Global Markets Weekly Update

U.S.

Major U.S. stock indexes closed the week mixed as concerns about artificial intelligence (AI)-related spending and financing weighed on large-cap technology shares, while small-cap and value-oriented stocks outperformed amid a rotation in market leadership. The small-cap Russell 2000 Index led the major benchmarks, advancing 2.00%, followed by the Dow Jones Industrial Average, which gained 0.41%. Conversely, the Nasdaq Composite and S&P 500 Index shed 0.71% and 0.47%, respectively. In the large-cap universe, value stocks outpaced growth for the third consecutive week.

Oil prices moved higher late in the week amid reports of renewed tensions in the Middle East, reversing earlier declines tied to optimism surrounding U.S.-Iran diplomatic discussions.

AI spending concerns weigh on technology stocks

AI-related stocks experienced another volatile week as investors weighed some generally positive indications of demand against concerns about the scale and financing of capital expenditures. Technology shares rebounded early in the week following the prior week's sell-off, supported by optimism around data center demand and anticipation of quarterly earnings from major technology companies. However, the recovery reversed course on Thursday as renewed scrutiny of AI investment and funding requirements weighed on sentiment.

Meta Platforms was among the notable decliners after investors focused on the company's substantial capital spending plans and potential financing needs despite some favorable indications of AI-related demand. Other technology companies also faced heightened scrutiny as investors assessed whether earnings growth could justify elevated valuations and continued infrastructure investment.

Housing market weakens amid elevated mortgage rates

The week's economic data highlighted continued pressure on the U.S. housing market. On Monday, the National Association of Home Builders reported that its Housing Market Index declined by three points to 29 in October, its lowest level since 2012, as “rising mortgage rates, energy and material costs, and worsening labor and lot conditions” remained ongoing challenges for builders.

Meanwhile, data released Tuesday showed that September pending home sales plunged 7.3% month over month following a 0.3% rise in August. The decline brought the index to its lowest level since the series began in 2001. Housing starts also weakened from the prior month.

Labor market data were more encouraging. Initial jobless claims came in at 194,000 for the week ended October 17, down from the prior week's revised reading of 200,000 and the lowest level since July. Continuing claims, however, increased by 25,000 to 1.728 million.

Business activity growth remains robust despite accelerating inflation pressures

Elsewhere, S&P Global reported that U.S. business activity growth slowed moderately but remained near a five-year high in October, with its Flash U.S. Composite Purchasing Managers’ Index (PMI) coming in at 57.6 versus 58.4 in September (readings above 50 indicate expanding activity). Both the manufacturing and services sectors showed signs of strength, although businesses reported the sharpest increase in selling prices since August 2022.

The economic calendar wrapped up Friday morning with the University of Michigan’s final reading of its October Index of Consumer Sentiment, which was little changed from September at 48, a decline of about 10% from a year ago. Consumers’ expectations for inflation in the year ahead ticked up to 4.7%, while long-run inflation expectations also edged higher to 3.5%.

Treasuries rally as technology weakness and geopolitical concerns support demand

U.S. Treasury yields decreased sharply during the week as the sell-off in technology stocks and heightened geopolitical uncertainty contributed to stronger demand for U.S. government securities. (Bond prices and yields move in opposite directions.) The benchmark 10-year Treasury yield fell below 5% for the first time in about a month on Thursday, settling around 4.99% by Friday afternoon.

Europe

The pan-European STOXX Europe 600 Index ended the week down 1.39% in local currency terms. Sentiment in European markets was dampened by soaring oil prices and Middle East tensions, heightened inflationary pressures, and domestic political unrest. Among major stock indexes, Germany’s DAX closed 1.72% lower, France’s CAC 40 Index declined 2.19%, and Italy’s FTSE MIB fell 2.60%. The UK’s FTSE 100 Index lost 1.76%.

Civil unrest and fiscal strain in France weigh on investor sentiment

Cost-of-living protests deteriorated into widespread riots and looting in major cities across France this week, contributing to a sell-off in French equities and bonds. The yield on the government’s 10-year bonds, for example, rose to more than 5%, resulting in the widest yield spread since 2012 versus German bonds of equivalent maturity.

Corporate earnings season continues with mixed results

Third-quarter earnings season continued to gain momentum during the week. Some energy companies reported surging profits while others issued upbeat updates on commodity trading operations ahead of official results. In contrast, some earnings in the luxury goods industry disappointed. Semiconductor companies’ results appeared to be fundamentally solid, but their shares were volatile amid a midweek global sell-off in technology stocks.

