2026 Weekly Update

Market update

The S&P 500 closed the week at 7’376.86, -2.68% lower. The Dow Jones closed at 51’285.73, -0.94%, with the Nasdaq lower by -3.37%. The volatility index VIX closed the week at 25.64, up from 19.42. The Euro Stoxx 600 rose +0.24%. 

The 10-year UST closed at 4.86%, down from 4.93% a week before. The yield curve is upward sloping with the yield spread between the 3-month and 10-year UST at 75bps. US Corporate Bond spreads: Investment Grade spreads stayed flat at 96bps and High Yield spreads widened 12bps at 370bps. German 10-year Bunds yield closed at +3.25% down from +3.32% a week before. In Europe, Corporate Investment Grade spreads stayed flat at 116bps and High Yield narrowed -5bps at 391bps. 

The US Dollar Index (DXY) appreciated +0.41% last week and closed at 102.3. The Euro closed at 1.1143 (-0.15%); the Yen depreciated -0.58%, closing at 158.48 and the Swiss Franc appreciated +0.55%, closing at 0.8205. Gold closed at $4070.8, appreciating +5.06%. Oil was lower, Brent closed at $98.32 (-16.42%) and WTI at $90.83 (-12.76%).

Macroeconomy

US data

US data remained strong across the board. The ISM manufacturing index rose unexpectedly to a three-month high of 55.5 in October (vs. 54.5 expected), while the services index came in at 54.5 (vs. 54.8 expected), with prices paid easing to 73.0 (vs. 74.6 expected). Nonfarm productivity grew at an annualized +3.6% in Q3 (vs. +2.7% expected), with Q2 revised up to +2.1%. Factory orders rose +1.8% in September (vs. +1.2% expected), and the trade deficit narrowed slightly to $105bn (vs. $107.9bn expected). Despite these data, markets have materially repriced the Fed path as AI-related equity stress and the drop in oil prices dominated: the probability of a December hike rose to 82% mid-week before falling to 68% by Thursday's close, with the next full hike now priced only around March. The one-year US inflation swap dropped to a two-month low of 2.16%. The next FOMC meeting is on December 9, with one more jobs report due before then.

US jobs

The US labor market surprised strongly to the upside in October. Nonfarm payrolls rose by 165k, well above the 70k expected, and revisions added a further 84k to August and September combined. Gains were led by professional and business services (+70k, against an average of 15k over the prior twelve months), health care, and transportation and warehousing. The household survey was even stronger, with employment surging by 463k. The unemployment rate ticked down to 4.1% from 4.2%, whereas a flat reading was expected, and the participation rate rose to 61.9%, a tenth above expectations. Wage growth was slightly firmer than expected at 3.1% y-o-y, though down from 3.2% in September, while the average workweek was unchanged at 34.4 hours, in line with consensus.

European Central Bank

Euro area headline HICP inflation rose to 4.0% y-o-y in October from 3.8%, a three-year high and slightly above our expectations. Energy was the main driver, with energy inflation up 1.9pp to 20.8%, largely reflecting a sharp increase in Italian electricity tariffs, which more than offset a temporary decline in Germany following a fuel-tax cut. Core inflation was unchanged at 2.5%, in line with our expectations, with core goods and services each edging up 0.1pp to 1.2% and 3.3% respectively. Headline inflation is likely to rise further before peaking in January or February 2027. The ECB's wage tracker provided further reassurance that the risk of meaningful second-round effects remains contained, showing no significant acceleration in wage growth despite higher inflation, although risks remain tilted to the upside. Several Governing Council members, including Nagel, Radev and Kocher, signaled that a December hike is likely unless the inflation outlook improves. Markets priced a December hike at around 76% by Thursday's close, while the one-year euro inflation swap fell to a two-month low of 3.10% as oil prices dropped. French spreads also eased, with the OAT-Bund 10-year spread tightening to around 150bps mid-week.

Switzerland

Swiss inflation surprised to the upside again in October, with headline CPI rising to 1.5% y-o-y from 1.0% in September, above consensus and the highest since December 2023. Energy was the main driver, particularly heating oil, petrol and diesel, while core inflation held steady at 0.5%. The reading remains within the SNB's 0-2% range but is already noticeably above its Q4 forecast of 1.2%. The conditions for a rate increase are gradually falling into place. In our view, December is probably too early for a hike, although one cannot be ruled out given the SNB's tendency to surprise markets in recent years. Much will depend on energy prices and the franc, and there will be one more CPI release on December 2 ahead of the SNB's December 10 meeting. Markets currently price an 18bps increase by March 2027. Even if the SNB begins tightening, the cycle is likely to be modest.

Bank of England

The Bank of England raised Bank Rate by 25bps to 4%, its first hike since 2023, in a more hawkish decision than expected. All MPC members voted for a hike, with one favoring a 50bps increase, signaling a meaningful shift in the Bank's reaction function: earlier confidence that tighter financial conditions and a soft labor market would weigh on demand has given way to greater concern about inflation risks. Growth is now seen as resilient, supported by strong AI-related demand and solid business investment, even though household consumption remains soft. The Bank sees headline CPI peaking at around 5% in mid-2027, although that forecast predates the latest decline in oil prices. While the Committee reiterated that second-round effects still look modest, and sees the current shock as closer to the 2011 pattern than to 2022, it is concerned that there is too much inflationary pressure in the pipeline. Governor Bailey said a further increase may be warranted unless progress is made towards resolving the conflict or other news softens the inflation risks. February is a potential timing for another hike if the Middle East conflict persists and inflation evolves close to expectations, while December remains live in the event of renewed energy upside or an inflation surprise. The Bank does not appear to envisage a long sequence of hikes, but rather a limited risk-management response.

