Global Markets Weekly Update

U.S.

Major U.S. stock indexes closed the week mixed as large-cap growth and artificial intelligence (AI)-related stocks sharply reversed early-week gains to finish lower, while small-cap and value-oriented stocks outperformed. The Russell 2000 and S&P MidCap 400 Indexes advanced 1.30% and 1.26%, respectively, while the Nasdaq Composite shed 2.00%, the Dow Jones Industrial Average lost 0.85%, and the S&P 500 Index dropped 0.57%. Large-cap value stocks outperformed their growth counterparts for the fourth consecutive week.  

AI-related stocks rallied early in the week, rebounding from the prior week’s declines as some upbeat earnings results, funding announcements, and generally favorable management commentary helped renew optimism surrounding demand and capital spending. However, the rally reversed course late in the week as quarterly results from several major technology companies—including Alphabet and Amazon—reignited concerns surrounding sustainability and potential returns on large-scale capital expenditures.  

Oil price volatility continued as hopes for U.S.-Iran diplomacy competed with reports of potential additional attacks and expectations that military activity could escalate after the November 3 U.S. midterm elections.  

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.

GDP growth accelerates; inflation remains elevated

The week's economic data helped reinforce the Fed’s commentary regarding economic strength alongside persistent inflation pressures. On Thursday, the Bureau of Economic Analysis (BEA) reported that U.S. gross domestic product (GDP) expanded at an annualized rate of 3.4% in the third quarter, above estimates for around 3.0% and an acceleration from the second quarter's 2.2% growth rate. Business investment and consumer spending helped drive the stronger-than-expected expansion. 

Meanwhile, the BEA’s personal consumption expenditures (PCE) price index highlighted ongoing inflation pressures in September, rising 0.5% from the prior month and 3.6% year over year. Core PCE, which excludes volatile food and energy prices, increased 0.3% from August and 3.1% from a year earlier. Both the headline and core annual measures accelerated modestly from August’s readings. 

Elsewhere, the Conference Board's Consumer Confidence Index rose to 91.7 in October from an upwardly revised 84.2 in September, surpassing expectations amid “improved perceptions of current and expected business conditions.” Initial jobless claims remained subdued, declining to 194,000 for the week ended October 24, below estimates and the lowest reading since July.

Treasuries advance; investment-grade bond issuance hits record high

U.S. Treasuries generated positive returns for the week, with yields across most maturities increasing ahead of the Fed’s policy announcement before turning sharply lower following the decision and amid the late-week tech stock selloff. (Bond prices and yields move in opposite directions.) By Friday afternoon, the yield on the 10-year U.S. Treasury note had dropped to around 4.92% from about 5% a week earlier.  

Investment-grade corporate bonds also generated positive returns, while T. Rowe Price traders noted that year-to-date new issuance in that market reached a record high during the week, supported by a surge in AI-related capital investment financing. 

Europe

The pan-European STOXX Europe 600 Index ended the week up 1.73% in local currency terms. Sentiment in European markets was shaped largely by the ongoing corporate earnings season, Middle East developments, and the European Central Bank’s (ECB) decision to keep interest rates on hold. Among major stock indexes, Germany’s DAX closed 2.53% higher, France’s CAC 40 Index rose 2.40%, and Italy’s FTSE MIB climbed 1.94%. The UK’s FTSE 100 Index gained 0.37%. 

Middle East tensions weigh while oil prices remain high 

Persistently high oil prices continued to weigh on market sentiment. Hopes of diplomatic progress with Iran periodically helped equities early in the week, but repeated attacks around the Strait of Hormuz and discussion of possible further military action kept the geopolitical risk premium elevated.  

Corporate earnings season continues with sector dispersion 

Energy companies reported particularly strong results, while earnings in the financials sector were more mixed, with some banks under pressure from softer net interest income and funding-cost trends. Autos remained challenged by competition from China and profitability concerns. More broadly, investors appeared increasingly unwilling to reward merely “in-line” results, potentially making guidance and 2027 outlooks especially important.  

ECB keeps rates unchanged  

At its meeting on Thursday, the European Central Bank left its main rate at 2.65% and the deposit rate at 2.50%. The central bank noted that a rate increase had been discussed, but policymakers unanimously opted to hold and gave little firm guidance on the next move, noting tighter financial conditions.  

