19 – 23 October 🗓️
⚠️ Macro: Inflation remains the market’s biggest risk
Markets struggled to find direction as investors weighed persistent inflation against growing concerns about economic growth. Last week’s hotter-than-expected U.S. inflation data continued to shape expectations for Federal Reserve policy, while rising energy prices threatened to keep inflation elevated.
Attention also turned to the UK, where October business activity strengthened more than expected. However, September retail sales weakened and consumer confidence deteriorated, highlighting the pressure that higher living costs are placing on households. The combination of resilient business activity and persistent price pressures strengthened expectations of a potential Bank of England rate hike in November.
📉 Equities: AI optimism faces a reality check
The technology trade came under renewed pressure as investors questioned whether enormous AI infrastructure investments will generate sufficient returns to justify their costs.
Concerns surrounding capital expenditure and financing weighed on companies across the AI ecosystem. Meta fell sharply after highlighting its substantial investment requirements, while data-centre operator CoreWeave suffered further losses.
By Friday, technology shares showed signs of stabilisation, but the broader picture remained mixed. For the week, the S&P 500 lost approximately 0.5% and the Nasdaq fell 0.7%. The Dow Jones, however, gained 0.4%, extending its weekly winning streak to three weeks.
💱 Bonds & FX: France adds to market uncertainty
Government bonds experienced sharp swings as investors balanced inflation concerns against fears that expensive AI investments and tighter financial conditions could undermine growth.
U.S. Treasury yields remained volatile, with the 10-year yield approaching 5%. Meanwhile, the dollar lost ground during the week as doubts about the AI investment boom reduced expectations for further aggressive Fed tightening, before recovering on Friday.
In Europe, political tensions and fiscal concerns in France pressured the euro and intensified the sell-off in French government bonds. Sterling was comparatively resilient, supported by stronger UK business activity and expectations of tighter monetary policy.
🛢️ Commodities: Oil takes centre stage
Geopolitical tensions pushed crude oil sharply higher. Renewed Houthi attacks in Saudi Arabia heightened fears of further disruption to Middle Eastern energy supplies, sending Brent crude above $116 per barrel on Friday, its highest level since April.
Higher oil prices create a difficult environment for central banks: they increase costs for consumers and businesses while making inflation harder to control. Gold, meanwhile, faced pressure as changing interest-rate expectations and movements in yields and the dollar complicated its outlook.
🗺️ The big takeaway
The market is caught between two powerful forces: expensive energy and expensive AI.
Geopolitical risk is pushing inflation concerns higher, while doubts about the profitability of AI investment are challenging equity valuations. If oil remains elevated and borrowing costs stay high, investors may become increasingly selective, rewarding sustainable cash flow over ambitious growth promises 😬
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