2026 Weekly Update

Market update

The S&P 500 closed the week at 7’580.07, -0.57% lower. The Dow Jones closed at 51’770.31, -0.85%, with the Nasdaq lower by -2.00%. The volatility index VIX closed the week at 19.42, down from 19.45. The Euro Stoxx 600 rose +1.73%.

The 10-year UST closed at 4.93%, down from 4.99% a week before. The yield curve is upward sloping with the yield spread between the 3-month and 10-year UST at 84bps. US Corporate Bond spreads: Investment Grade spreads widened 8bps at 96bps and High Yield spreads widened 1bp at 358bps. German 10-year Bunds yield closed at +3.32% down from +3.34% a week before. In Europe, Corporate Investment Grade spreads widened 11bps at 116bps and High Yield widened 14bps at 396bps. 

The US Dollar Index (DXY) appreciated +0.07% last week and closed at 101.88. The Euro closed at 1.116 (-0.37%); the Yen depreciated -0.44%, closing at 157.56 and the Swiss Franc stayed flat, closing at 0.825. Gold closed at $3’874.62, depreciating -3.04%. Oil was higher, Brent closed at $117.64 (+0.79%) and WTI at $104.12 (+0.82%).

Macroeconomy

The Fed

The FOMC kept the fed funds rate unchanged at 3.75-4.00%, as widely expected, in what was a relative non-event. Two officials, Governor Cook and Cleveland Fed President Hammack, dissented in favor of a 25bps hike. The Committee upgraded its assessment of economic activity from "solid" to "strong", noted that inflation remains elevated, and framed the pause as allowing for "the accumulation of more information" after the September move rather than a change in direction. Chair Warsh repeatedly emphasized the strength of growth and said that while overall financial conditions are tighter, he was "unable and unwilling to call them tight". Although Warsh continued to avoid forward guidance, the policy bias remains hawkish and consistent with one further hike in December, in line with our central case. Markets pared back hike expectations after the press conference, with the probability of a December move easing to 84% from 91% and around 71bps of tightening priced by next September. Separately, Warsh outlined a change to the meeting schedule: in 2027, one of the eight FOMC meetings will be dedicated to strategy discussion, shifting to six policy meetings and two strategy meetings in 2028.

US data

US growth remains very strong and is broadening beyond the AI theme. The advance estimate of Q3 GDP showed the economy expanding at a +3.4% annualized rate (vs. +3.2% expected), up from +2.2% in Q2, supported by consumption, business investment and government spending. Final demand excluding inventories and trade grew by about 5% annualized, the strongest quarter since 2021. AI-related equipment, software and intellectual property spending continued to contribute materially, but non-AI business investment has also been positive for two consecutive quarters, reinforcing the view that capex is broadening across sectors. On inflation, the September PCE report was in line with expectations: headline PCE rose +0.5% m-o-m and +3.6% y-o-y, while core PCE rose +0.3% m-o-m and +3.1% y-o-y. Core momentum has accelerated, with the most concerning element being renewed firmness in supercore services, driven by transportation services (partly through energy pass-through) and financial services, although broader trend measures from the New York Fed and San Francisco Fed have continued to improve. The labor market remains tight, with weekly initial jobless claims at 194k (vs. 198k expected), pulling the four-week average down to 196.75k, its lowest level since October 1969. The Conference Board consumer confidence index rebounded sharply to 91.7 in October (vs. 81.0 expected), reversing its decline since June. Durable goods orders rose +1.8% in September (vs. +1.9% expected), with new orders for computers and related products up +26.7% y-o-y, their strongest annual growth since 1997.

