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

Consumer sentiment has weakened and the ISM Prices-Paid Index has jumped, keeping the inflation threat alive just as September consumer price index (CPI) data is released. Equities rose as gains broadened beyond technology, and bonds rallied on easing oil prices, yet the US Federal Reserve (Fed) is still expected to deliver another rate hike by year-end. The USD remains strong, while concerns over French OATs persist, with the European Central Bank (ECB) showing no intention of intervening.

Macroeconomics

The political cost of the conflict in the Middle East is becoming harder to hide. President Trump has pledged not to attack Iran again before the midterms on 3 November and says he is ‘thinking about’ suspending the federal petrol tax to ease the burden on households; he also lifted the export ban on Russian diesel. Little wonder, then, that the assessment of the current situation by Michigan’s consumer survey slipped to its lowest level ever (from 50.9 to 44.7), while one-year inflation expectations edged up to 4.7%. So far, though, the survey has been a poor guide to spending, which remains resilient.

Business surveys point to the same resilience. The ISM services index eased to 54.9 but is staying firmly in expansion, with services remaining the economy’s engine. The catch, however, is prices: the prices-paid gauge jumped to 74 – its highest since July 2022 – as firms grapple with higher input costs and try to pass these on to consumers, thus keeping the inflation threat alive. Employment crept back above 50 for the first time since June, but a reading of 50.1 hardly changes the picture of a low-hire, low-fire labour market.

The eurozone is giving out mixed signals. The manufacturing PMI hit 52.9 in September, its highest since May 2022, with price pressures building. Yet in August, with the survey already at a four-year high, industrial production fell by 1.3% in Italy, 0.7% in Spain and 0.3% in France. Either the surveys flatter the recovery or factories are lagging behind it.

This week, US CPI inflation data for September takes centre stage. Headline inflation should accelerate as petrol prices rebound; the question is whether or not core prices will follow. Retail sales and producer price index (PPI) data are also due. In the euro area, aggregate industrial production and the final harmonised index of consumer prices (HICP) will show whether national weakness is shared across the bloc, as well as whether price pressures are reaching consumers’ shopping baskets.

Equities

Global equities edged higher amid a volatile week (MSCI ACWI total return +0.7%), with a late-week rebound lifting sentiment. US equities outperformed (S&P 500 +1.2%) despite mid-week turbulence from an AI-valuation scare, elevated oil prices and still-high long-term yields, as US Federal Reserve (Fed) minutes showed backing for another rate hike by the end of the year. Most striking was a shift in performance leadership last week: after a long run dominated by a narrow set of technology companies, participation broadened, with the equal-weighted S&P 500 rising +1.6% and breaking a seven-week losing streak, while the Nasdaq 100 lagged behind (+0.3%), weighed down by US semiconductors (SOX Index −4.3%) as investors questioned AI valuations and the debt financing the infrastructure build-out.

Newsflow in the global technology sector (−0.4% last week, the second-worst-performing) was dense, with investor nerves rattled by the sudden cancellation of an Nvidia-backed Australian data centre IPO, the Financial Times reporting lower-than-expected annual revenues for OpenAI, and muted reactions to blowout numbers from major semiconductor names (Samsung, TSMC), all underlining both the fragility and the resilience of the space.

This week marks four years since the current US bull market began on 12 October 2022. At that time, headline inflation was nearing ~8%, the Fed was carrying out one of its most aggressive tightening cycles in decades and the S&P 500 had fallen 26% from its peak. Since then, the index has delivered a price return of +118.4% (+130.7% with dividends, to 9 October 2026) and has absorbed a succession of shocks along the way, with the most recent being geopolitical tensions and oil price volatility. Looking to the last 11 US bull markets over the past seven decades, they have run for around five years and delivered an average price return of +159%. As the market adage goes, bull markets don’t die of old age; it is far more often a policy misstep – a central bank tightening too far – and/or the onset of an economic recession.

With neither of those in our base-case scenario, we maintain a constructive stance on equities, with a modest bias towards the US, Japan and the global technology sector. In the week ahead, investor focus turns to the Q3 earnings season, which officially kicks off with reporting from major US banks – the next chapter of the current market run.

Market leadership is broadening beyond a handful of tech giants, as doubts over AI valuations weigh on semiconductors.

