Global Markets Weekly Update

U.S.

Major U.S. stock indexes ended a volatile week lower as investors weighed the implications of Tuesday’s midterm elections, which saw Democrats gain control of both chambers of Congress. Meanwhile, the Labor Department’s monthly jobs report was stronger than expected, and other data released during the week indicated that the economy remained resilient. The tech-heavy Nasdaq Composite suffered the largest losses for the week, while the Dow Jones Industrial Average held up relatively well but still finished in negative territory.  

Fed holds rates steady in 10–2 vote 

The Federal Reserve left its federal funds rate unchanged at 3.75% to 4.00% following its October policy meeting, as widely expected. The decision followed a 25-basis-point (0.25 percentage point) rate increase in September and was supported by 10 of the 12 voting policymakers, with the two dissenters favoring another quarter-point hike. 

In its accompanying statement, the Fed upgraded its assessment of economic activity, describing growth as proceeding at a "strong" pace rather than the "solid" pace noted previously. Policymakers continued to characterize inflation as elevated and emphasized that incoming economic data would help determine the appropriate policy stance. Fed Chair Kevin Warsh offered little additional guidance regarding the possibility of another rate increase in December and announced a reduction in the number of meetings at which the Fed will vote on rates beginning in 2027.

Election results spark market volatility 

U.S. equity markets experienced significant volatility following Election Day, as a Wednesday rally gave way to a sharp, broad-based sell-off on Thursday and then a partial recovery on Friday. Democrats’ stronger-than-expected electoral performance initially fueled optimism that a shift in the political landscape could ease geopolitical tensions, particularly with Iran.  

However, equities reversed course sharply on Thursday as investors reassessed the implications of Democratic electoral gains for corporate earnings and regulatory policy. Concerns about potentially tighter oversight of the artificial intelligence (AI) industry, compounded by disappointing outlooks from major semiconductor companies, triggered substantial selling in technology shares. The Nasdaq 100 declined 6.4%, while the Philadelphia Semiconductor Index plunged more than 12%, both recording their worst sessions since March 2020. Selling pressure spread across numerous sectors as investors reduced risk exposure amid heightened uncertainty, although traditionally defensive sectors, including consumer staples and health care, demonstrated relative resilience. U.S. stocks partially recovered on Friday as investors appeared to take advantage of lower share prices following Thursday's sharp sell-off. 

In stock-specific news, Apple, which has the largest market cap in the S&P 500, reported record revenue and earnings per share for its fiscal fourth quarter, exceeding analyst expectations. Strong iPhone and Mac sales and a rebound in China supported results. The company’s stock initially fell following the report but recovered later in the week.

Job gains exceed expectations 

On Friday, the Bureau of Labor Statistics reported that the U.S. economy added 165,000 jobs in October, well above consensus expectations. Payroll estimates for August and September were revised higher by a combined 84,000 jobs. Employment gains for the month were led by professional and business services, health care, and transportation and warehousing, while manufacturing employment also continued to recover. The unemployment rate edged down to 4.1% from 4.2%, while labor force participation increased slightly to 61.9% from 61.8%. 

Employment reports released earlier in the week also provided evidence of a healthy labor market. Initial claims for unemployment benefits declined by 6,000 to 189,000 for the week ended October 31, matching the lowest level since mid-July. Meanwhile, the Job Openings and Labor Turnover Survey (JOLTS) showed job openings increased by 333,000 to 7.52 million in September, exceeding expectations of approximately 7.1 million.  

Manufacturing activity remains strong 

U.S. manufacturing activity strengthened in October, with the ISM Manufacturing Purchasing Managers’ Index (PMI) rising to 55.5 from 54.5, marking its 10th consecutive month of expansion. Manufacturing employment continued to expand, although price pressures remained elevated. Separately, factory orders rose 1.8% in September, exceeding expectations for a 1.2% gain, supported by broad-based demand and a sharp increase in civilian aircraft orders. Meanwhile, the ISM Services PMI edged down to 54.5 in October from 54.9 in September but remained in expansion territory for the 28th consecutive month.  

Treasury yields fall after election 

U.S. Treasury yields declined across the curve, with short- and intermediate-term yields falling more sharply than longer-term yields, resulting in yield curve steepening. Yields fell after the Democratic sweep in the U.S. midterm elections, which markets interpreted as reducing the likelihood of significant fiscal expansion. A technology-led equity sell-off further supported safe-haven demand for Treasuries. However, stronger-than-expected private payroll growth and hawkish Federal Reserve commentary at the end of the week tempered the rally. 

Europe

The pan-European STOXX Europe 600 Index ended the week up 0.24% in local currency terms. Risk appetite in European markets was shaped largely by AI and technology volatility and some rotation away from U.S. equities. Among major stock indexes, Germany’s DAX closed flat, while France’s CAC 40 Index rose 2.13% and Italy’s FTSE MIB climbed 1.12%. The UK’s FTSE 100 Index bucked the trend, losing 0.52%. 

