Global equity markets regained some momentum in the week ending 11 October, with major US indices advancing despite renewed geopolitical tensions, elevated bond yields and uncertainty over the Federal Reserve’s next move.
Oil price volatility remained a central concern as fresh Middle East tensions unsettled energy markets, while Fed minutes reinforced expectations of further monetary tightening. European markets delivered mixed returns, Asian equities showed selective strength, and attention shifted towards the upcoming US inflation report and the opening of third-quarter earnings season.
Key Insights
- US equities recovered, with the S&P 500, Dow and Nasdaq each gaining around 1%, while the Russell 2000 declined for a fifth consecutive week, bringing its cumulative loss to 5.7% as higher borrowing costs weighed on smaller companies.
- Oil prices remained volatile amid renewed Middle East tensions, with Brent briefly exceeding $105 following tanker attacks in the Strait of Hormuz before retreating, while weakening consumer confidence and rising inflation expectations highlighted ongoing economic pressures.
- The Fed signalled at least one further rate increase before year end but kept timing flexible, while US Treasury yields eased from multi-decade highs, with the 10-year closing at 5.24% and the 30-year at 5.60%.
- Global equity performance was mixed, with the FTSE 100 gaining 0.86% and Japan’s Nikkei rising 1.06%, while weaker European economic data, persistent inflation concerns and further monetary tightening in India weighed on sentiment.
- Attention now turns to US CPI ahead of the Fed’s 28 October meeting and third-quarter earnings season, with S&P 500 earnings growth forecast at 29.6%, while China’s upcoming GDP release and policy meetings will provide further insight into the global economic outlook.
US Equities Recover Despite Persistent Small-Cap Weakness
Equity markets recovered their footing in the week ending 11 October, with the S&P 500, Dow and Nasdaq each gaining close to 1%, after a strong start to the week briefly pushed both the S&P 500 and Nasdaq to fresh record highs on Tuesday.
Neither index managed to extend those gains as the week wore on, but the ability to hold the majority of early-week advances in the face of renewed Middle East volatility and persistently elevated bond yields was itself a reasonably reassuring signal.
Small-caps were a notable exception, with the Russell 2000 declining for a fifth consecutive week and now down a cumulative 5.7% over that period, a reflection of the particular sensitivity of smaller, more leveraged companies to the prospect of further interest rate rises.
Middle East Tensions Drive Further Oil Price Volatility
The Middle East was once again the most significant variable. Oil prices swung sharply throughout the week, rallying hard on Thursday after reports of fresh attacks on tankers in the Strait of Hormuz pushed Brent crude briefly above $105 per barrel, before retreating after President Trump stated he would not authorise military strikes against Iran ahead of November’s midterm elections.
The promise of political restraint cooled some of the immediate anxiety, though further attacks were reported on Friday, leaving energy markets on edge.
Oil’s relative stabilisation compared with the dramatic swings of September and early October is itself meaningful: crude is trading around $91.50 per barrel, down considerably from September’s $105 and April’s $115 peak, and the absence of a sustained new spike is providing at least some relief on the inflation front.
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Fed Maintains Tightening Bias as Markets Await Inflation Data
The Fed minutes from September’s meeting, released on Wednesday, confirmed that most policymakers expect at least one further rate increase before year end, though they were deliberately non-committal on timing, stating only that future decisions would depend on incoming data.
Fed Governor Christopher Waller reinforced this line on Thursday, acknowledging that further hikes are expected but that the precise timing remains flexible.
For markets, the message was neither hawkish enough to force an immediate repricing nor dovish enough to dismiss the risk of an October move entirely. The probability of a hike at the 28 October meeting remains live, and Wednesday’s September CPI report will be the most important single data point the committee sees before that decision.
Treasury Yields Retreat from Multi-Decade Highs
US Treasury yields retreated modestly from their extraordinary recent highs. The 10-year note closed the week at 5.24% and the 30-year at 5.60%, both pulling back from levels last seen in 2002 after a series of stronger-than-expected Treasury auctions demonstrated continuing institutional demand for US government paper even at these yields.
Shorter-dated maturities fell more sharply, with the 2-year closing at 4.79%, as the softer jobs data from the previous week continued to ripple through rate expectations.
Global Markets Diverge as Central Banks Confront Inflation
In Europe, the STOXX 600 ended broadly flat, with the UK’s FTSE 100 the strongest of the major markets, gaining 0.86% on the week.
France’s CAC 40 fell 1.19% and Germany’s DAX lost 0.57%, weighed down by a sharp drop in German factory orders and declining French industrial production.
ECB minutes from the September meeting confirmed the rate increase there was also unanimous, with policymakers noting that inflation would remain well above target for an extended period and that the full inflationary impact of the energy shock had yet to materialise.
In Japan, the Nikkei gained 1.06%, with AI and semiconductor stocks providing early-week momentum before giving back some ground on valuation concerns and yen weakness. Japan’s prime minister sought to reassure investors over the fiscal outlook, pledging to control bond issuance, as the 10-year Japanese government bond yield eased slightly to 3.01% from 3.09%.
India’s Reserve Bank raised its benchmark rate for the first time in nearly four years, shifting its policy stance to calibrated tightening as energy-driven inflation and rupee weakness compelled action.
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