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.

Macroeconomics

The past week was dominated by central bank meetings, but there were no major surprises, as the main banks preferred to wait and see before making further adjustments to their key interest rates.

In the US, the FOMC left rates unchanged at 3.75–4.00%. With just a few days to go before the midterm elections, the FOMC wanted more time before making further decisions on rates. US growth remained strong with Q3 GDP up by 3.4% (annualised), supported by robust domestic demand, which increased by 4.9%.

Core personal consumption expenditure (PCE) inflation was in line with expectations, rising by 0.3% m/m and 3.1% y/y, but core goods and services prices accelerated on strong demand. Other US indicators remained broadly constructive and consumer confidence (Conference Board index) recovered on the back of more positive views on the economy and employment.

The European Central Bank also left its key rates unchanged at its meeting, adopting a wait-and-see approach. According to the ECB, tighter financial conditions and rising long-term interest rates could weigh on activity and reduce inflationary pressures. However, the December meeting remains live, being highly data-dependent.

Eurozone growth remained resilient, with Q3 GDP increasing by 0.4% q/q, driven by Ireland (+5.5% q/q), the Netherlands, Spain (both +0.6% q/q), and Germany (+0.2% q/q). French Q3 GDP disappointed, declining by 0.1% q/q due to weaker investment and a negative contribution from net trade. Flash estimates for October inflation came in higher than expected in France (+0.4% m/m, 3.8% y/y) and Italy (+1.2% m/m, 5.6% y/y), while inflation was in line with expectations in Spain (+0.5% m/m, 5.0% y/y), but below consensus in Germany (-0.1% m/m, 2.8% y/y), due to lower energy taxes.

Last, the Bank of Japan (BoJ) maintained its key rate at 1.25% but left the door open to future adjustments, while the Bank of Canada (BoC) raised its key rate by 25 basis points (bps) to 2.50%.

This week, the US midterm elections will take place. The October US ISM Manufacturing index is expected to remain stable at 54.5, while the ISM Services index is expected to stabilise at 54.8, compared with 54.9 previously.

In parallel, US labour market data will be released. The JOLTS survey is expected to increase, partially offsetting the decline recorded in the previous month. The ADP survey should come down to 60,000 after hitting 90,000 the previous month. US non-farm payrolls are expected to increase by 65,000 in October, following a weak 29,000 increase the previous month, while the unemployment rate is expected to remain stable at 4.2%.

The eurozone consumer price index (CPI) estimate for October will be released. The headline rate is likely to rise to 4.0%, up from 3.8% y/y in September, driven by higher energy prices, while core inflation is expected to remain stable at 2.5% y/y.

The Bank of England (BoE) will probably raise its key rate at its next meeting. Several other central banks will also hold their regular meetings, including the Reserve Bank of Australia (RBA), Riksbank, Norges Bank, and the central banks of Brazil, Malaysia, and Mexico.

Equities

Global equities edged lower (MSCI ACWI total return -0.3%), with the decline entirely driven by the continued sell-off in technology- and AI-related stocks, while most other sectors ended the week in positive territory. The rotation out of technology extended into a third week, as another round of strong tech earnings failed to surprise the market against elevated expectations, while lower US 10-year yields and solid earnings supported broader market gains.

The Nasdaq fell 2.0%, including a 3.5% decline on Friday, its second-worst session of the year, bringing the index into correction territory, and 10% below its early-October peak. Communication services (-6.7%) – led by Alphabet (which recorded its worst single-day decline since its 2004 IPO) – and technology (-1.4%) were the main laggards, while healthcare (+3.1%), industrials (+1.3%) and utilities (+1.0%) gained ground. The equally-weighted S&P 500 rose 0.8% and outperformed its cap-weighted counterpart by almost 6 percentage points in October. Europe (+1.7%) also outperformed the US, benefiting from its lower technology exposure.

