Most major equity indices lost ground last week as the relentless rise in government bond yields weighed heavily on investor sentiment. In the US, the 30-year Treasury yield climbed to its highest level since 2002, while shorter term government borrowing costs across the UK, France and Germany recorded their largest monthly increases since the outbreak of the Iran conflict during September. Investors continue to grapple with several competing forces, including higher energy prices, substantial financing requirements associated with the ongoing build-out of artificial intelligence (AI) infrastructure and growing concerns around fiscal sustainability as government debt burdens continue to rise across many developed economies. The backdrop was further complicated by a weaker-than-expected US employment report, which added to uncertainty around the economic outlook. While AI-related companies continued to attract investor interest and generally outperformed, weakness was more widespread elsewhere. Sectors such as healthcare, consumer discretionary, consumer staples and, notably, financials came under significant pressure as higher bond yields weighed on valuations and growth expectations. The S&P 500 ultimately declined -0.3% over the week (in dollar terms), although the headline figure masked a growing divergence beneath the surface, with AI beneficiaries continuing to outperform while much of the broader market struggled to keep pace. Elsewhere, European equities also struggled, with the MSCI Europe ex UK Index declining -1.1% (in euro terms) as investors continued to grapple with the implications of higher bond yields. It was a notably volatile week across the region, with French and Italian markets among the weakest performers, while German equities proved somewhat more resilient. The FTSE 100 also moved sharply lower, falling -2.2%, although the more domestically focused FTSE 250 fared better, helped in part by a stronger pound. Performance across Asia was more mixed. The Shanghai Composite declined -1.2% (in renminbi terms), with domestic semiconductor stocks coming under pressure amid concerns that policymakers could relax restrictions on the purchase of NVIDIA chips, potentially increasing competition for local producers. By contrast, Japanese equities performed strongly. The Nikkei 225 advanced +2.9% (in yen terms), with technology and AI-related companies once again leading the market higher. Briefly in commodity markets, prices eased from their recent highs. Brent crude declined -1.9% over the week to finish at around $102 per barrel, with improving volumes of shipping traffic through the Strait of Hormuz helping to alleviate some of the supply concerns that had driven oil higher in recent weeks. However, the situation remains fragile, with sharply higher insurance costs for vessels operating in the region continuing to act as an important source of upward pressure on energy markets. Gold also lost ground, falling -3.2% to $4,145 per ounce. The precious metal came under pressure as government bond yields continued to move higher, reducing the appeal of non-income-generating assets.
Macro Data
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| Country | Economic Indicator | Period | Actual | Forecast | Previous |
|---|---|---|---|---|---|
| UK | Bank of England Money & Credit Report | August | – | – | – |
| Nationwide House Price Index YoY | September | 0.80% | 1.30% | 1.60% | |
| Revised GDP QoQ | Q2'26 | 0.50% | 0.40% | 0.40% | |
| US | Average Wages YoY | September | 3.00% | 3.20% | 3.10% |
| Non-Farm Payrolls | September | 29K | 84K | 162K | |
| Revised GDP QoQ | Q2'26 | 2.20% | 1.50% | 1.50% | |
| Unemployment Rate | September | 4.20% | 4.10% | 4.10% | |
| Europe | Flash Consumer Price Index Inflation YoY | September | 3.80% | 3.60% | 3.20% |
| Unemployment Rate | August | 6.40% | 6.40% | 6.40% | |
| Japan | Retail Sales YoY | August | 2.70% | 3.30% | 4.00% |
| Unemployment Rate | August | 2.50% | 2.40% | 2.40% | |
| China | Official Composite Manufacturing Purchasing Manager Index | September | 50.70 | – | 49.50 |
| RatingDog Manufacturing Purchasing Manager Index | September | 52.10 | 51.60 | 51.50 | |
| RatingDog Services Purchasing Manager Index | September | 51.60 | – | 51.40 | |
| Source: Refinitiv Workspace | |||||