Europe generally outperforms U.S. 

Concerns about the enormous capital requirements for AI infrastructure and whether those investments will ultimately generate adequate returns continued to pressure semiconductor and AI-linked stocks. Against this backdrop, European stock markets generally avoided the steeper declines seen in the U.S., mainly due to having less exposure to AI technology stocks. European banks, in particular, were beneficiaries while defense names fell.  

Oil prices and Middle East geopolitics switch from headwind to partial tailwind 

Oil prices fell over the week as markets priced a lower probability of near-term escalation with Iran and signs of renewed diplomatic activity. Lower oil prices reduced inflation expectations, supported bonds, and benefited travel and consumer-sensitive sectors, while energy shares came under pressure. 

Eurozone inflation accelerates… 

October headline inflation in the eurozone accelerated to 4.0% from 3.8% the previous month. This was the fastest pace since September 2023 and double the European Central Bank’s 2% target. The rise was largely energy-driven, with energy inflation reaching 20.8%. 

… while economic activity shows signs of losing momentum 

The final October composite Purchasing Managers’ Index (PMI) for the eurozone fell to 51.7 from 53.1, slightly below the preliminary 51.9, while the services component declined to 51.4 from 53.0. There was considerable divergence: Germany remained relatively strong at 53.4 and Spain at 56.2, while France dropped sharply into contraction at 46.6 and Italy was barely expanding at 50.8. 

Data also showed that eurozone retail sales were weaker than expected, with sales falling by 0.7% month on month in September, which was significantly lower than expected. 

Bank of England raises rates to contain inflation 

The Bank of England raised interest rates by 25 basis points to 4.0% on Thursday, its first increase since 2023. Governor Andrew Bailey indicated that another increase could be on the cards as early as December if inflation pressures persist. The central bank expects inflation to rise from the current rate of 3.5% to around 5% in the second quarter of 2027, largely reflecting the energy price shock. 

Data released during the week suggested services activity was relatively resilient in the country, with the October services PMI rising to 52.8 from 52.1, its strongest reading since February. New business improved and employment increased for the first time in two years. However, consumer conditions remained soft. British Retail Consortium data released on Friday showed UK retail foot traffic falling 4.7% year on year in October compared with a 2.9% decline in September. 

Japan

Japan’s stock markets fell sharply over the week, with the Nikkei 225 Index declining 9.25% and the broader TOPIX Index down 6.48%. Sentiment toward AI reversed abruptly as investors assessed Democratic victories in the U.S. midterm elections, which gave the party control of both chambers of Congress. After a brief post-election rally in U.S. stocks, concerns that greater political and regulatory scrutiny could slow AI data center expansion triggered a sharp sell-off in technology shares. Japanese equities slumped on Friday, led by semiconductor and AI-related shares, as the Nikkei entered a technical bear market, a decline of more than 20% from its June record high. Domestically oriented sectors such as real estate, transportation equipment, and pharmaceuticals were more resilient earlier in the week, but all sectors declined on Friday. 

Government bond yield declines amid rotation out of equities 

The yield on the 10-year Japanese government bond fell to 2.63% from 2.78% at the end of the previous week. Yields fell as lower oil prices amid hopes of a de-escalation in the Middle East conflict eased inflation concerns and U.S. Treasuries rallied, with the decline accelerating on Friday as the global equity sell-off drove demand for safer assets. The turmoil prompted some reassessment of the likelihood of a Bank of Japan (BoJ) rate increase in December. However, the BoJ’s earlier hawkish guidance and minutes of its September meeting, released during the week, pointed to further rate increases. 

After briefly benefiting from demand for safer assets as the U.S. dollar fell following the Democratic midterm victories, the yen weakened slightly over the week, trading around JPY 158.2 against the U.S. dollar on Friday, from around JPY 157.5 at the end of the prior week. 

Japan’s average nominal wages rose 4.6% year over year in September, well above the 3.8% consensus and one of the largest increases since 1997, while real (inflation-adjusted) wages rose 2.2%, exceeding the 1.3% consensus and accelerating from a revised 1.6% in August. Wage growth is a key input for the BoJ, which looks for sustained pay increases to support stable inflation, and the data were seen as supporting the case for further tightening. 

China

Chinese equities rebounded during the week, recovering some of October's losses amid Beijing's latest market-support measures, although renewed weakness in technology shares pared gains on Friday. The CSI 300 Index rose 1.73% and the Shanghai Composite Index gained 1.39% from the previous Friday's close in local currency terms, while the Hang Seng Index advanced 5.10%, according to FactSet. 