European Central Bank

The ECB kept its deposit rate unchanged at 2.50%, with no major surprise. The statement was marginally less hawkish than expected, noting that underlying inflation has remained broadly stable and that tighter financial conditions are likely to weigh on inflation and growth, with greater emphasis on risks to growth and financial stability, especially in relation to France. President Lagarde nonetheless signaled that the "direction of travel" is towards another hike in December, describing the meeting as a decision not to hike while waiting for more information. In our view, the tightening already delivered is increasingly doing part of the job through broader financial conditions, reducing the need for a much more aggressive path. The ECB's Bank Lending Survey showed credit conditions at their tightest since 2023, with tighter standards and weaker loan demand concentrated mainly in housing. Markets left the probability of a December hike broadly unchanged at 84%, but priced out some 2027 tightening, with 64bps now priced by next September. Energy remains the main inflation risk: front-month European gas prices rose above EUR100/MWh for the first time since the 2022 energy crisis, and the one-year euro inflation swap reached 3.88%, its joint-highest level since 2023. Lagarde also announced she will step down by February 7, leaving only the December and early February meetings. Continuity remains our central case, with candidates such as Klaas Knot and Pablo Hernández de Cos seen as credible successors; the broader question is how the top institutional roles are allocated by year-end. On data, Germany's Ifo expectations component rose to 91.6 in October (vs. 90.0 expected), its highest since 2022, while euro area consumer confidence deteriorated.

Bank of Japan

The BoJ kept its policy rate unchanged at 1.25%, with board member Takata dissenting in favor of a 25bps hike. Guidance was broadly unchanged, with the economy expected to grow moderately and risks seen as balanced, but the tone shifted towards tighter policy: inflation is expected to rise with upside risks, and the Bank noted that underlying inflation has reached its 2% target. The Bank also expressed caution about recent global rate hikes, which could be read as concern over further yen weakness. Overall, the meeting signaled the need for further tightening as early as December, in line with our scenario. In a surprise announcement, the BoJ will nearly triple the pace of its ETF sales from January to around JPY860bn per year from JPY330bn, shortening the time needed to unwind its holdings from over 110 years to about 43 years. On data, Tokyo CPI eased to +2.6% y-o-y in October from +2.7%, in line with expectations, with core-core also at +2.6%, down from +2.9%.

France

French assets got some relief early in the week after Moody's surprised markets by leaving France's rating unchanged at Aa3 with a negative outlook, and weekend protests passed off with less violence than the week before. The OAT-Bund 10-year spread tightened by 13.8bps to 153bps on Monday, its largest one-day decline since March 2020, before drifting back to 156bps by Thursday. Household sentiment remains very weak, with consumer confidence falling to 80 in October (vs. 85 expected), its lowest reading since June 2013 and the joint-lowest since the series began in the 1970s.

UK 

Chancellor Healey's first Autumn Budget was broadly a "do no harm" package, offering limited, targeted support to households on the cost of living while only marginally increasing the deficit. Key measures include an additional 2pp tax on property and savings income from April (taking the basic, higher and additional rates to 24%, 44% and 49%), a smaller-than-expected increase in the bank tax from 3% to 6% for 15 months from January, and energy reforms such as the removal of standing charges. Although the fiscal rules remain intact, the government's buffer has narrowed significantly, with headroom falling from GBP24bn to GBP15bn in 2029-30, partly due to higher yields. The OBR projects larger short-term deficits and slower consolidation than previously expected, with additional borrowing likely through GBP20.4bn of off-balance-sheet investment via the National Wealth Fund. For gilts, the absence of negative surprises is supportive, and new 12-month Treasury bills should help ease pressure on longer maturities. Difficult decisions have largely been postponed, however, including the credibility of future deficit reduction and funding of defense spending at 3.5% of GDP by 2035, with clearer direction unlikely before the 2027 Spending Review. We expect the Bank of England to hike by 25bps this week, taking Bank Rate to 4%, likely with dissent and without signaling an aggressive hiking cycle. The case rests on energy prices staying close to the adverse scenario, resilient activity and labor market data, and continued upside inflation pressure.