Underlying earnings momentum, however, remains strong. With 60% of S&P 500 companies having reported, Q3 EPS growth is running at 30.2%, putting it on track for a third consecutive quarter above 25%. Notably, Magnificent 7 earnings growth (+22.6%) is now trailing behind that of the rest of the index (+32.6%) for the first time since Q4 2022, pointing to a broadening of earnings growth beyond mega-cap technology names. Cloud revenue growth – closely watched as a barometer of AI demand – generally exceeded expectations, reinforcing the view that underlying demand remains robust. AI capex plans remain ambitious, although companies largely refrained from providing precise guidance for 2027. Intel declined by 29% on Friday, its worst day in 40 years, on disappointing guidance driven by lower PC volumes.

So far, the correction appears to be driven by concerns about AI investment returns rather than a deterioration in the earnings outlook. Investors are increasingly focused on the widening gap between rising AI capex and free cash flow generation, with free cash flow surprises now triggering larger next-day share price reactions than EPS surprises. Looking ahead, earnings growth is expected to moderate to 16.5% in 2027, but, historically, equities have continued to perform well during periods of slowing earnings growth, provided growth remains positive.

Looking to the week ahead, Apple’s earnings, developments in Iran, and the US midterm elections could provide catalysts for markets to regain momentum. A Democratic sweep with a narrow Senate majority appears largely anticipated by investors and would therefore be unlikely to trigger any major market surprises. Moreover, many of the policies that have driven markets over the past two years, including tariffs, foreign policy, and agency-led deregulation, remain largely under the control of the US executive, limiting the immediate implications of a change in Congress.

Global equities edged lower as the AI sell-off continued, with strong earnings failing to meet elevated expectations and investors increasingly worried about AI spending outpacing free cash flow.

Fixed income

Bonds gained on lower yields and stable spreads through a week of central bank interest rate holds, despite a good GDP beat and firmer headline inflation. 10-year Treasuries and gilts fell 7 bps to 4.93% and 5.28%, respectively, while Bunds lagged behind, down only 2 bps to 3.32%. Treasuries and investment grade (IG) each returned 0.5% on the week, which was enough to take both into positive territory for the year, while additional tier 1 bonds (AT1s) returned 0.8%, and high yield (HY) and emerging markets (EM) 0.4%.

The US Federal Reserve (Fed) held its rates at 3.75–4.00% on a 10–2 vote, with Cook and Hammack dissenting in favour of a 25-bp hike. The press conference mattered more to the curve than the statement, which upgraded activity from a ‘solid’ to a ‘strong’ pace. Warsh did not reinforce the tightening bias, noting instead that credit conditions had tightened for some borrowers and that investors were becoming ‘somewhat more discerning in their capital allocations’, once again showing a Fed that is fine with letting credit do part of the work. Warsh also announced that one of the eight meetings in 2027 (and two in 2028) will be devoted to strategy, with no rate vote or statement, leaving seven rate decisions next year (and six in 2028). Some rate decisions will sit 12–13 weeks apart, bringing fewer chances to act and less visibility on the path of Fed policy.

The ECB also held its deposit rate steady at 2.50%, hours after Christine Lagarde announced she will leave the bank in February, i.e. nine months early. The statement leaned dovish at the margins, citing tighter financing conditions as a likely drag on inflation and growth, and without any material wage response so far, even if energy keeps the risks to inflation tilted upwards, with European gas crossing EUR 100/MWh on Wednesday for the first time since 2022. When asked about France, Lagarde said the ECB has the tools to counter a disorderly widening (namely the anti-fragmentation tool we explained a few weeks ago), with nothing to suggest it is close to using them.

The relief from Moody’s decision to leave France’s rating at Aa3 brought the OAT–Bund spread down from a 174-bp peak to 161 bps, although this is still high. 10-year OATs closed the week back below 5% at 4.97%.

On AI credit, S&P moved Meta’s AA- outlook to negative, projecting a USD 70 billion free cash flow deficit in 2027 and leverage above its 1.0x threshold for the rating as early as next year. Alphabet posted its second quarter of negative free cash flow, burning through around USD 9 billion against expectations of breaking even. We are increasingly seeing hyperscalers being careful with how much debt they issue: this week, Meta began moving part of its financing to equity, with up to USD 95 billion of fundraising announced, after Alphabet tapped the equity markets in June. Microsoft, which is in a stronger position, returned to the bond markets for the first time since 2017, issuing USD 25 billion across maturities of 2–40 years which drew USD 115 billion in orders. Hyperscalers and data centre developers have now issued more than USD 313 billion of IG bonds globally this year, almost three times the 2025 total, leading AI-related IG credit to widen 14 bps since July to 100 bps.