Eurozone data point to slower growth and inflation creep

The S&P Global Flash Eurozone Composite PMI Output Index indicated that growth in the eurozone slowed in October. PMI declined to 51.9 in October from the 53.1 registered in September. This preliminary reading was weaker than a consensus estimate of 52.7.

The European Central Bank released its consumer survey, which showed that inflation expectations among eurozone households moved higher in September. Respondents said they expect prices to rise by 3.1% over the next 12 months, up from 3.0% in August.

UK economic data stoke expectations for possible rate hike

UK unemployment fell unexpectedly to 4.7% in August, down from the 4.9% registered in July. Inflation was higher than expected, with the annual rate rising to 3.5% in September—its highest level since last October. Transport made a significant contribution to the increase, mainly due to higher motor fuel prices. The data helped strengthen expectations that the Bank of England’s Monetary Policy Committee could raise interest rates at its next meeting on November 5.

There were signs that UK consumers feel under pressure, with the GfK Consumer Confidence Index dropping sharply to -24 in October from the -13 registered in the preceding month. This was the largest monthly fall in sentiment since the pandemic and was attributed to higher energy and borrowing costs as well as uncertainty around the autumn Budget to be announced next week.

Japan

Japan’s stock markets lost ground over the week, with the Nikkei 225 Index declining 4.03% and the broader TOPIX Index down 2.46%. Both indexes fell as investors reassessed the outlook for AI investment, questioning how data center spending will be financed and whether it can be sustained. Global technology shares were volatile, and a sharp fall in U.S. semiconductor stocks late in the week was followed by weakness across Asia. Higher oil prices and Middle East tensions added to investor caution.

JGB yields decline amid tech stock sell-off

The yield on the 10-year Japanese government bond (JGB) fell to 2.78% from 2.94% at the end of the previous week. Bond prices rose as investors moved into lower-risk assets after the global equity sell-off, which also contributed to a rally in U.S. government bonds. Demand for longer-dated JGBs strengthened considerably, with demand at a 20-year bond auction reaching a record, a result attributed to higher yields and demand for safer assets. Japan’s nationwide core consumer price index, which excludes fresh food, rose 2.1% year over year in September, up from 1.7% in August and the first reading above the Bank of Japan's (BoJ) 2% target since December 2025. This supported expectations of further rate increases, although the BoJ is reportedly favoring leaving rates unchanged at its October 29 to 30 meeting.

The yen appreciated over the week, trading around JPY 156.7 against the U.S. dollar on Friday from the prior week’s JPY 157.9 level. The currency moved out of the narrow range it held for several weeks as risk aversion supported demand for the yen. U.S. Treasury yields fell sharply and the dollar weakened broadly, narrowing the expected interest rate differential between the U.S. and Japan.

Elsewhere, Japan’s exports rose 16.7% year over year in September, below the 21.3% consensus and slower than the 19.3% increase in August, marking the weakest growth since April, although chip-related products and autos remained supportive. Imports rose 18.9%, also below the 20.4% consensus and slower than the 28.0% increase in August.

China

Chinese equities declined over the week, although a Friday rebound pared some losses following a technology-led sell-off. The CSI 300 Index fell 1.57%, and the Shanghai Composite Index declined 0.69%, while the Hang Seng Index dropped 4.52% in local currency terms, according to FactSet. AI-linked shares weakened amid concerns over investment spending, financing requirements, and corporate earnings, while losses in U.S. technology stocks and higher oil prices added to market volatility. Hong Kong, which was closed on Monday following the Chung Yeung Festival, underperformed amid selling in internet and biotechnology shares. Mainland bank shares were comparatively resilient.

GDP growth picks up, but investment and consumption remain subdued

China's gross domestic product (GDP) grew 4.5% year on year in the third quarter, up from 4.3% in the second quarter and ahead of the 4.4% median forecast in a Reuters poll. According to the National Bureau of Statistics, September industrial production rose 5.5% year on year, and retail sales increased 1.1%, while fixed asset investment (excluding rural households) fell 7.2% over the first nine months compared with a year earlier. GDP increased 4.6% year on year in the first three quarters, leaving the government's 4.5% to 5.0% annual growth target within reach. The stronger headline GDP reading may reduce the urgency for broad-based stimulus, although subdued consumption and weak investment point to uneven domestic demand.

