Weekly market commentary

Global equities advanced, led by Europe, with developed and emerging markets up 1.27% and 0.92% respectively. Central banks and earnings dominated the week, with resilient headline indices masking greater dispersion beneath the surface. Policy signals varied across regions: the Fed, ECB and Bank of Japan held rates, while the Bank of Canada raised its policy rate to 2.5%. AI remained at the centre of earnings, with strong demand across cloud, compute and memory, but increasingly differentiated share-price reactions as investors focused more closely on the returns from elevated investment. Fixed income posted modest gains, while the US dollar strengthened and Brent fell 1.6%.

The Fed held rates at 3.75–4.0%, as expected, but the meeting carried a hawkish tone, with two hawkish dissents and activity upgraded from “solid” to “strong”. Inflation data reinforced the case for caution, with September headline and core PCE rising to 3.65% and 3.12% year-on-year, respectively. Warsh stopped short of describing financial conditions as tight, while markets price a 25bp hike in December and another in March. The emphasis on gathering more information nevertheless points to a gradual, data-dependent path.

The UK Autumn Budget broadly preserved fiscal credibility without delivering a fiscal shock, although the government’s buffer against its fiscal rules remains relatively small. Higher yields reduced headroom against the main fiscal rule from £23.6bn to £12.5bn, with policy measures rebuilding it to around £15bn. Gilt issuance rose £4.4bn to £250.6bn total, but only around 6% is expected to come from long-dated conventional gilts, helping limit upward pressure on long-term borrowing costs. Near-term fiscal tail risk has eased, but sensitivity to higher yields remains.

The bigger news from the ECB came from its leadership, with President Christine Lagarde announcing that she will step down on 7 February 2027, bringing forward her departure and opening the succession process. On policy, the ECB held rates after discussing a hike, opting to wait for further data. A December hike remains the baseline if incoming data broadly match the September projections, with growth holding up, headline inflation elevated by energy and core inflation around 2.5%. Financing conditions remain part of the policy assessment, while France is a key risk ahead of its 17 December budget deadline.