The week that was …
Economic round-up
Petrol drives UK inflation to 3.5%
Inflation in the UK rose to 3.5% for the year to September – the highest rate in nearly a year and well above the Bank of England’s 2% target. Driven by higher petrol and diesel prices, the rise was slightly above the consensus prediction from economists. As well as prices rising faster than expected over the year to September, the UK government also borrowed more than it had anticipated. Read more from the BBC here
UK unemployment down to 4.7%
Unemployment in the UK fell to 4.7% in the three months to August. Down from 4.9% in the previous quarter, this was also below the consensus forecast from City economists. In addition, the labour market data showed the number of payrolled employees rose by 13,000 between August and September – up to 30.3 million – and there was a slump in the number of job vacancies. Read more from the Guardian here
UK businesses in the hunt for good October …
British businesses are enjoying their strongest month for activity since February as new orders grow and AI-related demand picks up, according to the preliminary S&P Global UK Composite Purchasing Managers’ Index (PMI). The index rose to 53.1 in October – higher than any forecast among economists polled by Reuters and up from 52.0 in September. Read more from Reuters here
… but consumer sentiment torpedoed
GfK’s consumer confidence index suffered a sharp month-on-month fall, dropping 11 points to -24 in October – its lowest level since April and below all the forecasts from economists in a Reuters poll. September’s reading of -13 had been the highest since August 2024. Read more from Investing.com here
September UK retail sales disappoint
Shoppers cut back their spending in September, prompting a 0.4% drop in retail sales volumes – below consensus forecasts of a 0.1% fall. Up to this point, there had been a strong run of sales growth across the summer, as retailers benefitted from warmer weather and World Cup football. Read more from the Times here
US business activity slips from five-year high
US business activity slowed in October, although robust demand did allow companies to raise prices for goods and services. S&P Global said its flash US Composite PMI Output Index slipped to 57.6 this month from a five-year high of 58.4 in September. Strength in manufacturing was offset by a slight pullback in the US’s vast services sector. Read more from Reuters here
Eurozone private sector growth slows
Growth across the eurozone’s private sector slowed to its weakest pace in four months in October, hurt by an energy-driven rise in costs and a renewed contraction in France. The S&P Global Flash Eurozone Composite PMI Output Index fell to 51.9 in October from September’s 53.1 – its lowest reading since June and below all forecasts in a Reuters poll, which had anticipated a more modest dip to 52.7. Read more from Reuters here
AI boom helps boost China’s Q3 GDP
China’s economic growth picked up pace in the third quarter, as rapidly expanding exports – supercharged by the AI boom – offset weak retail spending and investment. GDP grew 4.5% in the three months to September compared with a year earlier – 0.1% ahead of consensus expectations from analysts polled by Bloomberg and 0.2% ahead of growth in the previous quarter. Read more from the FT here
Markets round-up
Major indices down though tech shares stabilise
Major stock indices ended lower on Friday – even as tech shares mostly steadied – while Brent crude oil rose to its highest level in nearly six months after a series of Houthi attacks in Saudi Arabia. Semiconductor stocks recovered following weakness on Thursday after a report from Meta Platforms reignited worries about the AI trade. The S&P 500 Information Technology index rose 0.4%. Read more from Reuters here
Oil prices jump on Persian Gulf concerns
Oil prices jumped to a five-month high on Thursday after attacks in Saudi Arabia and hits to tankers in the Strait of Hormuz threatened further disruptions to the world’s crude supply. Brent crude rose by 3% to hit $112 (£83.74) a barrel for first time since 18 May. Read more from the Guardian here
French sovereign and corporate debt spreads converge
The French government’s long-term borrowing cost has surged from about 4% in August to above 5% today. The spread between the yield on seven to 10-year French government and investment-grade corporate debt has collapsed to below zero, according to analysis by Richard Woolnough at M&G. Goldman Sachs estimated this month that more than a third of French companies are currently able to borrow long-term at lower rates than the government. Read more from the FT here
Meta CDS insurance climbs
The cost of insuring Meta Platforms’ debt against default touched an all-time high on Thursday, as the company raised the lower end of its annual forecast for capital expenditure to between $135bn and $145bn this year. Five-year credit default swaps relating to the business widened 7.6 basis points (bps) on the announcement to a record high of 114.79 bps, their biggest one-day jump since at least 2025. Read more from Reuters here
“For years, the UK has looked cheap relative to its history, to other markets and to the operational performance of the companies that call it home.