Q3 eurozone growth surprises on upside, but inflation remains elevated 

GDP in the eurozone was stronger than expected, expanding 0.4% quarter on quarter compared with the 0.2% growth that had been expected. Within the region, Germany's economy grew 0.2%, while Spain's GDP expanded by 0.6%. Conversely, France's GDP contracted unexpectedly by 0.1%, reflecting weaker investment and exports. Italy's GDP came in unchanged from the preceding quarter. 

Annual inflation in France accelerated to 3.4% in October—the highest level since late 2023— from 3.1% in September. Meanwhile, the annual rate of inflation in Italy rose to 5.4% over the same period, according to preliminary estimates.  

Markets react largely calmly to UK Budget 

In his first Budget as Britain’s Chancellor of the Exchequer, John Healey increased taxes, including temporarily doubling the bank corporation tax surcharge to 6%, but maintained the planned current budget surplus by 2029–30. Importantly, the Budget did not trigger the gilt-market sell-off some investors had feared; 10-year yields eased after the announcement.  

Japan

Japan’s stock markets generated mixed returns over the week, with the Nikkei 225 Index gaining 0.95% while the broader TOPIX Index fell 0.02%. Sentiment toward AI shaped the week: Renewed optimism, supported by gains in U.S. technology shares and corporate results, lifted equities through midweek, before concerns about the sustainability of AI-related capital spending prompted a sharp sell-off on Friday. Defensive and domestically oriented sectors tended to lag when AI sentiment recovered and held up better when it weakened. The Nikkei’s heavier technology weighting accounted for much of its outperformance versus the TOPIX, while magnifying its losses at the week’s close. 

The yield on the 10-year Japanese government bond rose ahead of the Bank of Japan’s (BoJ) decision at its October 29–30 monetary policy meeting, before easing to end the week little changed at 2.78%. The BoJ kept its policy rate at around 1.25% on Friday and judged underlying inflation to be at a level generally consistent with its 2% target. The central bank reiterated that it will continue to raise rates in response to economic, price, and financial developments, with Governor Kazuo Ueda stressing the need to anchor underlying inflation around that level and remain vigilant against the risk of inflation overshooting its target. The BoJ also decided to more than double the pace of its exchange-traded fund sales from January 2027, a further step in unwinding holdings accumulated under past stimulus, with analysts generally expecting limited market impact given the gradual pace. 

Yen benefits from flight to safety 

The yen fell sharply against the U.S. dollar early in the week, before recovering to around JPY 157.3 on Friday, still modestly weaker than the previous Friday’s close of around JPY 156.7. Finance Minister Satsuki Katayama reiterated on Tuesday that the government was prepared to take decisive action in currency markets, but the dollar stayed supported as the 10-year U.S. Treasury yield remained near 5% midweek and the U.S. Federal Reserve left rates unchanged on Wednesday. AI-related selling then triggered a flight to safety that lifted the yen, while the BoJ’s widely expected decision had limited lasting effect. 

The Tokyo core consumer price index, which excludes fresh food and is a leading indicator of nationwide trends, rose 2.6% year over year in October, in line with consensus expectations and slightly below 2.7% in September, with electricity and gas subsidies helping to cap price pressure. Retail sales growth slowed to 2.3% year over year in September, below the 3.3% consensus forecast, while industrial production rebounded 2.2% month over month, above expectations. 

China

Chinese equities ended the week mixed as a deepening sell-off in mainland technology shares contrasted with a Friday rebound in Hong Kong. The CSI 300 Index declined 2.92% and the Shanghai Composite Index fell 2.48%, while the Hang Seng Index rose 0.87% in local currency terms, according to FactSet. Semiconductor and other AI-related shares remained under pressure amid concerns over valuations and the returns on substantial AI investment. The decline intensified on Friday following renewed weakness in U.S. technology shares, with mainland semiconductor and AI-related stocks among the main laggards. In contrast, Hong Kong's benchmark gained 1.46% on Friday, supported by recoveries in consumer, financial, energy, property, and selected internet shares.  

