Macro
Hawkish Fed communication pushed December cut expectations back to essentially a coin flip, reversing the near certainty priced a month ago. Officials continue to stress caution, arguing that without reliable data, the bar for any near-term easing remains high.
The shutdown has created a genuine data desert. October prints will be noisy or incomplete, and some underlying collections, especially in labour and price surveys, may be partially unrecoverable. As agencies reopen, the vacuum will flip into a data shock. BLS is expected to release labour-market data on Thursday, but the timing of the broader backlog remains unclear. Key releases still pending include factory orders, payrolls, trade balance, CPI, retail sales, durable goods, housing starts, PPI, GDP, PCE and JOLTS. With only a narrow window before the December FOMC, markets face a compressed volatility regime as several months of indicators arrive almost simultaneously.
Private and high-frequency datasets point to a labour market that has slowed but stabilised. There is no meaningful rise in claims, no break higher in unemployment, and hiring appears below trend but not rolling over. Given the importance of the consumer to the growth outlook, investors remain focused on the durability of the labour market. Full employment is increasingly viewed as a medium-term challenge as demographic constraints and weaker participation dynamics return.
Inflation remains the central policy variable. The last official print, in September, showed CPI at 3%. Alternative datasets indicate uneven but ongoing disinflation, with notable sectoral divergence. Without updated CPI or PCE data, the Fed lacks visibility and is unlikely to pre-commit. The committee remains divided on the near-term path, but the medium-term rate profile still implies lower policy rates by late 2026, consistent with a gradual rather than an aggressive easing cycle.
Growth expectations remain resilient. Consensus places 2025 real GDP close to 2%, underpinned by steady consumption, healthy corporate balance sheets and some easing in financial conditions. Forecasts for 2026 differ. Baseline expectations point to modest deceleration, while some private-sector views argue for similar or slightly stronger growth if policy easing, tax refunds and improved liquidity conditions support early-year activity.
Housing affordability re-entered the discussion after the administration floated the idea of 50-year mortgages. Structural and securitisation constraints mean these proposals have no near-term impact. Affordability is more likely to improve gradually as rates drift lower and supply adjusts.
Overall, Week 46 was shaped by reduced policy visibility, a degraded data environment and the expectation of a compressed data deluge ahead of the December meeting. The next two weeks will determine whether the Fed gains enough clarity to move in December or whether the combination of data noise and inflation uncertainty keeps policy on hold.
Rates
Treasury markets remained volatile as Fed officials pushed back on the idea of an automatic December cut. Powell reiterated that further easing requires confirmation that inflation is moving toward the target and that labour conditions are cooling in a controlled manner. Market pricing has shifted correspondingly, with December now closer to a 50% probability rather than a near-certainty. The Fed’s reluctance reflects still-uneven growth near the 2–3% range, inflation holding close to 3%, and limited deterioration in private labour indicators, which show slower hiring but no surge in unemployment or jobless claims.
The 43-day government shutdown has created the largest statistical gap in decades. October data were not properly collected, and some releases may not be published at all. Agencies will now push out September and November datasets with significant delays, meaning the next wave of information will consist of stale reports released out of sequence. Once the backlog clears, the market will face a compressed cluster of high-impact releases: payrolls, CPI, PPI, retail sales, durable goods, JOLTS, housing, factory orders, GDP revisions, and PCE. The absence of timely data followed by an irregular data surge is expected to keep rate volatility elevated through the December meeting.
Strategists note that policy visibility for 2026 is clearer than the near term. The Fed’s projections and market pricing still point toward a gradual decline in the policy rate toward the mid-3% area over the next two years, contingent on inflation normalisation. In the near term, uncertainty is amplified by a K-shaped macro landscape: large companies and higher-income households remain resilient, while lower-income consumers and small firms are increasingly rate-sensitive. This uneven backdrop limits how much the Fed can ease without risking a rebound in inflation, particularly given that financial conditions remain relatively loose.
Curve positioning favours the belly, which offers better convexity and cleaner exposure to policy repricing during the data catch-up period. Treasuries continue to function as an effective hedge as correlations with equities have reverted to negative territory. Any spread widening in high yield triggered by the data release cycle or weaker sentiment is viewed as a selective entry opportunity ahead of a more stable macro environment in 2026.
Overall, December remains genuinely uncertain, and front-end pricing will be driven by the sequencing, quality, and credibility of the delayed data rather than the data points themselves. Volatility is likely to remain elevated until statistical agencies restore full visibility into labour, inflation, and economic activity trends.
