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.

Macroeconomics

In the US this past week business confidence remained positive, with purchasing managers’ indices (PMI) manufacturing up to 56.0 from 55.9, with new orders, exports and employment being positive, while selling prices accelerated further. The PMI services index fell slightly (from 58.8 to 57.9) due to slower current activity, but orders remained positive. US housing data remained weak (falling housing starts in September) as rising mortgage rates dampened final demand.

In the eurozone, the PMI manufacturing (52.4) and services (51.7) decreased slightly from the previous month, but the indices remained well above 50. Business confidence weakened in France (the index slipped below 50) on the back of renewed social and political uncertainties.

In the UK, the PMI services (53.1) and manufacturing (52.8) indices increased further over the month, benefiting from higher exports and demand for AI. UK inflation increased on steeper energy prices (up by 0.4% m/m), reaching 3.5% y/y and 2.8% y/y for core inflation. The labour market was better oriented than expected with the unemployment ratio decreasing (4.7% from 4.9%), but wage growth remained on a downward trend (3.7% y/y, down from 3.9% y/y). Consumer confidence and retail sales weakened on renewed worries about the economic outlook and financial situation.

This week will be dominated by central bank meetings and the publication of key US indicators.

In the US, the FOMC is expected to leave key rates unchanged (3.75–4.00%) after last month’s rate hike. Nevertheless, it will be justified in continuing to hike rates, as inflation pressures continue to build as a result of energy prices and strong domestic demand. The first estimate of US Q3 gross domestic product (GDP) growth is expected to show a renewed acceleration from 2.2% in Q2 to 3.2%, as domestic demand should remain sustained. Other indicators, such as durable goods and personal spending and income (September), will give more colour about current activity. Core personal consumption expenditure (PCE for September) should remain on a modest rising trend (up by 0.3% m/m (0.2% m/m in August) and 3.1% y/y from 3.0% y/y the previous month).

In the eurozone, Germany’s IFO should confirm a positive trend in activity in the manufacturing sector. The first estimate of Q3 GDP for the whole single-currency area should remain positive, up by 0.2% q/q (0.3%, ex Ireland in Q2) and 1.0% y/y, pointing to a still-resilient growth trend despite several headwinds. GDP growth in the major economies such as Germany and France is expected to be up by modest 0.1% q/q.

The European Central Bank (ECB) should also continue to keep its interest rate on hold. Inflation pressures remain high, as oil & gas find themselves in a ‘higher-for-longer’ scenario, but the ECB will point to no evident passthrough to core inflation to justify maintaining a wait-and-see position; moreover, the rise in long bond yields over the past months have tightened financial conditions, equivalent to an indirect rate rise from the ECB.

In Japan, several monthly indicators will be released, while the Bank of Japan (BoJ) should also keep its rates on hold.

Equities

Global equities edged lower for a second consecutive week (MSCI ACWI total return -0.9%) as the reassessment of the AI trade continued; however, this time the catalyst shifted from the previous week’s chip-supply fears to the scale of Big Tech’s capital spending. Geopolitics added to market caution, with oil surging to a near-six-month high (Brent crude rose +6.2% to just under USD 117/bbl).

Beneath the market’s surface, the rotation persisted: the equal-weighted S&P 500 rose +1.1%, outperforming the S&P 500 (-0.5%) for a third straight week, and defensive areas of the market also continued their recent traction with investors (global healthcare +2.0%, consumer staples +0.6%, utilities +0.3%). US equities nevertheless outperformed regional peers, with Europe (STOXX 600) falling -1.4% on renewed French fiscal and political stress, Japan (Nikkei 225) tumbling -4.0%, and emerging markets (EM; MSCI EM) down -2.6%.

A slew of headlines kept the AI trade under pressure, with delayed AI infrastructure IPOs (Nscale, SB Energy) and supply chain bottlenecks impacting forward guidance for semiconductor equipment vendors (Lam Research), and the creation of a new share class by Meta to help finance its AI spending. Despite the Q3 results beat, Meta’s shares fell -9.0% as the group raised its 2026 capital-expenditure (capex) guidance (to USD 135–145 billion), swung to negative free cash flow, and saw its credit-default-swap (CDS) spreads touch record highs, thus crystallising the market’s central question: not whether AI demand exists, but whether the increasingly debt-funded build-out can generate adequate returns.

Continued AI spending scrutiny overshadowed a healthy start to earnings season with 24% of S&P 500 constituents having reported Q3 results as at Friday with an 83% EPS beat rate and overall earnings for the index tracking in line with expectations at +29.5%. The technology sector’s leadership continues to hinge on whether its vast investments can be translated into returns. That question comes to a head in the week ahead, with results from 179 S&P 500 constituents including Microsoft, Alphabet and Amazon landing alongside the US Federal Reserve’s (Fed) policy decision – a decisive test of both the AI trade and the rate outlook.

Global equities slipped as investors questioned whether hyperscalers’ debt-funded AI spending can earn adequate returns, with Microsoft, Alphabet and Amazon results now set to test the trade.