PBoC studies a change in its main policy-rate benchmark

People's Bank of China (PBoC) Governor Pan Gongsheng said on Monday that the central bank was studying whether to make the overnight reverse repurchase rate, rather than the seven-day rate, its main policy benchmark to improve monetary policy transmission. No such change has been implemented. Separately, China's one-year and five-year loan prime rates were left unchanged at 3.00% and 3.50%, respectively, in line with expectations.

Regulator calls for stronger quality controls at online platforms

China's State Administration for Market Regulation said on Wednesday that it had convened a meeting with representatives from online platforms, including Taotian, JD.com, Pinduoduo, and Kuaishou, to discuss product quality and consumer protection. While acknowledging improvements following guidance issued in 2025, the regulator cited continuing concerns about counterfeit products, misleading advertising, and product descriptions, particularly in livestream commerce and instant retail. Hong Kong-listed e-commerce shares declined on Thursday amid the announcement and a broader technology sell-off. The statement did not specify new enforcement actions.

U.S. Treasury proposes wider outbound investment restrictions

The U.S. Treasury Department on Thursday proposed updates to rules governing certain U.S. investments in sensitive technologies in countries of concern, including China. The proposed requirements would broaden the scope of transactions subject to notification or prohibition, adding specified biotechnology activities alongside areas such as advanced semiconductors and AI. Several Hong Kong-listed biotechnology shares fell on Friday, although the implications for individual companies and cross-border financing remain uncertain. The proposal is subject to public consultation and has not taken effect.

Other key markets

Indonesia

MSCI warning and policy response drive volatile week for Indonesian markets

Indonesian equities rebounded over the week, recovering some of the previous week's steep losses following MSCI's warning that it could downgrade Indonesia from emerging market to stand-alone market status. Stocks had fallen sharply over the previous Friday and Monday as investors reacted to concerns about market transparency, ownership structures, and trading practices. The potential reclassification raised fears of substantial foreign capital outflows and spilled over into the currency and bond markets, with the rupiah hovering near record lows and government bond yields rising. Sentiment subsequently improved as exchange officials outlined measures to strengthen market transparency and price discovery, while sovereign wealth fund Danantara disclosed that it had been purchasing shares it considered attractively valued.

Bank Indonesia also sought to stabilize financial markets while maintaining support for economic growth. At its Wednesday meeting, the central bank held its benchmark interest rate unchanged at 5.75% for a fourth consecutive meeting, despite expectations among some economists for an increase to support the rupiah. However, policymakers raised the overnight deposit facility rate by 25 basis points to 5.00% to help attract foreign capital inflows and announced plans to reduce banks’ reserve requirements to support lending. The central bank also strengthened incentives for currency hedging transactions. The measures highlighted policymakers’ efforts to balance currency stability and investor confidence against concerns about domestic growth, although uncertainty surrounding MSCI’s eventual decision continued to weigh on the broader market outlook.

Hungary

Government unveils fiscal consolidation plans as central bank holds rates

Hungary's government unveiled its fiscal consolidation plan aimed at reducing the country's budget deficit and laying the groundwork for eventual euro adoption. Prime Minister Péter Magyar's first budget proposal targets a deficit of 4.9% of GDP in 2027, down from an estimated 7.5% in 2026, with further reductions planned to bring the shortfall below 3% by 2030. The proposal includes reversing some spending commitments made by the previous administration, reducing government expenditures, and introducing tax changes, while increasing certain social benefits and public-sector wages. Finance Minister András Kármán also outlined ambitions to adopt the euro by 2032, with the timing dependent on Hungary's progress toward meeting the necessary economic and fiscal requirements. The plans represent a significant shift in fiscal policy under Magyar's administration, although implementation risks remain given the scale of the proposed adjustment.

On the monetary policy front, the National Bank of Hungary left its benchmark interest rate unchanged at 5.50% on Tuesday, as widely expected, extending its pause following three consecutive rate cuts over the summer. The decision reflected a cautious approach amid global market volatility, elevated energy prices, and uncertainty surrounding the fiscal outlook. Annual inflation accelerated to 1.6% in September from 1.3% in August but remained below the central bank's target range. Governor Mihály Varga emphasized the importance of fiscal developments in shaping the monetary policy outlook, with credible deficit reduction potentially helping lower Hungary's risk premium and support the forint, creating greater scope for future interest rate cuts.