Weekly Market Recap

Equity markets

Last week, the MSCI All Country World Index (MSCI ACWI) rose 0.7% (14.7% YTD).

The S&P 500 Index finished the week up 1.2% (15.1% YTD) amid volatility in artificial intelligence (AI)-related stocks, Middle East developments and sharp moves in energy prices and Treasury yields. At the sector level, consumer staples, utilities, and energy led performance, while industrials and information technology stocks declined.

Large-cap growth stocks underperformed their value counterparts, while small caps finished behind large caps. The Russell 1000 Growth Index returned 0.7% (8.6% YTD), the Russell Value Index 1.7% (22.0% YTD), and the Russell 2000 Index of small companies -0.9% (14.3% YTD). The technology-heavy Nasdaq Composite gained 0.6% (18.3% YTD).

In Europe, the MSCI Europe ex-UK Index gave back -0.3% (8.3% YTD). European equities were volatile as renewed Middle East tensions, a more hawkish ECB backdrop, and mixed eurozone industrial data shaped investor sentiment over the week. Among major stock indexes, Germany’s DAX Index declined -0.6% (2.4% YTD), France’s CAC 40 Index lost -1.2% (-1.4% YTD), and Italy’s FTSE MIB Index decreased by -1.5% (14.2% YTD). Switzerland’s SMI put on 0.9% (7.1% YTD). The euro weakened against the US dollar, closing the week at USD 1.12 per EUR, down from 1.13.

The FTSE 100 Index in the UK rose 0.9% (9.0% YTD), while the FTSE 250 Index of smaller companies edged up 0.1% (10.6% YTD). The British pound was little changed against the US dollar for the week, closing at USD 1.32 per GBP.

Japan’s stock markets gained over the week. The TOPIX Index added 0.3% (22.9% YTD), and the TOPIX Small Index advanced 0.3% (22.4% YTD). Equities rallied strongly early in the period, led by AI- and semiconductor-related shares, as recent weaker-than-expected US employment data reduced expectations for a near-term Federal Reserve rate hike and lifted global technology stocks. Those gains partially reversed later in the week as investors reassessed AI-related valuations and growth expectations. Concerns over Japan’s fiscal outlook, persistently high bond yields, yen weakness, and rising oil prices amid renewed Middle East tensions also weighed on sentiment. The yen weakened modestly over the week to around JPY 158 against the US dollar from the high end of the JPY 157 range.

In Australia, the ASX 200 Index added 0.4% (3.8% YTD) as falling oil prices eased inflation concerns. Australian government bond yields remained stable over the week. The Australian dollar strengthened 0.3% against the US dollar as risk appetite improved.

In Canada, the S&P/TSX Composite finished the week up 0.5% (14.5% YTD).

Emerging markets and other markets

The MSCI Emerging Markets Index ended the week broadly flat (23.9% YTD). Taiwan, India and Brazil contributed positively, while China and South Korea contributed negatively.

Chinese equities diverged during a holiday-shortened trading week, with mainland shares declining while Hong Kong recovered to finish higher. The CSI 300 Index, the main onshore benchmark, was down -0.9% (-5.0% YTD), while the Shanghai Composite Index declined -0.7% (-2.1% YTD). Hong Kong's benchmark Hang Seng Index gained 1.1% (-2.9% YTD). The MSCI China Index, which primarily comprises offshore-listed stocks, put on 1.2% (-11.5% YTD).

Mainland exchanges reopened on Thursday after being closed from 1 to 7 October for the National Day Golden Week holiday, with technology shares leading losses amid elevated global bond yields, higher oil prices, and renewed concerns over potential US restrictions on Chinese optical communications products. In Hong Kong, energy shares benefited from higher oil prices earlier in the week, while a sharp rebound in internet and technology stocks on Friday, alongside easing oil prices, helped lift the Hang Seng into positive territory.

Mainland technology stocks were among the week's main laggards, particularly semiconductors, AI hardware, and optical communications companies. On Thursday, the technology-heavy STAR 50 Index plunged 4.8% as rising global yields and oil prices pressured growth stocks, while speculation about possible US restrictions on advanced Chinese optical transceivers added to selling pressure. Losses extended into Friday morning before mainland benchmarks rebounded in the afternoon, led by media and entertainment, with broad market exchange-traded fund volumes rising sharply. 