Brazil

President Lula won a record fourth term, defeating Flávio Bolsonaro by 51.8% to 48.2% despite trailing in the first round, the first time since 1989 that the first-round runner-up has won the run-off. The result wrong-footed markets that had priced a Bolsonaro victory: the Bovespa fell almost 14% and the real more than 8% against the dollar on Monday, and by Thursday cumulative equity losses had reached 19%, fully erasing the post-first-round rally and leaving the index up only around 5% year to date. The real has stabilized since, likely helped by official intervention, but investors have sharply repriced political and fiscal risk. The domestic economy is under increasing strain from very high interest rates, with the PMI in contraction, negative industrial production growth and early signs of consumer fatigue despite fiscal support. External demand remains an important offset, as a competitive real supports a significant trade surplus and contains the current-account deficit. With inflation near the upper end of the target range, the central bank remains restrictive. The next administration needs to reorient policy towards fiscal orthodoxy to unlock the easing cycle the economy requires; the key test will be the choice of finance minister and the first announcements on the primary balance. The rightward shift in Congress should constrain any materially looser fiscal agenda, but budget rigidities are significant, with 90% of spending tied to wages and social programs.

Asia data

Chinese industrial profits rose +14.4% y-o-y in September, the fastest pace since June, driven mainly by AI-related industries, while consumer-facing sectors continued to face weak domestic demand; profits for the first nine months were up 15.5%. South Korea's economy grew faster than expected in Q3, with GDP up +3.4% y-o-y (vs. +3.0% expected) and +1.0% q-o-q (vs. +0.8% expected), supported by robust global demand for advanced AI chips.

Highlights

On rates

Sovereign bonds gained last week as a risk-off tone and on-hold decisions from the Fed, ECB and BoJ underpinned demand. Treasuries outperformed, with 10-year and 2-year yields falling to seven-week lows at 4.93% and 4.59%, respectively. In Europe, 10-year Bund and gilt yields moved lower, while OATs also advanced despite a renewed widening of the OAT–Bund spread into the close. In Japan, the 10-year JGB yield rose ahead of the BoJ’s 29–30 October meeting before easing to end the week little changed at 2.78%, as the bank paired its steady policy stance with a decision to more than double the pace of ETF sales from January 2027, a gradual unwind of past stimulus that markets largely shrugged off.

On earnings

Q3 earnings season remains robust, with around 60% of S&P 500 companies having reported so far: 82% have delivered a positive EPS surprise and 70% have beaten on revenues, leaving blended y-o-y earnings growth a little above 30% and on track for a third consecutive quarter comfortably above the 25% mark. Beneath this solid headline picture, however, the “Magnificent 7” are lagging the broader market, with only about 40% of them beating EPS expectations and their aggregate earnings running well below estimates, compared with a modest aggregate beat for the index as a whole, underscoring how elevated expectations had become for mega-cap growth. In Europe, around 40% of STOXX Europe 600 companies have reported so far, of which only 51% have beaten earnings expectations. However, the magnitude of positive surprises is the largest in five years, driven particularly by technology, communication services and financials. Last week’s US highlights included a sharp setback for Intel after a notably weak Q4 revenue outlook tied to a sluggish PC market, higher memory costs and disruption at an Israeli plant, as well as bearish market reactions to Amazon and Alphabet, where misses on headline revenue and free cash flow and slower advertising dynamics overshadowed still-healthy cloud trends. By contrast, Visa, Honeywell and Microsoft all reported better than expected earnings, and Amazon also beat on operating income, underlining that results remain broadly supportive even if post print price action has been selective. The calendar stays busy in the days ahead, with Apple and Palantir reporting today, followed by AMD tomorrow, and a mid week cluster including ARM, Qualcomm, McDonald’s, Novo Nordisk and Uber; later in the week, attention will turn to major Japanese and European names such as Toyota, Sony, Deutsche Telekom, Rheinmetall and Nintendo, before Moderna and Mitsubishi Heavy Industries close out the week on Friday.

What to watch

• Monday: US ISM Manufacturing; Switzerland PMI; Asia Manufacturing PMI
• Tuesday: US Midterm elections, JOLTS, Durable Goods Orders; Switzerland CPI; Australia RBA Cash Rate
• Wednesday: US ADP Employment, MBA Mortgage Applications, ISM Services; Euro area Flash HICP; Sweden Riksbank Policy Rate; New Zealand Employment; China RatingDog Services PMI
• Thursday: US Challenger Job Cuts, Initial Jobless Claims; Norway and UK Policy Rates
• Friday: US Nonfarm Payrolls, Unemployment, University of Michigan Sentiment; Japan Labor Earnings