Nicolas Laroche

Global equities fell sharply as the Democratic midterm election sweep raised fears that regulation would slow the AI data centre build-out and hit technology and semiconductors hardest. Bond yields fell on lower oil prices and the equity sell-off, even as the Bank of England raised its interest rates to 4% and signalled that more hikes could follow. The USD gained ground on safe-haven demand and strong US payrolls, while gold also rose.

Major central banks mostly held their interest rates steady last week, with the US Federal Reserve (Fed) and the European Central Bank (ECB) preferring to wait and see what happens. Global equities edged lower as the technology sell-off extended into a third week, with investors focussing on the gap between artificial intelligence (AI) spending and free cash flow. Bonds gained on lower yields, while gold traded lower on modest positioning adjustments and its sensitivity to equity markets.

Global equities slipped for a second week as investors questioned whether debt-funded artificial intelligence (AI) spending can earn adequate returns. US Treasury yields fell back below 5%, while French government bond spreads reached their widest levels since the eurozone crisis. Hyperscaler earnings and a string of major policy meetings make this a decisive week, though most central banks are expected to leave their interest rates unchanged.

Global equities fell as a sharp AI-led sell-off hit technology stocks, while surging oil prices and hotter US inflation reignited rate-hike debate ahead of the US Federal Reserve’s (Fed) meeting. Treasuries acted as a haven and the USD held firm, with the EUR weighed down by French spreads widening.

The US economy remains resilient, but rising prices and political pressure are keeping investors cautious.

A month ago, we wrote that the outlook for equity markets remained reassuring, supported by resilient earnings, and that only a tightening of financial conditions would signal a genuine change in regime.

Treasury and Bund yields touched multi-year highs before easing back, as weak US payrolls sharply reduced the odds of an October US Federal Reserve rate hike.

Long-term yields surged to multi-decade highs as robust US data and firm energy prices reinforced expectations of another US Federal Reserve (Fed) rate hike.

The Fed raised its interest rates by 25 basis points (bps) to 3.75–4.00% on a unanimous vote, framing the move as insurance against energy prices bleeding into core inflation, while the Bank of England held its rates at 3.75% despite a more hawkish tilt in its minutes.