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

FOMC preview

On Wednesday, analysts expect the Fed to leave rates unchanged. Futures are pricing in less than a 10% chance of a hike after briefly spiking above 50% less than a couple of weeks ago after the CPI print. The interest will therefore be in Chair Warsh’s press conference and how the Fed balances still-elevated inflation and solid growth against the recent tightening in financial conditions. The broader message is still likely to be hawkish as recent inflation data support the case for further tightening overtime, even if the Fed chooses to pause this week.

US data

September core PCE is now tracking around +0.36% m-o-m, or roughly 3.1% y-o-y. The labor market remains tight: weekly initial jobless claims fell to a three-month low of 194k in the week ending October 17 (vs. 200k expected), pushing the four-week moving average to its lowest level since September 2022, when the unemployment rate stood at 3.5%. Housing, by contrast, is showing clear signs of strain from higher rates. Housing starts fell -5.2% in September (vs. +1.9% expected), pending home sales dropped -12.6% y-o-y, their weakest annual pace since 2023, and the NAHB housing market index slid to 29 in October (vs. 31 expected), its lowest level since 2012.

European Central Bank

On Thursday, analysts expect the ECB to keep the deposit rate unchanged at 2.5%, with no major changes to its communication. The Governing Council has so far raised rates gradually, in June and September, in step with updated staff projections. With higher borrowing costs already tightening financial conditions and sovereign bond markets under pressure, there is no reason to accelerate the pace of tightening; that would have required evidence of second-round effects, which has not materialized. Inflation pressures nonetheless remain elevated, with the one-year euro inflation swap climbing to 3.82% mid-week, its highest since May, as European gas prices reached new post-2022 highs above EUR90/MWh. Germany's ZEW investor expectations index fell more than expected to 28.1 in October (vs. 30.0 expected, from 34.7). Market doubts about the ECB's ability to keep hiking grew late in the week, with the probability of a December hike falling to 69% on Thursday from 90% the day before. The press conference is likely to focus on France and the ECB's potential policy responses, including activating the Transmission Protection Instrument (TPI) or halting quantitative tightening.

PMIs

In the US, the headline flash S&P Global PMI Composite Output Index eased from 58.4 in September to 57.6 in October but remained firmly in strong growth territory, pointing to annualised growth of about 5.0% versus 4.0% for Q3 as a whole, while selling price inflation accelerated to its highest since mid‑2022 and was broad-based across goods and services. In the euro area, the flash Composite PMI slipped from 53.1 to 51.9 in October, still indicating a fourth consecutive month of expansion but at the slowest pace in this sequence, with weaker growth across both manufacturing and services, France back in contraction and Germany plus the rest of the bloc still growing but at a moderated rate. Eurozone manufacturers reported a sharp, above‑trend rise in input costs, driven by higher energy, fuel and transport prices, pushing overall input cost inflation higher for a second month, even as output price inflation eased, with weaker selling‑price increases in Germany and France but some re‑acceleration in the rest of the region.

France

French sovereign stress crossed a symbolic threshold last week, with the 10-year OAT yield rising above 5% for the first time since 2002 and the OAT-Bund spread reaching 174bps on Thursday, levels last seen at the peak of the euro crisis in November 2011. The sell-off followed renewed domestic unrest the previous weekend. Moody's, the only major agency still rating France in the double-A bracket (Aa3, negative outlook), opted to maintain its credit rating on France as the country contended with a week of civil unrest and rising political risk. But it also maintained its negative outlook on the nation. “The negative outlook reflects the increased risk that the fragmentation of France’s political landscape will continue to impair the functioning of the country’s legislative institutions,” Moody’s said in its report. Moody’s noted that it could return France’s outlook to stable if its institutions can narrow the deficit.

UK data

UK labor market data were somewhat better than expected but point mainly to normalization rather than recovery. Payrolls rose 13k, vacancies declined only marginally, and the unemployment rate fell to 4.7% for June-August (vs. 4.9% expected), although that signal should be treated with caution given recent methodological problems with the data. Wage dynamics remain contained, limiting evidence of a wage-price spiral. Inflation was less comfortable for policymakers: headline CPI rose to 3.5% in September (vs. 3.4% expected), its highest level in nearly a year, driven mainly by energy with some contribution from core goods and services, while core CPI was in line with expectations at 2.8%, a six-month high. The print supports a Bank of England hike in November, which markets price at close to 100%, although the Bank does not appear willing to validate pricing for a more aggressive sequence of back-to-back moves. The Autumn Budget this week is expected to be low-profile: higher interest rates have reduced fiscal headroom, so the package will likely consist of modest, targeted measures on the cost of living or housing, financed partly by tax increases, with defense and departmental spending pressures deferred to next year's Spending Review.

