Macro
The global outlook brightened slightly last week as inflation pressures continued to ease and expectations for further monetary easing firmed. Investors welcomed another soft U.S. inflation reading and a wave of supportive policy signals from major central banks, even as trade tensions and political uncertainty remained in focus.
In the United States, September inflation rose less than expected, confirming that disinflation remains on track. Headline CPI increased 3.0% year-on-year, a touch above August’s 2.9% but below the consensus forecast of 3.1%. Core inflation matched the headline at 3.0%. The data release was delayed by the government shutdown, which has disrupted several official reports, yet it reinforced the view that price pressures are cooling despite renewed tariff actions. While traders anticipate multiple Fed rate cuts through 2026, experts caution that inflation is unlikely to return to target levels quickly, with forecasts still in the mid-to-low twos a year out. Persistent inflation continues to impact lower-income groups and poses challenges for the broader economy, suggesting investors should expect a gradual normalisation rather than a sharp decrease.
Markets initially responded with a rally in Treasuries and a brief dip in the dollar before both reversed later in the day. The two-year yield closed near 3.48% and the ten-year near 4.00%, while the dollar finished marginally softer on the week. Equities advanced again, with the S&P 500 gaining 0.8% to another record high, supported by strong technology earnings. The next FOMC meeting, scheduled for October 28–29, is widely expected to deliver a second consecutive quarter-point rate cut, bringing the policy range to 3.75–4.00%.
Outside the U.S., monetary easing is becoming increasingly global. The European Central Bank last cut rates in June, extending its easing cycle after raising the deposit rate to a record high of 4%. Inflation has since stabilised near the 2% target, but the ECB still faces headwinds from external trade uncertainty and weak German industrial output. Central banks in Turkey and Russia reduced rates again last week, while counterparts in Hungary, Indonesia, South Korea, Ukraine, Uzbekistan, and Paraguay held steady. Bloomberg’s central-bank tracker shows that more than two-thirds of major economies have eased policy since January, marking one of the broadest synchronised cutting cycles since 2020.
Trade and geopolitics remained key sources of volatility. The U.S.–China tariff dispute deepened, hitting agriculture particularly hard. American farmers are facing one of their largest unsold soybean harvests in years after Chinese buyers withdrew from the market, highlighting how tariff policy is distorting global commodity flows. Meanwhile, Washington announced a 100% tariff on all Chinese goods, further undermining hopes of a near-term breakthrough. Beijing responded by expanding export controls on rare earths and critical technologies, reigniting concerns about supply-chain vulnerabilities and trade fragmentation.
China also accelerated efforts to internationalise the renminbi. Offshore lending and trade settlement in RMB have risen sharply as Beijing expands its de-dollarisation campaign. The trend gained momentum after Washington blocked Russian oil producers Rosneft and Lukoil from accessing the dollar-based banking system. Those sanctions contributed to a rebound in oil prices, with Brent climbing above $66 per barrel and WTI above $62, although both remain below their levels at the start of the year due to abundant supply and slower demand.
Gold’s surge dominated market conversations throughout the week. Spot prices briefly climbed above $4,381 per ounce on October 20 before declining 8.3% over the next two days and recovering about 2.5% by Friday, leaving the metal down roughly 3% for the week. The sharp swings were driven less by fundamentals and more by investor anxiety amid policy uncertainty and inflation risks. While central-bank purchases remain strong, much of the latest momentum has come from private investors seeking protection, echoing renewed interest in the “debasement trade” amid a weaker dollar and a broadening easing cycle.
Rates
Treasury yields declined and the curve flattened as investors weighed conflicting signals across the economy. Robust business investment, particularly in AI and technology, contrasted with weakening sentiment among lower-income consumers and small businesses. Financial conditions remain easy, with refinancing channels still open, prompting debate over whether further Fed cuts can meaningfully stimulate demand in an already liquid environment.
The latest CPI report reaffirmed a gradual disinflation trend, keeping expectations for continued Fed easing intact. Headline inflation continues to run above the 2% target, but consensus projections see it settling in the mid-to-low 2% range over the next year. Markets now price in two additional 25 bp rate cuts this year and roughly four by mid-2026, though policymakers continue to warn that easing too aggressively could reignite inflationary pressures.
At the same time, a surge in sovereign debt issuance, driven by expanded fiscal spending on energy, defence, and climate initiatives, is beginning to crowd out the corporate credit market. As governments absorb a larger share of available capital, corporate borrowing costs have risen, contributing to increased volatility and tighter funding conditions for lower-rated issuers.
Credit
Credit markets traded steadily this week as investors weighed resilient fundamentals against rising fiscal pressures and isolated financial-sector risks. Despite some corporate collapses and fraudulent loans at regional banks, public credit markets have remained stable, with spreads in high yield and investment grade only modestly wider. While subprime lending and auto loans remain a minor part of the high-yield index and do not pose systemic risk, investors are advised to be selective, focus on higher-quality credits, and favour the front end of the curve for stability as private credit risk and idiosyncratic stress persist.
Emerging market credits have held up surprisingly well despite geopolitical headwinds and trade-related vulnerabilities. The perceived risk of broad debt restructuring has diminished, now largely confined to a few isolated, ad-hoc cases. The IMF noted that financing conditions have improved, and reform momentum in many EMs remains intact. However, valuations are stretched, with spreads hovering near historical lows, leaving the asset class exposed to potential short- or medium-term corrections. Demand for credit-enhancement mechanisms has grown as sovereigns seek to lower debt-service costs and regain market access amid the high-rate environment.
