What to watch in the week ahead

• The S&P 500 gained 1.2% over the week, while the 10-year Treasury yield retreated only slightly from a 24-year peak. September inflation data will test the outlook for Fed policy and yields, while bank earnings will provide a read on consumers, credit conditions, and capital markets activity. We believe robust profit growth can help equities absorb moderately higher rates.
• French and Italian government bonds remained under pressure amid concerns over fiscal policy, energy costs, and tighter financial conditions. France’s budget debate and discussions among policymakers at the IMF and World Bank Annual Meetings will keep public finances in focus. We remain Attractive on Eurozone equities and see selective opportunities in quality European bonds.
• Improving Middle Eastern crude exports and emergency reserve releases offered some relief for energy markets. But Brent ended the week at around USD 105 a barrel. Investors will assess whether flows can normalize as renewed attacks underline the risk of wider disruption. We recently raised our year-end Brent forecast to USD 100 a barrel and favor broad commodity exposure.

Will inflation and bank earnings sustain the US equity rally?

US equities advanced last week despite continued volatility in government bonds. The S&P 500 gained 1.2% and reached a record closing high on Tuesday, while the 10-year Treasury yield eased later in the week after approaching its highest level in nearly a quarter of a century. The pullback reduced some of the pressure that rising borrowing costs had placed on equity valuations. But with yields still historically elevated, investors will be looking to inflation data and corporate earnings for reassurance that the rally can continue.

The principal data test this week will be September consumer price inflation on Wednesday. Investors will focus on whether underlying price pressures are sufficiently contained for the Fed to remain patient, or whether a stronger reading could revive expectations for an October rate increase. Producer prices and retail sales on Thursday will provide further evidence on inflation pressures in the pipeline and how well consumers are coping with higher energy prices. On the corporate side, bank earnings will offer a complementary test of economic and corporate resilience. JPMorgan, Goldman Sachs, Citigroup, and Wells Fargo report on Tuesday, followed by Morgan Stanley and Bank of America on Wednesday. Their results should provide a read on consumer spending, credit quality, capital markets activity, and the effects of higher financing costs across the economy.

Our base case remains that the Fed can wait until December before making another rate increase. Softer employment data, slower wage growth, and encouraging underlying inflation trends reduce the urgency to tighten at the October meeting. We also expect AI investment, resilient economic activity, and robust earnings growth to support further equity gains. While volatility could persist if inflation surprises to the upside or yields resume their rise, we believe the backdrop supports maintaining diversified equity exposure across sectors and regions.

Will Europe’s fiscal concerns continue to unsettle markets?

European government bonds remained under pressure last week as investors weighed high energy prices, tighter financial conditions, and fiscal risks in more indebted countries. French 10-year yields approached 5%, close to their highest level in 24 years, while the spread over equivalent German yields remained near levels last seen during the Eurozone debt crisis. Italian yields also rose, and the Stoxx Europe 600 declined as higher borrowing costs weighed on sentiment. The moves reflected concern over governments’ capacity to stabilize public finances while economic growth remains modest and energy costs elevated.

Attention will now turn to France’s 2027 budget debate, which is due to begin in the National Assembly on Tuesday. Investors will assess whether the government can build support for fiscal consolidation and provide a credible path toward containing the deficit. Eurozone industrial production and final September inflation are among the principal economic releases, while top policymakers will gather for the IMF and World Bank annual meetings. Markets will be on the alert for any signs that higher French borrowing costs are spreading more broadly into Italian bonds, corporate credit, or financial conditions.

Despite recent headwinds for European fixed income, we do not believe a funding crisis is imminent. French debt issuance has continued to attract solid demand, while higher yields and wider spreads are already tightening financial conditions. We remain Attractive on fixed income and see selective opportunities in short- to medium-term maturities and stronger investment grade issuers. We also remain Attractive on Eurozone equities. Improving revenues, accelerating investment, and stronger profit momentum should help the market absorb moderately higher yields.

Can improving oil flows contain the energy shock?

Energy investors weighed mixed signals last week. Gulf crude exports have improved, while G7 countries agreed to release 100 million barrels of diesel and crude through emergency reserves. But Brent ended Friday at around USD 105 a barrel as attacks on shipping and energy infrastructure continued. A further strike on Riyadh’s international airport over the weekend underlined the risk of wider regional disruption.

Investors will assess whether traffic through the Strait of Hormuz can continue to recover and move more reliably toward pre-crisis levels and whether alternative supply routes can be further scaled up. Markets will also watch whether the US-backed proposal for an energy ceasefire between Russia and Ukraine gains support from both sides and translates into a durable reduction in attacks on energy infrastructure. Greater confidence in the availability of crude and refined products could help contain energy prices and reduce pressure on inflation, bond yields, consumer spending, and corporate margins. However, renewed attacks or fresh damage to infrastructure could quickly reverse recent progress.

We expect traffic through the Strait to recover gradually despite periodic setbacks. Risks, however, remain tilted toward continued energy market volatility. We recently raised our year-end Brent crude forecast by USD 5 to USD 100 a barrel amid declining inventories and escalating attacks in the Strait of Hormuz. For portfolios, this supports diversified exposure to broad commodities, which can provide protection against supply shocks, geopolitical stress, and inflation spillovers. A broad approach is preferable to relying on a single energy outcome, since industrial metals can also benefit from structural demand linked to electrification, AI infrastructure, and rising power consumption. Diversification across equities, bonds, commodities, and capital preservation strategies remains the more resilient response, in our view.