Japan data

Japanese headline inflation rose above target to 2.1% y-o-y in September, from 1.9%, driven by a broad-based increase in prices across components. Core CPI (excluding fresh food) rose in line with expectations to 2.1%, a nine-month high, while core-core CPI (excluding fresh food and energy) came in slightly above expectations at 2.4%, up from 1.9%, suggesting that pass-through from higher energy and labor costs remains strong. Activity remains resilient: the flash composite PMI held at 52.3 in October, the 19th consecutive month of expansion, as services improved to 52.0 while manufacturing eased to 53.3. Exports rose +16.7% y-o-y in September (vs. +21.3% expected), a 13th consecutive monthly gain supported by semiconductor and AI-related demand, while imports rose +18.9%. Markets expect the BoJ to remain on hold this week, as some policymakers remain hesitant on the inflation outlook, but guidance pointing to further hikes as soon as December should remain in place, with possible debate over a higher terminal rate.

China data

China's economy accelerated slightly in Q3, with real GDP growing +4.5% y-o-y (vs. +4.4% expected), up from +4.3% in Q2, and +1.2% q-o-q (vs. +1.1% expected), supported by resilient exports and robust demand within the AI infrastructure supply chain. September activity data were also firmer, with industrial production up +5.5% y-o-y (vs. +5.4% expected) and retail sales rising +1.1% (vs. +0.5% expected). The People's Bank of China kept its one-year and five-year Loan Prime Rates unchanged at 3.00% and 3.50%, the 17th consecutive month on hold, and is reportedly considering replacing the seven-day reverse repo rate with the overnight rate as its main policy benchmark.

Global central banks

The Bank of Korea left its policy rate unchanged at 3.00%, as expected, but raised its view of growth this year and next, with Governor Shin saying a tightening stance needs to be maintained. In Canada, September CPI came in slightly softer than expected at 3.1% (vs. 3.2% expected), with both core measures followed by the Bank of Canada unexpectedly easing by a tenth (median 1.9%, trim 1.8%). In New Zealand, Q3 inflation fell more than expected to 3.7% y-o-y (vs. 3.8% expected).

Highlights

Energy

Oil market tension remains elevated despite continued flows through the Strait of Hormuz. Gulf crude shipments excluding Iran have recovered to around 24.6 million barrels per day, above pre-war levels, but attacks on vessels have increased sharply and transport costs are at record highs, reducing the fungibility of oil. Brent reached a five-month high of $113/bbl on Thursday following reports that the US and Israel had drawn up plans for renewed strikes against Iran after the midterm elections, and Houthi attacks on Saudi oil infrastructure. European gas prices are close to three times their pre-war level, but the inventory picture is more reassuring than the headline suggests: with demand around 16% lower than in 2022, storage covers about 92 days of consumption versus an average of 98, indicating that replenishment is almost complete. This supports a moderation in prices over the coming months, although cold winter temperatures could still trigger temporary spikes of more than 10%.

On rates

Markets contended with several risks last week, from AI-driven growth fears to a renewed jump in energy prices, but the French fiscal situation produced the most pronounced moves. In the US, Treasuries benefited from a flight to quality as the tech selloff and heightened geopolitical uncertainty boosted demand for government paper. The 10-year yield fell 7.9bps to 4.99%, slipping below 5% on Thursday for the first time in around a month, despite a 4.1bps rebound on Friday. Credit sent a less reassuring signal: US HY spreads widened 6bps for a sixth consecutive week, a streak not seen since 2022. The pressure was, however, heavily concentrated at the bottom of the rating spectrum, with CCCs 59bps wider against just 3bps for BBs and 8bps for Bs. In Europe, the Franco-German 10-year spread widened 29.5bps to 167bps, even after retracing 6.8bps on Friday, leaving it within striking distance of its Euro Crisis closing high of 189bps. Both legs contributed, with the 10-year OAT rising 21.5bps to 5.01% while the 10-year Bund rallied 8bps to 3.34% on safe-haven flows. In Japan, the 10-year JGB fell to 2.78% from 2.94% as the global equity selloff drove investors toward lower-risk assets, with a 20-year auction attracting record demand. The rally came even as September core CPI rose to 2.1% from 1.7%, its first reading above the BoJ’s 2% target since December 2025, which adds weight to the inflation argument ahead of this week’s policy meeting.

On earnings

Q3 earnings season has made a strong start, with 24% of S&P 500 companies having reported: 83% delivered a positive EPS surprise and 66% a positive revenue surprise. The blended net profit margin stands at 14.9%, which would be the second highest since 2009, behind only last quarter’s record of 17.0%. Post-results share price reactions have generally remained mildly positive rather than decisively negative. Yet sector performance is not being driven by current fundamentals. Energy, technology, financials and industrials are still seeing earnings upgrades, while consumer staples, one of the better-performing sectors recently, shows the weakest revision trend. The conclusion is that recent leadership has been driven more by positioning than fundamentals. The week ahead is dominated by US mega caps. Microsoft and Alphabet report after Wednesday’s close, with Azure growth, cloud demand and AI capex in focus, followed by Amazon on Thursday, where AWS momentum and the scale of infrastructure spending will be key.

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