Global Markets Weekly Update

U.S.

Stocks snap three-week winning streak amid tech sell-off

U.S. equity indexes finished the week lower, as concerns regarding elevated valuations and increased scrutiny around artificial intelligence (AI) spending weighed on many of the growth-oriented stocks that have driven indexes’ rapid rise since early April. The technology-heavy Nasdaq Composite led major indexes lower, while the Russell 1000 Growth Index underperformed its value counterpart by 288 basis points (2.88 percentage points), the widest margin since February.

The U.S. federal government shutdown reached the longest on record during the week, which also appeared to weigh on broader sentiment. While headlines over the past few weeks have seemingly done little to impact investor sentiment, coverage around the effects of the shutdown seemed to pick up during the week, highlighted by news that the Federal Aviation Administration would be ordering airlines to reduce flight traffic amid air traffic controller staffing concerns. Worries about the continuing lack of government data and the potential impact of the shutdown on gross domestic product growth also rose. 

October layoffs highest in over 20 years

With the ongoing shutdown continuing to limit government data releases, investors focused on several reports from alternative private-sector sources during the week, including ADP’s October employment report. On Wednesday, the private payroll processing firm reported that private employers added 42,000 jobs during the month, rebounding after two consecutive months of declines. However, the report also noted that hiring was not broad-based as employers in the professional business services, information, and leisure and hospitality industries shed jobs for the third month in a row, while pay growth was unchanged.

Meanwhile, a report released Thursday from consulting firm Challenger, Gray & Christmas indicated that employers have cut nearly 1.1 million jobs this year through October, a 65% increase over the same period last year and a 44% jump from the number of job cuts in the entirety of 2024. October’s 153,074 job cuts were the most for the month since 2003.

Services activity returns to growth; manufacturing shrinks for eighth month in a row

The Institute for Supply Management (ISM) reported that economic activity in the services sector returned to expansion territory in October, with the ISM Services Purchasing Managers’ Index (PMI) registering a reading of 52.4% versus 50.0% in September (readings above 50 indicate expansion). New orders in the sector rose to the highest level since October 2024 with an index reading of 56.2%. Eleven industries in the sector reported growth during the month, an increase from 10 in September.

On the other hand, manufacturing activity contracted for the eighth consecutive month in October, with ISM’s Manufacturing PMI declining to 48.7% from September’s reading of 49.1%. Contractions in production and inventories led the month-over-month decline.

Consumer sentiment falls to lowest level since 2022

The University of Michigan reported a preliminary reading of its November Index of Consumer Sentiment on Friday morning. The index reading dropped 3.3 points month over month to 50.3, the lowest since the index’s record low in June 2022, “led by a 17% drop in current personal finances and a 11% decline in year-ahead expected business conditions,” according to the report. Federal government shutdown worries were cited as a primary reason for the decline. Expectations for inflation over the next year rose to 4.7% from 4.6% in October.

High yield bonds underperform Treasuries amid equity market declines

U.S. Treasuries generated positive returns, with short- and intermediate-term yields generally decreasing and long-term yields increasing. (Bond prices and yields move in opposite directions.) Municipal bonds also posted positive returns for the week, performing in line with Treasuries despite a heavy new issue calendar. T. Rowe Price traders noted that the market was supported by beginning-of-month cash and firm secondary market trading.

Meanwhile, equity market weakness and broader risk-off sentiment weighed on the performance of high yield bonds, according to our traders.

Europe

In local currency terms, the pan-European STOXX Europe 600 Index ended 1.24% lower. Concerns about overvaluation in artificial intelligence-related stocks weighed on sentiment. Major stock indexes pulled back. Italy’s FTSE MIB slipped 0.60%, Germany’s DAX fell 1.62%, France’s CAC 40 Index lost 2.10%, and the UK’s FTSE 100 Index declined 0.36%.

BoE on hold, leaves door open for lower rates

The Bank of England (BoE) held its key policy rate at 4.0%. The Monetary Policy Committee voted five to four in favor of the decision. Comments from Governor Andrew Bailey reinforced market expectations for an interest rate cut in December. In a text explaining his decision, he wrote that current market pricing, which implies a terminal rate of around 3.5% in three years’ time, was “a fair description of my position at present,” adding that it gave “a reasonable view of a sensible path.”

Swedish and Norwegian central banks stand pat, as expected

Sweden’s central bank, the Riksbank, kept its policy interest rate at 1.75%. Governor Erik Thedeen said policymakers are expecting it “to remain at this level for some time to come.” In Norway, Norges Bank held the key rate at 4.0%, citing an inflation rate that remains too high. Governor Ida Wolden Bache told Reuters: “It will take some time before it is appropriate to lower the rate.” 

Eurozone retail sales continue to shrink

Retail sales in the euro area fell 0.1% sequentially in September, marking a third consecutive month of contraction and missing a consensus forecast for a 0.3% gain in a FactSet poll of analysts. Year over year, growth in retail trade slowed to 1.0% from 1.6% in August.

German industry picks up but still “weak”

The German economy ministry said “the trend in the manufacturing sector remains weak” after the release of September’s industrial data. Industrial output grew 1.3% over the previous month but came in below a 3% consensus estimate in a FactSet survey of analysts. Industrial orders rose by 1.1% from the prior month on a seasonal and calendar-adjusted basis. Third-quarter orders declined 3.0% relative to the preceding three months.