Other central banks

The Reserve Bank of Australia raised its cash rate by 25bps to 4.85%, its highest level in 18 years and its fifth hike this year, in a split decision with three of nine board members favoring a pause. The RBA now expects trimmed mean inflation at 3.6% in December and 3.5% by mid-2027, with underlying inflation only returning to the 2.5% midpoint of the target range by June 2028, six months later than previously anticipated. In Brazil, the central bank paused after five consecutive 25bps cuts, as expected. With inflation slightly above the upper end of the target range, the Banco Central do Brazil is expected to stay on hold until there is greater clarity on the new administration's direction. The local yield curve has repriced sharply from expected cuts to expected hikes, which may prove too pessimistic if the incoming administration adopts a more orthodox fiscal policy. Early appointments, notably the finance minister and central bank governor, and the first fiscal decisions will be key to stabilizing markets. In Japan, the minutes of the BoJ's September meeting reinforced the case for further tightening, with policymakers generally agreeing that rates should continue to rise and one member highlighting the possibility of a faster pace.

Asia data

China's official PMIs pointed to a weaker start to Q4. The manufacturing PMI fell to 49.3 in October from 50.1 (vs. 50.0 expected), with production and new orders both slipping below 50, although high-tech manufacturing held up at 51.3. The non-manufacturing PMI slipped to 49.7 from 50.2, with construction particularly weak and services flat at 50.0. The private RatingDog manufacturing PMI was steadier at 52.0, in line with expectations. In South Korea, CPI eased to 2.8% y-o-y in October (vs. 2.9% expected), with core inflation also at 2.8%, while the manufacturing PMI fell to 51.3 from 53.9, its lowest since February. Australia's trade surplus jumped to A$2.83bn in September (vs. A$940m expected), its highest in seven months.

Highlights

On energy

Oil prices fell around the midterm elections, with Brent initially down around $12 before rebounding and ending the week near $100/bbl after closing below that level on Wednesday for the first time since September. The move followed signs of diplomatic progress, with Iran's Supreme Leader granting the government additional authority to hold talks on issues previously considered non-negotiable, reports that Iran is reviewing mediators' proposals and willing to re-engage on nuclear talks, and indications that President Trump favors giving diplomacy more time. In our view, recent price action reinforces our long-standing scenario of lower oil prices. A truce or broader peace in the Gulf could unlock additional supply at a time when non-OPEC production is already rising, while OPEC discipline appears more fragile as Gulf countries need to rebuild their fiscal buffers. The resulting supply rebound next year could create a substantial oversupply, and futures have already moved closer to a scenario of a lower equilibrium price. 

On rates

Sovereign bond yields fell around the world last week, as a technology-led equity sell-off driven by AI fears combined with a steep slump in oil prices, and the market's fears of a Middle East escalation easing. In the US, the 10-year Treasury yield fell 7.2bps to 4.86%, with short- and intermediate-term yields falling more sharply than longer maturities, steepening the curve. The Democratic sweep in the midterm elections also weighed on yields, as markets read it as reducing the likelihood of significant fiscal expansion. The rally was tempered by the end of the week, however. Yields edged back up on Friday after the October jobs report showed payrolls rising, and hawkish Federal Reserve commentary added to the pushback. In Europe, the 10-year Bund yield fell 6.9bps to 3.25%, tracking the global move as lower energy prices eased inflation concerns. In Japan, the 10-year JGB yield fell to 2.63% from 2.78%, as lower oil prices and the US Treasury rally were reinforced by the global equity sell-off, which accelerated the decline on Friday. The turmoil prompted some reassessment of the likelihood of a December BoJ hike. The BoJ's earlier hawkish guidance and the minutes of its September meeting, released during the week, nonetheless pointed to further rate increases.

On earnings

Q3 earnings season is nearing its end, with 88% of S&P 500 companies having reported: 84% have beaten EPS estimates and 74% revenue estimates. The blended earnings growth rate stands at 31.4% y-o-y, which would mark a third straight quarter above 25%. The picture is more mixed than the headline suggests, though. The share of companies beating is above recent averages, but the magnitude of the beats is below them, and the forward 12-month P/E ratio has fallen to 17.7, its lowest level since November 2023 and below both its 5-year and 10-year averages. Regionally, Europe was arguably the standout, with growth accelerating to a four-year high of 28%, which narrows the gap with the US to its smallest in more than 3 years. Japan and EM slowed sharply but remained very strong, with forward estimates still being upgraded, particularly in Korea and Taiwan. Among last week's results, Apple, Palantir and AMD all beat on higher sales, the latter also helped by better operating margins, while Mercado Libre fell short on operating income as cost headwinds offset in-line sales. The week ahead is lighter and Europe-focused: UniCredit and KKR report Monday, Siemens Energy Wednesday, Siemens, Allianz, Enel and Munich Re Thursday, and Richemont Friday.

What to watch

• Monday: US NY Fed 1-year Inflation Expectations; Germany September Exports; China October CPI, PPI and New Loans; Taiwan October Exports
• Tuesday: US NFIB Small Business Optimism, ADP Employment, CPI and Weekly Earnings; Fed's Waller speaks on Economic Outlook; China October Exports
• Wednesday: US MBA Mortgage Applications; Germany Final October CPI; South Korea Early November Exports; China YTD FDI
• Thursday: US Initial Jobless Claims and Existing Home Sales; UK Q3 Flash GDP; India October CPI
• Friday: US PPI; Fed's Williams participates in panel discussion; France and Spain Final October CPI; India October Exports