Fixed income

After a highly volatile week, fixed income markets closed Friday with a positive weekly performance. Treasuries, high yield (HY) and additional tier 1 bonds (AT1s) all ended in positive territory (+0.3%), while investment grade (IG) performed the best (+0.5%). This positive development was largely driven by the announcement made by President Trump on Friday that the US would not launch renewed attacks on Iran until at least after the November elections and the corresponding decline in energy prices. Meanwhile, the yield on US 10-year notes fell at the end of the week, reaching 5.2%, below Wednesday’s peak of almost 5.4%.

Last week also saw the release of the Fed’s latest minutes, which showed that all voting members supported September’s rate hike to 3.75–4.00%. Most participants judged that another hike was likely by year-end, which appears to be what markets are currently pricing in (a 25-basis point (bp) hike in December). Moreover, some officials are now advocating a stronger Fed strategy, improved communication, and additional tools to address potential market dysfunction, while limiting the Fed’s footprint to the Treasury market.

In Europe, French government bonds continued to face mounting pressure from markets, reflecting the government’s apparent lack of willingness to address budget deficits. Yields on 10-year OATs remained highly volatile and are currently trading at around 4.9% (with the OAT–Bund spread reaching 140 bps), which represents a historical high and wider than the spreads of lower-rated peers such as Italy and Greece. Market pressure has been exacerbated by the nationwide student demonstrations currently going on in France; protesters are demanding an additional EUR 10 billion in funding to address overcrowded classrooms and outdated school buildings. Against this backdrop, and following several comments from French politicians, the ECB stated that the conditions for intervention in the French bond market have not been met, as the current widening in credit spreads was considered justified rather than technical. Moody’s and S&P are expected to review France’s credit rating before the end of November. In the UK, gilts also reached historical highs on Thursday, with 10-year yields reaching 5.5% and 30-year yields briefly surpassing 6%.

The Fed minutes show unanimous voting support for September’s rate hike, with most participants expecting another one by year-end, in line with markets pricing in a 25-bp move in December.

Forex and Commodities

The USD continued to trade at elevated levels last week, reflecting higher energy prices and intra-eurozone yield spread moves; this weighed on the EUR. The main event for the USD over the coming week is the publication of US CPI data for September. The key for investors will be the momentum of underlying inflation. The overnight index swap (OIS) market has priced in an October rate hike with a 20% probability.

Last week, OAT–Bund spreads widened towards recent highs of around 1.4%, which is the widest spread since the peak of the eurozone debt crisis in late 2011. The pace of spread widening in recent weeks has been faster than in the early 2010s, but the ECB has shown no sign that it intends to intervene to calm markets. ECB Governing Council member Emmanuel Moulin noted that conditions in France do not warrant ECB intervention and that the ECB was not there to respond to countries’ budgetary difficulties. This relaxed stance makes some sense: the eurozone’s financial conditions index does not show any signs of stress, and the ECB is unlikely to intervene unless markets show signs of contagion in the likes of Italian and Spanish debt.

The main event risk for the AUD over the coming week will be the release of Australian unemployment data for September. The unemployment rate in Australia has steadily risen through 2026, reflecting a loosening labour market. These developments are likely to make the Reserve Bank of Australia (RBA) reluctant to deliver another rate hike over the coming months. AUD swap markets are pricing the RBA policy rate 25 bps higher at 4.85% in early 2027, which could be priced out if the forthcoming data print above expectations. Risks to the AUD are therefore skewed to the downside over the coming days.

The National Bank of Poland (NBP) held its policy rate at 3.75%, with communication striking a dovish note, as expected. NBP Governor Adam Glapiński emphasised that the recent rises in Polish inflation have been completely driven by external shocks and indicated that the central bank’s monetary policy committee (MPC) is not moving towards delivering a near-term rate hike. The MPC stressed upside inflation risks, which helped markets to continue pricing in around 70 bps of NBP tightening over the coming year. In light of recent communications, the NBP is more likely to delay hikes until it sees distinct pass-through into core prices, and it should remain fundamentally less hawkish than the majority of European central banks, giving the EUR/PLN ongoing upside risks over time.

Gold traded higher to levels of USD 4,200 per oz following strikes on Riyadh airport, signalling an increase in risk aversion amid ongoing tensions. Gold has continued to decouple from both nominal and real inflation-adjusted interest rates, which should limit any near-term downside moves. The overall demand picture remains quite robust, with further central bank purchases expected by year-end.

The USD remains strong on higher energy prices, while concerns over French OATs persist as the ECB signals no intention of intervening.

The opinions expressed herein are correct as at 12 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.