In Brazil, financial markets rallied sharply this week after Senator Flávio Bolsonaro delivered a stronger-than-expected showing in Sunday's first-round election. Bolsonaro secured approximately 47% of the vote, ahead of incumbent President Luiz Inácio Lula da Silva's 45%, setting up a closely watched runoff on 25 October. The result surprised investors, who had anticipated a Lula lead, and raised expectations for a shift toward more fiscally conservative policies. Brazilian equities surged, with the benchmark Ibovespa index reaching a record high on Monday, while the Brazilian real strengthened and government bond yields declined. Foreign investors also increased their exposure to Brazilian stocks, reflecting optimism that a change in leadership could support efforts to contain government spending, improve public finances, and create room for lower interest rates. The rally also spilled into the region, with Argentine sovereign bonds rising on the Brazil result.

However, uncertainty remains over the election outcome and the next administration’s ability to deliver meaningful fiscal reforms. Although Bolsonaro has pledged to restrain spending and cut taxes, he has not yet outlined a detailed economic plan. Meanwhile, September inflation accelerated to 4.58% year over year, exceeding the central bank’s 4.5% target ceiling, partly due to higher electricity costs. The stronger inflation reading could complicate the outlook for further interest rate cuts, even as investors anticipate a more favourable fiscal environment. While markets initially welcomed the election results, sentiment is likely to remain sensitive to developments ahead of the runoff, with the credibility of future fiscal policies and the direction of inflation important factors for Brazilian assets.

In India, markets navigated a volatile week as the Reserve Bank of India (RBI) shifted toward tighter monetary policy in response to broadening inflation pressures and persistent currency weakness. The RBI unanimously raised its benchmark repo rate by 25bps to 5.50%, its first increase in nearly four years, and changed its policy stance from neutral to “calibrated tightening.” The central bank also raised its inflation forecast for the fiscal year ending March 2027 to 5.2% and upgraded its growth forecast to 7.1%. Policymakers said additional tightening remained possible, reflecting higher energy costs, rising food prices after a weak monsoon season, and the inflationary effects of a weaker rupee.

The rate increase provided limited support to the rupee, which remained near its record low as elevated oil prices, foreign equity outflows, and demand for dollars from importers continued to weigh on the currency. RBI intervention helped contain the decline, although foreign exchange reserves have fallen substantially from September’s peak. The central bank subsequently announced additional measures to withdraw liquidity from the banking system, including government bond sales, reinforcing its shift toward tighter financial conditions. Indian equities were volatile but recovered later in the week, while government bond yields rose as investors adjusted to the prospect that the RBI’s tightening cycle could extend into upcoming meetings.

Fixed income markets

Last week, the Bloomberg Global Aggregate Index (hedged to USD) returned 0.3% (-1.1% YTD), the Bloomberg Global High Yield Index (hedged to USD) 0.4% (0.8% YTD), and the Bloomberg Emerging Markets Hard Currency Aggregate Index 0.5% (-1.8% YTD).

US Treasuries were volatile during the week as investors weighed geopolitical developments, persistent inflation concerns, and the prospect of further monetary tightening by the Fed. Yields on the 10-year and 30-year US Treasuries rose to their highest levels since 2002 before retreating after stronger-than-expected auctions, while President Trump’s promise not to attack Iran ahead of November’s midterm elections also appeared supportive. Over the week, the 10-year Treasury yield decreased by -3bps to 5.24% from 5.27% (up 107bps YTD). The 2-year Treasury yield decreased by -4bps, ending the week at 4.79% from 4.83% (up 131bps YTD).

Meanwhile, US investment-grade corporate bonds outperformed Treasuries for most of the week, and new issues were generally oversubscribed. The high yield bond market was volatile amid renewed inflation concerns, rising oil prices, and higher Treasury yields.

Over the week, the 10-year German Bund yield rose by 2bp, ending at 3.48% from 3.46% (up 63bps YTD). The 10-year UK gilt yield rose by 7bps, ending the week at 5.44% from 5.37 (up 97bps YTD).