Japan

Japan’s stock markets declined over the week, with the Nikkei 225 Index falling 4.07% and the broader TOPIX Index down 0.99%. Both indexes had reached record highs in late October. With the shares of AI-related technology and heavyweight chip companies having driven most of the recent gains, some investors questioned the sustainability of the rally and sought to lock in profits.

Broader concerns about stretched AI valuations weighed on risk appetite and boosted demand for assets perceived as safer—the yen strengthened to the middle of the JPY 153 range against the U.S. dollar from the prior week’s JPY 154. The Japanese currency was also supported by Finance Minister Satsuki Katayama reiterating that the government continues to monitor the foreign exchange markets with a high level of urgency, given one-sided and rapid currency movements.

The yield on the 10-year Japanese government bond rose to 1.68% from 1.65% at the end of the previous week, largely on expectations that the Bank of Japan (BoJ) remains on track to tighten monetary policy further. The BoJ has emphasized its focus on the outlook for wages as a key factor in deciding when to next raise interest rates. Japan’s nominal wages grew 1.9% year over year in September, in line with consensus and up from a 1.5% increase in August. However, real wages fell for the ninth consecutive month in September, down 1.4% year over year compared with a 1.7% decline in August, as inflation continued to outpace wage growth.

New Prime Minister Sanae Takaichi emphasized that Japan has still not achieved sustainable and stable price growth backed by solid wage gains. She said that her government will deploy fiscal spending to boost household incomes, consumer sentiment, and the economy. A draft of an economic stimulus package is expected this month.

China

Mainland Chinese stock markets edged higher for the week as easing U.S.-China trade tensions boosted risk appetite. The CSI 300 Index added 0.82% and the Shanghai Composite Index rose 1.08%, according to FactSet. In Hong Kong, the benchmark Hang Seng Index advanced 1.29%. The latest weekly gain took the CSI 300 Index, the main onshore benchmark, to its highest level in nearly four years despite concerns about China’s growth outlook.

Sentiment improved after the U.S. and China reached a one-year truce in their trade fight after the presidents of both countries met the prior week at the Asia-Pacific Economic Cooperation (APEC) summit in South Korea. Beyond the upbeat tone of the landmark meeting, however, the summit appeared to offer few specifics, noted T. Rowe Price Associates’ investment analysts. Rather, the key takeaway for investors is a pronounced sense of pragmatism that prevailed at the APEC meeting in which countries are adapting to an evolving world, trading where they can, and hedging where they must, T. Rowe Price analysts added. Longer term, prolonged strategic competition remains the underlying dynamic between the U.S. and China, which could play out in areas beyond trade.

Other key markets

Poland  

Lower inflation, improved inflation outlook prompt policymakers to reduce rates again

On Tuesday and Wednesday, Poland’s central bank held its scheduled monetary policy meeting, and, as was generally expected, policymakers decided to reduce the key interest rate, the reference rate, by 25 basis points (0.25%) from 4.50% to 4.25%. This was the central bank’s fifth rate cut in 2025.

According to the post-meeting statement, policymakers consider incoming economic data to be a sign of “ongoing favourable economic conditions.” They specifically cited September data featuring “a rise in retail sales, industrial output and construction and assembly production,” though they also noted that the enterprise sector is showing “a gradual slowdown in the wage growth, amidst a further fall in employment in annual terms.”

Regarding inflation, central bank officials noted that annual consumer price index inflation in October was 2.8% versus 2.9% in September, “largely due to lower annual growth of food prices.” Policymakers also estimated that “inflation net of food and energy prices also decreased, amidst still elevated services price growth.” Given the decrease in inflation and an improved inflation outlook “for the coming quarters,” policymakers felt that they would be “justified to adjust the level” of interest rates at this time.

Mexico 

Policymakers “continue the rate-cutting cycle” amid lower inflation expectations

On Thursday, the Mexican central bank held its scheduled policy meeting, and policymakers decided to reduce the key interest rate, the overnight interbank interest rate, by 25 basis points (0.25%) from 7.50% to 7.25%. The decision was not unanimous: Four meeting participants voted in favor of a rate cut, while one voted to leave rates unchanged.

According to the post-meeting statement, central bank officials noted that Mexico’s third-quarter economic activity “contracted with respect to the second quarter” and that the “environment of uncertainty and trade tensions continues posing significant downward risks.” Regarding inflation, policymakers acknowledged a marginal decrease in headline and core inflation between “the first fortnight of September and the first fortnight of October.” They also noted that headline inflation expectations for late 2025 were revised downward and that headline inflation itself is still expected to converge to the central bank’s target in the third quarter of next year.

Ultimately, policymakers decided that it would be “appropriate to continue the rate-cutting cycle” after taking into consideration “the behavior of the exchange rate, the weakness of economic activity, and the possible impact of changes in trade policies worldwide” as well as “the level of monetary restriction” that had already been implemented. As for possible future rate cuts, policymakers did not rule that out, noting that they will “evaluate reducing the reference rate” by taking into account “all determinants of inflation.”