For professional clients only. The information contained within this post is not intended for retail clients.
19 October 2026
Later today, we will hear from the ECB’s Elderson, Panetta and Remolona. Tuesday brings Germany’s ZEW expectations survey, UK employment figures and US housing data, followed on Wednesday by UK CPI and US MBA mortgage applications. Corporate earnings will also take centre stage, with Tesla, Meta and IBM reporting. Thursday’s releases include eurozone consumer confidence, the US Conference Board Leading Economic Index and initial jobless claims, alongside Barclays’ results. Friday’s focus will be on S&P Global PMIs, Eurozone CPI and the University of Michigan’s US consumer sentiment survey.
Last week financial markets remained sensitive to renewed inflationary pressures, elevated government bond yields, uncertainty over the sustainability of AI-related investment and geopolitical developments affecting energy markets. Political deadlock and mounting public opposition to France’s proposed 2027 budget deficit targets added to pressure in European sovereign debt markets, highlighting the challenges facing governments seeking to reconcile fiscal consolidation with domestic political constraints.
US equities weakened towards the end of the week as technology shares came under pressure, with the S&P 500 falling almost 2%, while the Nasdaq declined 4.5% over the week. Concerns about the scale of investment and leverage supporting the AI boom contributed to the technology-led sell-off, highlighting the vulnerability of market indices to a relatively concentrated group of large-cap stocks. US Treasury yields rose following stronger-than-expected inflation data before subsequently retreating as investors sought the relative safety of government bonds. The 10-year Treasury yield fell 17bps to 5.08%. The US dollar weakened towards the end of the week, while Brent crude jumped 4.9% to $109.86pb amid ongoing geopolitical and supply concerns.
September’s US inflation data reinforced concerns that price pressures remain persistent. Headline consumer price inflation rose to 3.7%yoy from 3.4% in August. Gasoline prices rose by 9.1% over the month, accounting for more than half of the monthly increase. Core CPI, which excludes food and energy, increased by 2.6%yoy. PPI also accelerated sharply, with the final-demand figure increasing to 6.3%yoy, its largest annual increase since December 2022. Final-demand energy prices rose by 10.8% during the month, while prices excluding food, energy and trade services increased by 5.0%yoy.
The Fed’s Beige Book similarly highlighted the impact of higher fuel and freight costs on businesses, alongside a labour market characterised by cautious hiring. This combination of persistent inflation and uneven economic momentum complicates the monetary policy outlook. Fed Chair Warsh reiterated a data-dependent approach without committing to a specific interest rate path, leaving the trajectory of policy dependent on incoming inflation and activity data.
The IMF and World Bank Group Annual Meetings focused on the resilience of the global economy amid geopolitical uncertainty, higher energy costs and increasingly constrained public finances. Sovereign debt sustainability remained a key concern, as rising borrowing costs and competing spending priorities limit governments’ fiscal flexibility. Policymakers also stressed the importance of mobilising private capital to support infrastructure, employment and economic development, recognising the limitations of public financing alone. Discussions highlighted the need to strengthen productivity and harness technological advances, including AI, while managing the associated economic and financial stability risks. More broadly, rising public debt, energy subsidies and the concentration of investment in AI were identified as potential sources of vulnerability beneath an otherwise resilient global growth outlook.
China’s policy challenge remains balancing support for domestic demand with structural weaknesses in the property sector and the need to maintain financial stability. At the IMF and World Bank meetings, Chinese central bank governor Pan Gongsheng highlighted concerns about fiscal risks, capital flows and the international spillovers arising from elevated borrowing costs in major economies. The IMF also reiterated the importance of rebalancing China’s growth model towards domestic consumption rather than relying disproportionately on exports. Further targeted monetary or fiscal support remains a possible policy response if domestic demand weakens, although specific expectations for reserve requirement ratio or interest rate cuts should be treated cautiously until confirmed by the authorities. Against this backdrop, the renminbi continued to appreciate steadily, supported by stronger-than-expected third-quarter 2026 data released this morning.