saying he does not prejudge meetings, and was notably upbeat on the US investment surge and the potential productivity gains from AI. After briefly peaking at 58% following the CPI release, the market-implied probability of an October hike fell back to 17%. 

US data

Activity data continued to point to a resilient economy. Retail sales rose +0.8% m-o-m in September (vs. +0.3% expected), cooling from an exceptionally strong August; the two-month picture points to firm consumption without clear overheating. Weekly initial jobless claims stayed low at 199k in the week ending October 10 (vs. 200k expected), leaving the four-week moving average broadly steady at 198.5k. Following the latest releases, the Atlanta Fed's GDPNow estimate for Q3 stands at an annualized +3.6%. On other data, the NFIB small business optimism index slipped to 97.9 in September (vs. 98.2 expected), while existing home sales beat expectations at an annualized 3.99m (vs. 3.95m expected). The main source of downside risk this week came from financial markets rather than the data: AI-related credit stress pushed volatility higher, with the MOVE index above 100, contributing to tighter financial conditions, a metric Chair Warsh has highlighted in recent press conferences.

Europe

European energy prices rose further, keeping inflation concerns elevated. Front-month natural gas futures hit a post-2022 high of EUR87.22/MWh on Tuesday, and the one-year euro inflation swap climbed to 3.59%. Economic momentum remains solid: the euro area economic surprise index recorded one of its strongest quarterly increases in two decades in Q3, excluding post-crisis rebound periods. Market pricing for further ECB tightening by year-end was broadly unchanged at around 24bps. In the UK, August GDP rose +0.1% m-o-m (vs. -0.1% expected), taking the rolling three-month growth rate to +0.7% (vs. +0.5% expected).

China data

Chinese consumer inflation remained subdued in September, with CPI at +0.9% y-o-y (vs. +1.0% expected), up slightly from +0.8% in August, as holiday-related spending offered only limited support. Producer prices, by contrast, accelerated sharply to +5.0% y-o-y (vs. +4.4% expected), from +3.8% in August, the highest level since June 2022, reflecting resilient business demand, rising input costs linked to AI-related investment, and supply disruptions associated with the Middle East conflict. Trade data also surprised to the upside: exports surged +36.3% y-o-y (vs. +25.7% expected), their strongest growth since February, while imports rose +31.0% (vs. +25.0% expected), the fastest pace since June.

Highlights

On rates

Sovereign bond markets staged a significant rally last week, driven by AI-related growth concerns that outweighed a hawkish inflation print. The 10-year Treasury fell 16.5bps to 5.07%, its biggest weekly decline since August 2025, while the 30-year dropped 17.5bps, its largest move since April 2025. The move came despite a September core CPI print of +0.3% that briefly pushed the probability of an October Fed hike above 50%. The AI-driven equity selloff quickly unwound that pricing, however, and Fed Chair Warsh's comments into the close left October hike expectations back at 17% by Friday. In Europe, the stabilization in French spreads continued, with the Franco-German 2-year spread tightening a further 4.5bps to 47bps while the 10-year held broadly steady at 137bps. This French spread stabilization faces an immediate test, however, as nationwide cost-of-living protests over the weekend descended into some of the biggest civil demonstration in years. In Japan, the 10-year JGB fell to 2.94% from 3.01%, touching five-week lows mid-week as the global equity selloff spurred safe-haven demand before partially retracing on Friday. BoJ board member Koeda cautioned against excessive hesitation in raising rates, citing upside inflation risks, while markets have largely pushed expectations for the next hike to December, with the October 29-30 meeting expected to deliver no change.

On earnings

Q3 earnings season is off to an encouraging start, with more than 40 S&P 500 companies having reported: roughly two-thirds have beaten expectations by more than 2%, the average surprise is in line with its long-term average, and market reactions have been broadly positive. Among last week's US financials, results were mixed, Goldman Sachs and Citigroup posted strong trading quarters yet fell on the day, the latter the session's worst performer despite its best fixed income quarter in at least a decade, while Bank of America was weighed down by a record regulatory fine tied to money-laundering and sanctions control failures. In Europe, solid results are expected this season, supported by resilient economic activity. European Q3 earnings growth is expected at around 15% y-o-y, though heavily concentrated in energy, meaning companies in that sector and in technology, communication services and industrials, where consensus expectations were revised up during the quarter, face a high bar. Full-year 2026 earnings growth is still expected at around 21%, though the pace is forecast to slow sharply to 8% in 2027, with technology leading and energy turning into a drag. The week ahead will broaden the picture: Netflix and SpaceX report Tuesday, followed Wednesday by Meta, where AI monetization and 2027 capex guidance will be central, and Tesla, where margins and robotics ambitions remain in focus.

What to watch

• Monday: US NAHB Housing Index; Canada CPI; China Q3 GDP and September Macro Data  
• Tuesday: US ADP Employment and Housing Starts; UK Weekly Earnings; Germany ZEW Survey; China Loan Prime Rate; Taiwan September Exports
• Wednesday: US MBA Mortgage Applications; UK CPI and Public Finance; Japan September Exports; South Korea Early October Exports
• Thursday: US Initial Jobless Claims; New Zealand CPI; Bank of Korea Base Rate
• Friday: US S&P Global PMI, University of Michigan Consumer Survey; UK Retail Sales; Eurozone CPI Expectations and October Flash PMI; Japan Nationwide CPI; Taiwan Industrial Production