Treasuries rallied across the curve last week as investors rotated towards more defensive assets amid a sharp sell-off in technology stocks and renewed geopolitical uncertainty. The closely watched 10-year US Treasury yield fell back below the 5.0% threshold for the first time in a month (bond yields move inversely to prices), while both shorter and longer dated securities also benefited from stronger demand. A key driver was a growing reassessment of the scale and sustainability of artificial intelligence (AI) investment plans, which have been a dominant force behind market returns over recent years.
One catalyst came from the latest results from Meta Platforms. While the company's earnings were broadly strong, its plans to issue additional equity to help fund the continued build-out of AI infrastructure sparked concerns that other companies across the AI value chain may eventually need to follow a similar path¹. Given the enormous capital requirements associated with data centres, semiconductors and associated power infrastructure, investors became increasingly cautious about the long-term funding demands of the sector. At the same time, geopolitical tensions also returned to the forefront, with growing speculation that the US and Israel may consider renewed military action against Iran, alongside continued attacks on oil-carrying vessels transiting the Strait of Hormuz. That prompted another leg up in the oil price with Brent Crude spiking by +6.1% to finish the week at $117 a barrel. Against this backdrop, risk appetite weakened and most major equity markets ended the week in negative territory.
The S&P500 and Nasdaq declined by -0.5% and -0.7% respectively (in dollars). Beneath the headline numbers, there was a clear shift in market leadership, with small-cap and value-oriented companies outperforming their larger growth counterparts as investors continued to reassess both the outlook for AI-related spending and the path of future interest rates. European equities also came under pressure. The MSCI Europe ex UK Index declined -1.3% (in euro terms), with sentiment weighed down by domestic political tensions and episodes of civil unrest, particularly in France but also in parts of Italy. In the UK, the FTSE 100 retreated -1.8% as stronger inflation data fuelled expectations that the Bank of England may be forced to raise interest rates at its next policy meeting. Across Asia, the Nikkei 225 fell -4.0% (in yen terms), with much of the selling pressure concentrated in AI and semiconductor-related companies that had previously led the market higher. Meanwhile, the Shanghai Composite declined -0.7% (in renminbi terms), as weakness across technology shares weighed on both mainland Chinese and Hong Kong-listed markets.
¹ Meta Platforms – Third Quarter 2026 Results, 21/10/2026
Macro Data
| Country | Indicator | Period | Actual | Forecast | Previous |
|---|---|---|---|---|---|
| UK | Average Wages YoY | August | 3.70% | 3.60% | 3.50% |
| Consumer Price Index Inflation YoY | September | 3.50% | 3.40% | 3.10% | |
| Flash Composite Purchasing Manager Index | October | 53.10 | 51.80 | 52.00 | |
| Producer Price Index Inflation YoY | September | 4.60% | 4.30% | 3.70% | |
| Retail Sales YoY | September | 0.80% | 1.00% | 2.40% | |
| Unemployment Rate | August | 4.70% | 5.00% | 4.90% | |
| US | Building Permits Annually Adjusted Units | September | 1.400m | 1.388m | 1.403m |
| Flash Composite Purchasing Manager Index | October | 57.60 | - | 58.40 | |
| Housing Starts Annually Adjusted Units | September | 1.221m | 1.301m | 1.275m | |
| Pending Home Sales MoM | September | -7.30% | -0.50% | 0.30% | |
| Europe | Flash Composite Purchasing Manager Index | October | 51.90 | 52.70 | 53.10 |
| Japan | Flash Composite Purchasing Manager Index | October | 52.30 | - | 52.30 |
| Nationwide Core Consumer Price Index Inflation YoY | September | 2.10% | 2.10% | 1.70% | |
| China | GDP QoQ | Q3'26 | 1.20% | 1.10% | 0.90% |
| Industrial Production YoY | September | 5.50% | 5.50% | 5.20% | |
| Retail Sales YoY | September | 1.10% | 0.60% | 0.40% | |
| Urban Unemployment Rate | September | 5.20% | - | 5.30% | |
| Source: Refinitiv Workspace | |||||