Weekly Market Recap

Overview

Financial markets experienced a week of competing pressures, with rising borrowing costs finally encountering renewed investor demand. Minutes from the Federal Reserve's September meeting indicated that most policymakers still anticipate another interest rate increase before the end of 2026. However, expectations for an October hike weakened considerably following disappointing US employment figures and softer inflation data.

Long-term Treasury yields initially climbed to their highest levels in 24 years before retreating after a successful auction of 30-year government bonds. Meanwhile, oil prices fluctuated sharply as renewed tensions around Iran disrupted shipping activity in the Gulf, followed by political signals suggesting a temporary restraint on military action.

Technology stocks also faced fresh uncertainty after reports questioned previously circulated estimates of OpenAI's revenue, putting pressure on Nvidia and the broader semiconductor sector. Consumer earnings painted a mixed picture of household demand, while Japan continued to grapple with a weakening yen and concerns over government spending.

1. Federal Reserve: Another Rate Increase Remains Possible

The minutes from the Federal Reserve's September policy meeting reinforced the central bank's commitment to controlling inflation. During that meeting, all 19 officials supported raising the benchmark interest rate to a range of 3.75% to 4.00%, marking the first increase in three years.

Most policymakers indicated that an additional increase could be justified before the end of 2026. Persistent inflation, elevated energy prices, continued consumer spending and steady economic growth were among the primary concerns supporting a more restrictive monetary policy.

Some officials even suggested that current interest rates might not be sufficiently restrictive to contain inflationary pressures.

Financial markets, however, have moved in a different direction.

Two weeks earlier, Federal Funds futures suggested approximately a 70% probability of another increase at the October meeting. That expectation subsequently dropped to around 18%, following weaker than expected personal consumption expenditure inflation and a disappointing September employment report showing just 29,000 new jobs.

Investors now generally anticipate that the Fed will leave rates unchanged in October, potentially reconsidering another increase at its final meeting of the year in December.

The coming economic releases will therefore play a significant role in determining whether policymakers maintain their tightening stance or adopt a more cautious approach.

2. US Treasury Bonds: Strong Demand Provides Relief

The US bond market remained one of the most important drivers of financial conditions throughout the week.

Long-term government borrowing costs continued climbing, with the 30-year Treasury yield reaching its highest level since 2002. The benchmark 10-year yield also briefly touched approximately 5.36%, reflecting mounting concerns about government debt, fiscal sustainability and persistent inflation.

A major test arrived on Thursday when the US Treasury auctioned $22 billion worth of 30-year bonds.

Despite concerns surrounding the growing federal debt burden, investor demand proved stronger than anticipated.

The bonds were sold at a yield of 5.618%, without requiring a significant additional concession to attract buyers. The bid-to-cover ratio reached 2.54, exceeding the recent average of 2.41.

Institutional and international investors accounted for approximately 72% of the allocation, compared with an expected average of 69%. Primary dealers were consequently left holding a relatively small share of the offering.

These figures suggested that elevated yields had finally become attractive enough to encourage meaningful buying interest.

Following the auction, the 30-year Treasury yield declined toward 5.60%, while the 10-year yield retreated to approximately 5.23%.

Although a single successful auction does not establish a lasting reversal in the bond market, it demonstrated that investors remain willing to finance US government borrowing when yields offer sufficiently attractive returns.

The broader question is whether this demand can persist if inflation remains elevated and government borrowing requirements continue expanding.

3. Oil and Iran: Geopolitical Risk Drives Another Volatile Week

Crude oil experienced another turbulent trading week as geopolitical developments repeatedly shifted market expectations.

Prices initially softened after OPEC+ decided to maintain its November production levels and G7 countries agreed to release 100 million barrels from emergency reserves. These developments helped push US crude prices toward $89 per barrel.

However, the relief proved temporary.

Iran reiterated that the Strait of Hormuz would remain closed until its demands were satisfied. Fresh attacks on tankers transporting Gulf crude subsequently intensified concerns about regional supply disruptions.

Brent crude surged approximately 4% on Thursday, reaching around $104 per barrel, its highest level in six weeks.

The situation changed again when President Donald Trump indicated that the United States would not launch military strikes against Iran before the November 3 midterm elections. He also described ongoing negotiations as productive, although the naval blockade remained in place.

Following those comments, oil prices moderated. By Friday, Brent traded near $103 per barrel, while West Texas Intermediate hovered around $91.

Despite the pullback, Brent remained positioned for a modest weekly advance.

Energy markets are increasingly responding not only to supply conditions and military developments, but also to the political timetable in Washington.