Semiconductor and other AI-related shares helped drive a strong midweek recovery on the mainland, while Hong Kong internet stocks rallied on Thursday as investors returned to shares that had been heavily sold in October. However, the recovery lost momentum on Friday following a sharp decline in U.S. technology shares amid concerns over AI valuations, returns on substantial investment spending, and the prospect of tighter U.S. regulatory scrutiny following the midterm elections. Semiconductor and optical communications-related stocks were among the main laggards, although Chinese equities held on to their weekly gains. 

PBoC steps up support for stock purchases and share buybacks 

The People's Bank of China (PBoC) conducted a RMB100 billion operation on Tuesday through its Securities, Funds and Insurance Companies Swap Facility, with 31 securities and fund companies participating, to enhance their capacity to purchase equities. On Wednesday, the central bank lowered the relending rate for share buybacks and increased shareholdings by 25 basis points to 1.0%, while banks had submitted applications for more than RMB 200 billion in relending quotas. The measures provided additional policy support to the equity market, although the sustainability of the recovery will also depend on corporate fundamentals and investor confidence.  

Business surveys highlight uneven economic activity 

China's official business surveys pointed to weaker activity in October, with both manufacturing and nonmanufacturing readings falling into contraction. According to the National Bureau of Statistics, the official manufacturing Purchasing Managers' Index declined to 49.3 from 50.1 in September, while the nonmanufacturing PMI fell to 49.7 from 50.2. Separately, privately compiled surveys by RatingDog showed the manufacturing PMI easing to 52.0 from 52.1 and the services PMI declining to 50.8 from 51.6. The contrasting readings highlighted uneven economic conditions, with the private surveys continuing to signal expansion, albeit at a slower pace.  

PBoC adjusts monetary policy framework and foreign-exchange requirements 

The PBoC began conducting daily overnight reverse repurchase operations on Monday at a fixed rate of 1.25%, while shifting seven-day reverse repos to a different auction mechanism, as part of efforts to improve short-term interest rate management. The changes marked a shift toward the overnight rate as the central bank's main policy anchor. Separately, the PBoC announced that it would raise the foreign-currency deposit reserve requirement ratio from 4% to 6%, effective November 15, a move aimed at moderating the yuan's recent appreciation and stabilizing exchange-rate expectations. 

Other key markets

Paraguay 

Banking collapse and political crisis weigh on sovereign bonds 

Paraguayan sovereign bonds weakened over the week as the collapse of digital lender Ueno Bank triggered a political crisis and raised concerns about financial stability. The central bank intervened and shut down the lender on Tuesday amid solvency concerns and allegations of excessive lending to companies linked to its controlling shareholder. 

The closure left roughly 3 million customers unable to access their accounts and disrupted payments, including those involving public institutions and pension funds. Investor sentiment deteriorated as the crisis raised questions about regulatory oversight and President Santiago Peña’s previous ownership stake in the bank’s parent company. Sovereign bonds initially sold off, while the guaraní weakened sharply against the U.S. dollar. 

Political uncertainty intensified as opposition lawmakers initiated impeachment proceedings against Peña, accusing his administration of conflicts of interest and mishandling the banking crisis. Pressure mounted after congressional and ruling-party leaders withdrew their support, ultimately prompting Peña’s resignation on Thursday. Central bank Governor Carlos Carvallo also resigned, while prosecutors launched an investigation into the lender and detained several executives. 

Authorities sought to contain the fallout by accelerating deposit insurance payments and reassuring investors that the crisis was isolated. Sovereign bonds subsequently recovered some of their initial losses as stabilization efforts eased concerns about broader financial contagion. However, lingering uncertainty surrounding regulatory oversight, political stability, and potential risks to the wider financial system continued to impact investor confidence. 

South Korea 

AI-related sell-off drives sharp equity declines despite resilient economic data 

South Korean equities fell sharply over the week as a global sell-off in artificial intelligence (AI) and semiconductor stocks weighed heavily on investor sentiment. The benchmark KOSPI Index declined, led by losses in major chipmakers Samsung Electronics and SK Hynix, as investors questioned whether elevated AI infrastructure spending would generate sufficient returns.  

Concerns that the outcome of the U.S. midterm elections could lead to tighter scrutiny of data center development added to selling pressure. The downturn intensified on Friday, when the KOSPI briefly fell below the 5,000 level, triggering a temporary trading halt before recovering some losses. Regulators also temporarily eased margin lending collateral requirements to limit forced selling and stabilize markets. 

Economic data highlighted the country's continued reliance on semiconductor exports despite the equity market downturn. South Korea's current account surplus reached a record in September, driven by strong demand for advanced memory chips and other technology products. Meanwhile, October consumer inflation eased slightly to 2.8% year over year from 2.9% in September, while core inflation remained elevated at 2.8%, reinforcing expectations that monetary policy would remain restrictive. However, the sharp equity sell-off and growing uncertainty surrounding the AI investment outlook could complicate the central bank's policy decisions ahead of its November 26 meeting.