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.

Macroeconomics

Is in the increased price of oil seeping into US consumer prices? Simply put, yes: a 9.1% jump in petrol prices drove more than half of September’s 0.6% monthly rise, lifting annual inflation from 3.4% to 3.7%. The harder question is whether it is reaching core prices, which strip out food and energy and which rose by 0.3% for a second month, above forecasts, taking the annual rate to 2.6%.

However, the answer is more nuanced. Housing – hardly a function of oil prices – accounts for roughly half of the core gain. Airfares, a more direct channel since prices are based on jet fuel costs, rose by 1.2% in the month and 22% on the year. Core goods, up 0.3%, are murkier: firmer used-car, recreation goods and clothing prices may reflect transport costs, with producer prices for transport and warehousing up 16% on the year, a pace comparable to the supply crunch of 2022. So, oil is still driving the headline, but we need more evidence to confirm that higher energy prices are passing through to core goods.

In addition, demand is not cracking: retail sales rose by 0.8%, though by only 0.2% outside petrol stations; a strong September still leaves Q3 consumption solid. The mix of sticky core prices and resilient spending lower the bar for a rate hike in October, a move markets are still treating as unlikely.

In the eurozone, final figures confirmed September’s inflation at 3.8% and core at 2.5%. Holiday-related items lifted services and clothing lifted core goods, but there is still little sign of the energy shock broadening. Industry looks weaker, with output falling by 0.5% in August – a third straight monthly decline – leaving hard data at odds with buoyant business surveys.

Friday is the week’s pivot, with flash Purchasing Managers’ Indexes (PMI) being published on both sides of the Atlantic. In the US, PMI price gauges and the University of Michigan’s household inflation expectations will show how far dearer oil has reached. In the eurozone, business surveys are expected to be resilient, despite the headwinds from energy prices. The UK is going to publish labour-market figures on Tuesday and inflation data on Wednesday. On Friday, Moody’s is set to review France’s Aa3 rating; a cut would leave the country without a double-A from any of the big three agencies.

Equities

Global equities fell (MSCI ACWI total return -1.6%) in a week defined by a sharp correction in the AI complex and a renewed spike in oil prices which fuelled a flight to safety and a decline in long-term yields. The sell-off was concentrated and the rotation stark: the Nasdaq 100 dropped -5.5%, South Korea’s KOSPI index -14.5% and the global technology sector -7.4% (the worst performer), while Europe (STOXX 600) gained +2.1%, the Dow Jones +0.7% and global consumer staples +5.4% (the best performer).

At the centre of investor jitters was AI. Global semiconductors continued their recent losing streak, now falling -13.6% over eight consecutive sessions – the deepest eight-session decline since 2008 – with memory names hit by Chinese memory chip capacity expansion and pricing-power doubts. This was followed by sequential revenue growth deceleration disclosed by Anthropic (Q3 +46% quarter-on-quarter vs. Q2 +143%) which cast doubt on lofty AI sector valuations; last, yields on debt issued by AI ‘neocloud’ poster child CoreWeave reached distressed levels after the already heavily indebted company was reported to be exploring ways to borrow on investment-grade (IG) debt markets.

Macro data offered little relief, with US inflation for September coming in hotter than expected, thus reviving rate-hike expectations. Against this, the Q3 earnings season opened with major US banks reporting stable underlying business activity and still-resilient consumer and business spending. For the quarter, investors are expecting +29% EPS growth (S&P 500), led by energy (+127.6%) and technology (+65.1%).

Last week illustrated the fragility our October House View had flagged up: a market whose leadership had narrowed to a handful of AI names, leaving it vulnerable to a reassessment of that trade. With the technology sector’s leadership holding only as long as earnings deliver, the mega-cap results due over the coming fortnight will be a key test for markets. In the week ahead, two of the Magnificent 7 will publish results (Meta, Tesla) in addition to 77 other members of the benchmark US index.

Global equities fell last week as AI stocks led a sharp sell-off, with semiconductors suffering their worst losing streak since 2008 amid doubts over valuations.

Fixed income

Treasuries had their best week since before the Iran conflict began: the 10-year fell 17 basis points (bps) to 5.07% despite a brief spike when Wednesday’s inflation figure came in higher than expected. Bunds fell 5 bps to 3.43% and gilts 7 bps to 5.37%.