Credit
Credit markets turned more defensive this week as rate volatility, soft demand in long-end auctions, and selective investor pushback interrupted what had been a smooth funding backdrop.
The most notable weakness appeared in high yield. A data-centre-linked issuer priced at one of the deepest discounts of the year (97 cash, roughly 10 per cent yield) after failing to generate demand. The deal highlighted growing concerns around leveraged AI-infrastructure exposure and concentrated counterparties. Retail high-yield funds saw outflows, weakening secondary liquidity. Positioning is shifting from carry harvesting toward caution ahead of potential downgrades for larger issuers with heavy 2026 capex needs.
IG markets also showed strain, with a rare withdrawal from an IG deal. This signalled rising price sensitivity even as overall conditions remain constructive. Year-to-date IG issuance is already near 1.5 trillion dollars, and order books remain strong, but investors are applying more discipline on structure, disclosure, and long-dated AI-capex stories. Spreads have widened from the September tights of about 72 basis points to roughly 80 basis points, still extremely tight by historical standards.
Funding needs tied to the AI build-out are no longer viewed homogeneously. Utilities and energy-infrastructure issuers, which require heavy multi-year capital spending, are facing more scrutiny around asset life, demand visibility, regulatory exposure, and cash-flow recovery. Recent disappointments in large-cap tech capex have reinforced the need for more rigorous underwriting across the full AI supply chain.
The strong year-to-date outperformance of IG relative to high-yield is narrowing. Rates volatility is eroding the duration tailwind for IG, while softer fundamentals and outflows are pressuring HY. The prevailing buy-side expectation is for rates to drift lower and spreads to drift wider, which supports a quality-oriented stance.
Credit markets maintain a solid liquidity, but investor tolerance for marginal borrowers is falling, particularly among leveraged AI-linked issuers and capital-intensive utilities. Pricing power is moving back toward investors as the market prepares for a heavy funding calendar in 2026.
Equities
US equities delivered a muted and uneven Week 46, with the Dow up 0.34%, the S&P 500 up 0.08%, the Nasdaq down 0.45%, and the Russell 2000 down 1.83%. The recent momentum unwind persisted through mid-week before stabilising on Friday, with breadth mixed and leadership shifting toward balance-sheet strength and earnings visibility. Healthcare outperformed on strong flows in pharma, biotech, and MedTech, while Energy and select Materials names benefited from firmer commodity and ag-chemical trends. Staples and Software held up, but cyclicals and rate-sensitive groups lagged, including Consumer Discretionary, Utilities, Real Estate, Industrials, Communication Services, and Financials. Larger banks, credit cards, asset managers, semicaps, trucking, building products, and housing-linked retail remained under pressure, while retail-investor favourites, most-shorted baskets, crypto-linked names, and quantum computing extended their recent drawdowns.
Company catalysts drove much of the dispersion. Oracle weakened on concerns about its debt-funded AI infrastructure plans, while CoreWeave sold off after cutting guidance due to delays from a third-party data centre developer. SoftBank’s sale of its Nvidia stake added noise to an already volatile AI complex. Still, the higher-quality names showed resilience: Nvidia held modest gains ahead of its earnings release, AMD traded higher after framing AI demand as “insatiable,” and Cisco rallied sharply on stronger networking results and record AI infrastructure orders. Healthcare saw notable M&A with Merck agreeing to acquire CDTX and Pfizer winning its bid for GLP-1 developer Metsera. Consumer results were more mixed, with Disney giving back ground despite better headline earnings due to persistent concerns around TV networks and forward guidance. Applied Materials noted firmness in DRAM but signalled that any revenue acceleration remains a 2026 story.
Thematically, the market continued to differentiate between AI beneficiaries with clear scalability and those whose investment cycles carry balance-sheet or execution risks. The correction in speculative baskets suggests positioning cleanup rather than a broader macro shift, though volatility remains elevated ahead of key catalysts. Nvidia’s report on Wednesday is central for sentiment, and a dense run of retail earnings will update the consumer-spending narrative at a time when signals remain bifurcated across income groups. Fed communication added another layer of uncertainty, with slightly more emphasis on hawkish-leaning speakers. Markets continue to assign roughly even odds to a December cut, and the end of the 43-day shutdown means official economic data will resume, with September payrolls due on 20 November.