In EM, it is worth noting that Brazil underperformed following Lula’s surprise election run-off win. The 10-year dollar sovereign widened 35 bps, while corporates lost 1% in a week when EM was positive.

This week, alongside Tuesday’s midterms, Wednesday’s quarterly refunding announcement is the US rates event of the week. Some dealers are looking for cuts to 20- and 30-year auctions, as 30-year yields are still sitting close to 5.30%; the idea is that tighter supply at the long end would ease pressure on long-dated yields.

Bonds gained as the Fed and ECB held interest rates, with the Fed not reinforcing its tightening bias and the ECB leaning dovish at the margins.

Forex and Commodities

A big week is in store for the USD, with the publication of Q3 tech earnings data, US midterm elections and non-farm payroll (NFP) data on Friday. The US midterm elections appear set to give the Democrats control of both the House and the Senate, which, on balance, skews towards a slightly less constructive USD stance, because it increases the possibility of US government shutdowns and tensions surrounding the debt ceiling. The publication of US tech earnings is likely to be the most salient event risk for the USD. Poorly received earnings data could weigh on the USD through reduced equity inflows. Last, the publication of NFP data on Friday is unlikely to be a game changer for the USD, unless they bring with them any substantial surprises. The US labour market has entered a low volatility equilibrium with low levels of hiring and firing.

In the eurozone, the publication of October CPI data is the key event risk, with expectations of a print of 4.0% y/y (headline) and 2.5% y/y (core). Very little energy-related pass-through has been seen in the eurozone, while several ECB members view moving towards higher rates as limiting the scope for this dynamic to take hold. A print in line with expectations should therefore keep EUR swap pricing broadly unchanged, while a significant miss would be required to price out the 16 bps of tightening currently expected by year-end.

The BoE is expected to hike its key rate by 25 bps, taking it to 4.00% over the coming week. GBP swap pricing currently implies around 110 bps of tightening over the coming year. This screens as among the most stretched in the G10 and has continued to rise to year-to-date highs as EUR and USD swaps have retraced in recent weeks. There is a sharp disparity between rate pricing and recent BoE Monetary Policy Committee (MPC) communications which have indicated a reluctance to raise rates. Consequently, there is scope for GBP downside over the coming week on a dovish BoE communication surprise.

The CHF has modest appreciation risks over the coming weeks, with ongoing tech-related equity weakness and the publication of October CPI data in focus. A higher-than-expected headline print could raise Swiss National Bank (SNB) rate expectations, giving scope for a modest EUR/CHF downside.

The RBA is expected to hike its rates by 25 bps, taking its base rate to 4.85% over the coming week, and communications should indicate a cautious approach from its MPC. A policy rate of 4.85% would cement the AUD as having the highest nominal carry profile in the G10, but the hike is well priced in and is unlikely to drive appreciation. Instead, AUD downside risk is more likely to emerge over the medium term as the effects of 125 bps of tightening pass through to the economy. The key downside risk would be if the RBA decides to keep rates on hold, which would weigh on the AUD/USD.

Gold traded lower last week to levels of around USD 3,900 per oz. The decline reflected modest positioning adjustments and equity-related betas. We note that US ten-year TIPS yields have fallen by 30 bps from recent highs, which should limit the scope for further downside moves for the yellow metal. We anticipate that gold should struggle to appreciate meaningfully over the coming weeks. Further material upside is likely to emerge once markets have a clearer picture of the level of terminal interest rates from the major central banks.

The USD faces a slightly less constructive backdrop, the GBP appears vulnerable to a dovish BoE surprise, and gold is expected to struggle to appreciate in the near term.

The opinions expressed herein are correct as at 2 November 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.