Brent crude rose 5% to near USD 110 per barrel – its highest close since May – as attacks on shipping around Hormuz and on Saudi oil targets intensified. Treasuries acted as a haven when the sell-off in AI-linked stocks spread to the bonds of the most indebted AI infrastructure names. Neocloud CoreWeave’s CDS rose above 1,000 bps (distressed territory), while Oracle’s, the weakest of the large players, has doubled this year to 300 bps.

Fed officials disagreed on how far inflation has spread. Williams, the Committee’s vice chair, sees one more rate hike this year as appropriate and, for now at least, no reason for more hikes in 2027, describing price pressure as narrow outside AI and energy. Hammack, a voter who dissented against a hike in July, called inflation broad-based and argued for smaller moves made relatively quickly, while Collins expects rates to rise a bit further before year-end. At the IMF meeting in Bangkok, Warsh declined to prejudge the October or December decisions. The Fed meets next week, with the odds of an October hike down to 15% from a high of 70% in late September.

The spread between French and German 10-year bonds stabilised at around 140 bps by the end of the week. Lagarde said France’s fix lies first in its own fiscal policy; the next test of whether France can pass its 2027 budget comes on Tuesday, when the National Assembly votes on taxes. Moody’s will review France on Friday, with its Aa3 rating looking increasingly out of date.

Treasuries and IG each returned 0.5% on the week, cutting their year-to-date losses to 0.5%. High yield (HY) lost 0.2% as spreads widened, while additional tier 1 bonds (AT1s) and emerging markets (EM) returned 0.3% and 0.6%, respectively.

Treasuries had their best week since before the Iran conflict began, acting as a haven amid an AI-linked credit sell-off and surging oil prices.

Forex and Commodities

Last week, the USD appreciated following the publication of US September consumer price index (CPI) data. Headline CPI printed at 3.7% y/y and 2.6% y/y for the core measure. Month-on-month core CPI printed at 0.3%, illustrating a firming up of underlying contemporaneous inflation. The overnight index swap (OIS) market moved to price in an 25-bp rate hike in October with a 50% probability. This was quickly undone following comments from Fed Chair Warsh, who simply stated that the Fed would ‘deliver price stability’.

Aggregate USD long positions have increased materially in recent weeks, coinciding with a large increase in short EUR positions. The rise in short EUR positions reflects the widening of OAT-Bund spreads, and there is no reason to anticipate a contraction in these spreads following events in France over the weekend. The main event over the coming week is the publication of preliminary PMI data for October and University of Michigan sentiment. Activity data have been robust in the US in recent months, and this gives no reason to anticipate material USD weakness in the coming week.

The main event for the EUR over the coming week is the publication of PMI data for October. The September data came in well above expectations, so some payback coming into October would not be unreasonable. Nonetheless, the forward-looking data are consistent with an expansion of activity, giving no reason for a change in terminal European Central Bank (ECB) rate expectations (around 3.25%). ECB President Lagarde is unlikely to give any signal of ECB interventions in OAT-Bund spreads, meaning that the EUR should not benefit from any relief rally in the near term. Overall, the EUR/USD is likely to trade towards the lower end of recent ranges, and we maintain our expectation of a decline to levels of around 1.10 by year-end.

Last week, the GBP/USD rose to 1.33, while the EUR/GBP traded in a tight range between 0.8430 and 0.8480. The moves reflected continued range-bound performance from sterling given a lack of key catalysts. Event risks for the pound over the coming week come from the release of UK unemployment and CPI inflation data for September. Recent communications from Bank of England (BoE) officials have indicated a general reluctance to tighten its policy, citing limited energy-inflation pass-through and already restrictive policy rates.

Gold continued to trade at levels of around USD 4,150 per oz over the last week. We anticipate little material change in the near term. The primary catalysts for a potential upward move will only come once markets have clarity on the medium-term inflation backdrop, and this will remain unclear for several months. In the meantime, gold is likely to trade in a narrow range between levels of USD 4,000–4,400 per oz.

The USD strengthened after hot US inflation data briefly revived rate-hike bets, though those expectations were quickly unwound after Fed Chair Warsh’s comments.

The opinions expressed herein are correct as at 19 October 2026 and are subject to change without notice. This information should not be relied upon by the reader as research or investment advice regarding any particular fund, strategy or security. Past performance is not a guide to current or future results. Any forecast, projection or target, where provided, is indicative only and is not guaranteed in any way.