Fixed income

An AI-led equity sell-off pulled US Treasury yields back below 5% in a week in which Brent crude rose 6% and French OATs’ 10-year yields closed above US ones. For the week, 10-year Treasuries closed 8 basis points (bps) lower at 4.99% and 10-year Bunds fell 8 bps to 3.35%, acting as a local safe haven, while gilts lagged behind with 10-year yields down only 2 bps to 5.36% after a hot UK inflation print.

The rates rally came almost entirely on Thursday, on a risk-off day and after Meta’s results on Wednesday evening showed a higher capex floor and its first negative free cash flow quarter since 2012 (the year it listed). The 10-year yield then posted its largest one-day drop since Silicon Valley Bank failed in March 2023 and closed below 5% for the first time since late September. The move in rates came even though Brent crude traded above USD 115/bbl during the week and the previous week’s inflation figures were stronger than expected.

The situation in France continues to deteriorate, with the 10-year OATs closing the week above 5% for the first time since 2002. The OAT-Bund spread widened 30 bps to 167 bps, its widest since the eurozone sovereign crisis. Moody’s – surprisingly – left France at Aa3 with a negative outlook, noting that the rating assumes France adopts a deficit-reducing 2027 budget. According to our estimates, France needs around EUR 150 billion of adjustment to reach the primary surplus of 2% of GDP that would keep debt-to-GDP stable, which is a highly unlikely outcome given 25 years of primary deficits and little political capital to act before the presidential election next spring. Without a concrete plan, the path of least resistance looks to be for OAT spreads to keep widening.

Given how closely the banking sector is tied to the health of the sovereign, French bank additional tier 1 bonds (AT1s) have naturally started to underperform. Index-level AT1 spreads hit an all-time low of 207 bps in early September and have since widened to 270 bps, which is still tight by historical standards. France accounts for 20% of the AT1 index, and Italy and Spain, where sovereign spreads have widened in sympathy, make up a further 15%. We therefore see meaningful room for spreads to widen should the situation deteriorate further and have replaced AT1 exposure with high yield (HY) in our asset allocation, keeping the elevated carry while sidestepping a deterioration in France. 

On AI credit, CDS spreads have been widening across the whole complex, with an acceleration in the past week. Those of the large hyperscalers Meta, Alphabet and Amazon widened by 20–35 bps, while those of weaker names such as Oracle and SpaceX widened by about 100 bps, and speculative names such as CoreWeave are now in distressed territory.

In Brazil, the incumbent President Lula won Sunday’s election run-off with 51.8% against 48.2% for Flávio Bolsonaro, who led in the first round. Markets had been pricing a win for Bolsonaro, who was seen as market-friendly, so we would expect some spread widening as the market digests the result.

Last week, in dollars, US Treasuries returned 0.3%, investment grade (IG) 0.1%, HY was flat and EM lost 0.1%. The Fed and ECB are holding their respective meetings this week, with similar pricing for both: slim odds of a rate hike now and around 80% for December. For the ECB, it will be Lagarde’s first press conference since the OAT-Bund spread passed 150 bps, so her comments on France will be watched closely.

Mounting stress in French sovereign bonds is weighing on domestic banks. We have reduced our allocation to AT1s in favour of high yield, which preserves the carry while avoiding the index’s sizeable exposure to France.

Forex and Commodities

The USD weakened modestly last week, reflecting spread contraction against the other major G10 currencies. US data printed robustly, particularly PMI data. The main event over the coming week will be the Fed’s FOMC meeting, where the Fed is expected to keep its rates on hold at 4%. The market has priced in a December rate hike with an 85% probability, so, barring a surprise rate hike, the USD is unlikely to do a lot following the Fed meeting.

The ECB is expected to keep rates on hold at 2.5% at this week’s meeting. ECB President Lagarde is likely to maintain a data-dependent stance, citing upside risks to inflation on higher oil prices. The EUR is unlikely to benefit from a much more hawkish stance, given the impact of higher energy prices on the trade balance. Overall, the EUR is likely to remain on the back foot given the widening of the OAT-Bund spread.

The GBP has large headline risks over the coming week due to the budget on Wednesday and the Bank of England (BoE) meeting on Thursday. The BoE is likely to raise rates by 25 bps, which has been priced in. Terminal rate expectations remain at levels of around 4.75%, which the BoE believes are overdone. Overall, the bar for further GBP outperformance is quite high.

Gold traded lower to levels of USD 4,000 per oz, reflecting a consolidation on higher risk aversion and higher betas to the equity market. 10-year TIPS yields fell by around 30 bps, which should be fundamentally supportive alongside a stable ETF inflow backdrop. This gives only limited downside from current levels.

The dollar eased slightly despite robust US data, and with the Fed and ECB both expected to keep their rates steady this week, neither the USD nor a EUR weighed down by wider OAT-Bund spreads looks set for a sharp move.

The opinions expressed herein are correct as at 26 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.