Regional banks remain under scrutiny after reports of fraudulent loans and poor oversight, though contagion has been limited. The greater risk lies in private credit, where looser underwriting standards and rapid growth among new entrants increase the likelihood of idiosyncratic defaults. Still, skilled managers can exploit dispersion to identify relative-value opportunities, particularly in senior secured and asset-backed structures.
The modest widening in high yield offers selective entry points but calls for heightened discrimination. Public credit quality has improved as riskier lending migrated to private markets, and most leveraged-loan maturities have already been refinanced. Investors should maintain a defensive bias, favouring short- to intermediate-duration, higher-grade issuers, and closely monitor sovereign issuance trends, as rising public borrowing could increasingly crowd out corporate credit. In emerging markets, caution is warranted given rich valuations, but fundamentals remain supportive for countries with credible policy frameworks and reform continuity.
Equities
U.S. equities extended their advance, with all major indexes setting fresh record highs. The Dow Jones gained 2.2%, the S&P 500 rose 1.9%, the Nasdaq added 2.3%, and the Russell 2000 climbed 2.5%. Strength in cyclical and growth stocks offset weakness in defensive sectors.
Technology (+2.75%) led the week, boosted by strong semiconductor momentum and renewed optimism around cloud and AI demand. Energy (+2.37%) followed, lifted by higher oil prices after new sanctions on Russian producers. Industrials (+2.08%) gained on strength in machinery, aerospace, and defence, while consumer discretionary (+1.94%) benefited from solid results in retail, autos, and travel.
Healthcare (+1.91%) and financials (+1.80%) rose broadly in line with the market, while real estate (+1.44%) advanced modestly on lower yields. Communication services (+1.01%) and materials (+0.58%) saw more muted gains. Defensive groups underperformed. Consumer staples (–0.59%) and utilities (–0.19%) declined as investors rotated toward cyclicals and growth-oriented sectors.
Equities pushed higher as investors leaned on resilient corporate earnings and expectations of continued policy support. The rally was broad but still centred around familiar themes, including strength in cyclical sectors, renewed retail participation, and optimism toward large-cap technology.
The ongoing earnings season remained a key catalyst. Nearly a third of S&P 500 companies have reported so far, showing aggregate earnings growth of +9.1 %, with 84% beating expectations and positive surprises averaging about 8%. Results were strongest across industrials, financials, and energy, while reactions in technology were more muted, as valuations remained elevated and the bar for upside surprises remained high.
Investor attention is now turning to the remaining Big Tech reports, which are expected to set the tone for the next leg of the rally. Lofty valuations in AI-linked names continue to drive both enthusiasm and caution. Questions around earnings durability, competition, and capital intensity are tempering optimism about long-term productivity gains. Despite these concerns, market breadth has improved, and sentiment remains constructive, with investors still viewing equities as the path of least resistance.
Earnings remained the central focus of equity markets, with major corporate reports shaping sentiment across sectors. The technology space saw mixed fortunes. Amazon (+5.2%) led large-cap gainers after unveiling plans to automate up to 7% of its fulfilment network, a move investors interpreted as a sign of renewed cost discipline and long-term margin improvement. Alphabet (+2.6%) advanced as Anthropic deepened its use of Google Cloud TPUs, underscoring the continued monetisation of AI infrastructure. Meta (+3.0%) also edged higher after confirming a restructuring within its AI division that will eliminate roughly 600 roles while maintaining heavy investment in core research.
By contrast, Tesla (–1.3%) lost ground despite record deliveries, as another quarter of narrowing automotive margins weighed on sentiment. Netflix (–8.7%) saw one of the sharpest declines of the week after Q3 results showed solid subscriber gains but weaker guidance and a one-off tax charge that trimmed profitability.
The semiconductor group reflected a similarly uneven pattern. Intel (+3.4%) posted stronger-than-expected Q3 results, with $13.7 billion in revenue and earnings of $0.90 per share, marking progress in both client computing and data-centre businesses. Texas Instruments (–4.2%) fell after forecasting a softer fourth quarter, highlighting persistent weakness in industrial demand. Super Micro Computer (–7.4%) slid after cutting its revenue outlook due to delayed AI server orders. In comparison, Applied Materials (+1.8%) gained modestly even after announcing a 4% workforce reduction to streamline operations amid tighter export rules.
Industrials and defence names contributed positively to market breadth. General Electric (+1.2%) raised full-year guidance thanks to strong demand in its engine aftermarket segment, and General Dynamics (+5.9%) beat expectations on robust Gulfstream jet deliveries and a healthy marine pipeline. Lockheed Martin (–1.9%) edged lower as investors focused on its reduced free cash flow outlook, despite solid bookings.
Consumer and automotive stocks were standouts. General Motors (+19.3%) surged after raising profit forecasts and highlighting improving pricing power, while Ford (+16.1%) rallied on a better-than-expected outlook that eased concerns over supply disruptions. Coca-Cola (+1.9%) gained after boosting its free cash flow guidance, driven by strength in North American volumes. Target (+3.7%) advanced on restructuring plans that will cut 1,800 corporate roles as part of a turnaround effort. In contrast, Molson Coors (–3.4%) fell after announcing a 9% reduction in its salaried workforce in North America.
Financials and healthcare added to the week’s constructive tone. Capital One (+6.4%) rallied after a strong earnings beat and a $16 billion share-repurchase authorisation, reinforcing investor confidence in capital return capacity. Thermo Fisher Scientific (+6.2%) climbed following better-than-expected organic growth and margin expansion, underscoring steady demand across its diagnostics and laboratory businesses.