Fifth Plenum reinforces Party discipline and economic priorities 

China's Communist Party concluded its Fifth Plenum on Thursday, adopting a resolution to strengthen Party governance, oversight, and anti-corruption enforcement. The meeting confirmed the expulsion of 33 officials, including former securities regulator head Yi Huiman, and appointed senior military official Zhang Shengmin to the Politburo. At a Friday briefing, officials identified the governance resolution as the meeting's central outcome. The concluding communiqué also reaffirmed efforts to expand domestic demand, make effective use of macroeconomic policies, and promote innovation-led growth under the 15th Five-Year Plan. However, no new economic stimulus measures were announced, with the meeting emphasizing existing policy priorities and their implementation.  

PBoC introduces bond-market backstop as policy banks complete funding program 

The People's Bank of China (PBoC) announced a new swap facility designed to help eligible financial institutions manage large-scale redemptions during periods of systemic bond-market stress. The mechanism is intended to limit forced bond sales and support market stability under exceptional circumstances, rather than provide routine liquidity. Separately, China's three policy banks completed the issuance of RMB 800 billion in previously approved financial instruments for 2026, compared with RMB 500 billion in 2025, to support infrastructure, AI, and other priority projects.  

Industrial profits accelerate, but sectoral disparities persist 

China's industrial profits rose 14.4% year on year in September, accelerating from 4.2% in August, according to the National Bureau of Statistics. Profits increased 15.5% over the first nine months of 2026, with earnings in computer, communications, and other electronic equipment manufacturing rising 103.8%, while automobile manufacturing profits declined 22.8%, highlighting persistent disparities across industries. 

Other key markets

Brazil 

Brazilian assets tumble as fiscal concerns intensify following election

Brazilian financial markets experienced sharp losses during the week following President Luiz Inácio Lula da Silva’s unexpected reelection in Sunday's presidential runoff, raising concerns about the country's fiscal outlook and future economic policies. Lula secured 51.8% of the vote, defeating conservative challenger Flávio Bolsonaro, whose victory investors had increasingly anticipated following his first-round lead. The result triggered an abrupt unwinding of positions accumulated in anticipation of a more fiscally conservative administration. The benchmark Ibovespa Index plunged nearly 14% on Monday, triggering a temporary trading halt, while the Brazilian real fell approximately 8% against the U.S. dollar and local interest rate swaps surged. Selling pressure continued through much of the week, although some investors viewed the sharp declines as an overreaction. 

Fiscal policy remained the dominant concern as investors assessed the administration's response to the market turmoil. Finance Minister Dario Durigan signaled plans to pursue a larger primary budget surplus next year, while the Treasury conducted BRL 31.6 billion in bond repurchases to help stabilize trading conditions. The fiscal challenge was underscored by data showing federal public debt climbed to BRL 9.38 trillion in September, driven largely by elevated interest costs. While a more fiscally conservative Congress could constrain additional spending, investors remained focused on the credibility of future fiscal measures and the administration's upcoming economic appointments. T. Rowe Price’s emerging markets debt team believes the October 26 sell-off in Brazilian fixed income was excessive relative to the change in underlying fundamentals, with bond prices falling below levels seen over the summer when a Lula victory was more fully reflected in market pricing.  

Colombia 

Colombia proposes fiscal reforms as government borrowing needs rise

Colombian financial markets remained focused on the country's deteriorating fiscal outlook and the government's efforts to restore investor confidence. President Abelardo de la Espriella's administration unveiled a sweeping fiscal reform proposal aimed at reducing public spending by approximately 15%, alongside measures to raise additional revenue and improve spending efficiency. The announcement followed a period of weakness in Colombian government bonds, which had surrendered much of their gains following de la Espriella's election amid concerns about persistent budget deficits and rising borrowing needs. The government also issued a record USD 5.2 billion in U.S. dollar-denominated bonds to help cover a funding shortfall and prefinance obligations for next year.  

The proposed fiscal adjustment includes spending cuts, a review of earmarked revenues and special funds, and targeted tax measures aimed at narrowing the budget deficit. The administration is seeking an adjustment exceeding 2% of gross domestic product next year, although its ability to secure legislative support remains uncertain given political divisions in Congress. Meanwhile, Banco de la República held its benchmark interest rate steady at 12.25%, maintaining a cautious policy stance as it balanced persistent inflation pressures against concerns about slowing economic activity. Annual inflation reached 6.29% in September, more than double the central bank's 3% target, reinforcing expectations that borrowing costs would remain elevated as policymakers balance inflation risks against slowing economic activity.