Any renewed disruption to Gulf shipping could quickly restore upward pressure on crude prices, potentially complicating the Federal Reserve's efforts to contain inflation.

4. Artificial Intelligence: OpenAI Revenue Reports Pressure Nvidia

Artificial intelligence stocks faced a significant test of investor confidence after several weeks of strong performance.

Earlier in the week, enthusiasm surrounding AI infrastructure spending helped propel the Nasdaq to record highs and pushed Nvidia shares to an all-time high.

That momentum weakened on Thursday when new reporting suggested that OpenAI's annualised revenue at the end of September stood near $50 billion, substantially below the approximately $68 billion estimate that had previously circulated.

The discrepancy raised questions about the pace of commercial growth across the artificial intelligence industry.

OpenAI represents an important source of demand for advanced computing infrastructure, including Nvidia's high-performance processors. Consequently, uncertainty surrounding its revenue trajectory quickly affected companies throughout the AI supply chain.

Nvidia shares declined approximately 2.9% to around $230, while semiconductor stocks fell by as much as 4% during intraday trading.

The Nasdaq dropped 1.25%, contributing to an estimated $500 billion reduction in market capitalisation.

Sentiment improved somewhat on Friday after additional reporting indicated that OpenAI continued to target at least $70 billion in annualised revenue by the end of 2026, supported by growing enterprise demand.

The episode highlighted an increasingly important vulnerability in the technology market.

AI valuations depend heavily on expectations of substantial future revenue growth, leaving investors particularly sensitive to any indication that commercial adoption or spending may fall short of projections.

While enthusiasm for artificial intelligence remains strong, the market is becoming less tolerant of uncertainty surrounding the financial performance of its leading companies.

5. Corporate Earnings: Consumer Spending Remains Resilient but Selective

The opening round of consumer-focused corporate earnings revealed an economy in which households continue spending, although purchasing behaviour is becoming more cautious.

PepsiCo delivered stronger than expected quarterly results, with revenue increasing 5.6% to $25.3 billion, exceeding forecasts for approximately 4% growth.

International operations provided much of the momentum, helping lift the company's shares by nearly 4%.

However, underlying conditions were less encouraging in North America. Snack and beverage sales volumes remained subdued, prompting PepsiCo to reduce its full-year profit growth outlook.

Constellation Brands, the company behind Corona and Modelo, also exceeded earnings expectations. Nevertheless, beer sales to retailers declined, reflecting continued financial pressure among parts of its customer base, including Hispanic consumers.

Levi Strauss presented another mixed result.

The clothing manufacturer increased its profit outlook, but its shares fell approximately 5% after investors identified a one-time tariff refund as an important contributor to the earnings beat. Weak US sales added to concerns about underlying demand.

Delta Air Lines was also scheduled to report on Friday, with investors particularly focused on how fluctuating fuel costs could affect profitability.

Taken together, these earnings suggest that consumer demand has not collapsed, but companies are increasingly dependent on pricing strategies, international expansion and cost management to sustain growth.

For investors, the distinction between stronger reported earnings and genuinely improving operating performance remains essential.

6. Japan: A Weak Yen Complicates Fiscal and Monetary Policy

Japan remained under pressure as the yen traded near 158 against the US dollar, approaching levels that previously prompted coordinated intervention by Japanese and American authorities.

The currency's weakness reflects competing pressures from government fiscal ambitions and monetary policy expectations.

Prime Minister Sanae Takaichi's administration has proposed reducing the consumption tax on food from 8% to 1% for two years, alongside direct cash payments intended to support household purchasing power.

The government has pledged to finance these measures without additional borrowing, but investors remain concerned about the sustainability of a more expansionary fiscal approach.

Japanese government bond yields reflected those concerns during the week.

The country's benchmark 10-year yield reached approximately 3.1%, matching its highest level since 1996.

Takaichi acknowledged the pressure in bond markets, suggesting that spending plans could be reconsidered if borrowing costs increased too sharply.

Meanwhile, the Bank of Japan continued signalling a gradual normalisation of monetary policy after raising its benchmark interest rate to 1.25% in September.

Governor Kazuo Ueda indicated that further increases remain possible, although markets assigned only around a 25% probability to another 25-basis-point hike at the upcoming October meeting.

Despite currency weakness and elevated bond yields, Japanese equities remained close to record highs.

This divergence illustrates the complicated position facing Japan's policymakers, who must balance economic support, financial stability, inflation risks and the impact of a depreciating currency.

For global investors, developments in Japan remain particularly relevant because changes in Japanese interest rates and currency expectations can influence international capital flows and demand for overseas assets.