Selected equity and bond markets: 16/10/26 to 23/10/26
| Market | 16/10/26 (Close) |
23/10/26 (Close) |
Gain/loss |
|---|---|---|---|
| FTSE All-Share | 5859 | 5760 | -1.7% |
| S&P500 | 7659 | 7624 | -0.5% |
| MSCI World | 4913 | 4874 | -0.8% |
| CNBC Magnificent Seven | 461 | 452 | -2.0% |
| US 10-year treasury (yield) | 5.07% | 5.00% | |
| UK 10-year gilt (yield) | 5.38% | 5.37% |
Investment round-up
Baillie Gifford US Growth sees off Saba
Saba has failed in its third attempt to take control of Baillie Gifford US Growth as shareholders showed up to support their board. Shareholders in Baillie Gifford US Growth voted 52.8% to 47.2% against Saba Capital’s resolutions to appoint three of its nominees to the board, with a similar majority backing the existing directors led by chair Tom Burnet. Some 99.5% of independent shareholders rejected the US activist’s attempt to take control of the £1bn investment trust.
Quilter introduces liquidity portfolio
Quilter Cheviot has added to its MPS with the launch of a short-term ‘liquidity’ portfolio, while unveiling three additional strategies to refresh its index-tracker range. The Liquidity MPS is designed to give advisers a dedicated solution for clients’ short-term capital requirements and planned withdrawals, investing predominantly in a range of money market funds.
RC Brown launches ‘index-agnostic’ MPS
RC Brown has launched an index-agnostic managed portfolio service with a significant UK overweight. The discretionary service is aimed at high-net-worth families seeking a more differentiated and personalised approach. It has four underlying investment models although the firm’s wealth managers have the flexibility to adapt portfolios to individual clients’ needs.
European funds attract more than €200bn in Q3
European open-ended funds and ETFs garnered €204.3bn (£169.6bn) in Q3 2026, the highest quarterly total in five years. This takes year-to-date inflows to €603.7bn, according to data from Morningstar. BlackRock led provider inflows with €52.1bn, followed by Vanguard and Amundi.
HL and BNY partner on money market fund
Hargreaves Lansdown has responded to a 35% year-on-year rise in the number of clients holding money market vehicles by launching the HL Money Market fund in collaboration with BNY Investments. The investment platform, which has estimated some £600bn is held in “excess cash”, said the fund had an expected yield of 3.95% at launch and an ongoing charge of 0.06%.
Fidelity adds two ‘dynamic buffer’ ETFs to range
Fidelity International has added two risk-managed dynamic buffer ETFs to its active range, combining equity research with a systematic downside buffer target. The Fidelity Global Equity Dynamic Buffer ETF and its US Equity counterpart seek to cushion portfolio losses during moderate market declines, while holding on to equity market gains. The targeted level of downside buffer is designed to adjust gradually as markets move and is not guaranteed.
AQR launches alternatives vehicle
AQR Capital Management has launched an alternatives fund pursuing returns with low correlation to broader market performance. The AQR Market Neutral Styles Ucits fund seeks to harvest “persistent, academically documented sources of long-term return” – such as momentum, carry, defensive and value styles – through a long-short portfolio.
Trusts outperform open-ended equivalents – AIC
Investment trusts have outperformed their open-ended equivalents, according to analysis from the Association of Investment Companies. Over both one and three years, four-fifths (83%) of trusts have outperformed funds with the same manager, while over five years, nearly three-quarters (73%) of trusts have delivered higher returns than their sister funds. Over the past 10 years, the average investment trust with a sister fund returned an extra £37 per £100 invested compared with the fund – that is, an additional 1.7 percentage points of return per year.
… and the week that will be
All eyes on quarterly earnings (again) …
US stock investors face a pivotal week, with corporate earnings reports led by major AI players and a Federal Reserve meeting posing critical tests for the increasingly vulnerable bull market. Weakness in technology shares last week left investors on edge about the state of the AI trade. Alphabet, Amazon and Microsoft will all deliver results this week, alongside around one-third of S&P 500 companies. Read more from Reuters here
… and the UK Budget
The administration of new prime minister Andy Burnham faces its first significant test this week as chancellor John Healey delivers his first Budget. Attention this Wednesday will be focused on how he balances various competing interests. UK inflation remains above-target while government borrowing costs are high, with 10-year gilt yields remaining well over 5%. Read more from Hargreaves Lansdown here
The week in numbers
US interest rate decision: Consensus expectations are that the Federal Reserve will keep US interest rates unchanged at 3.75% to 4% after its meeting on Wednesday – although, with oil prices pushing higher, there is likely to be an increase in those expecting interest rates to rise in the coming months.
US consumer confidence: Consensus forecasts have the US consumer confidence index dropping from 81.9 in September to 80 this month.
Europe interest rate decision: Consensus expectations are that the European Central Bank will hold interest rates at 2.5% after its meeting on Thursday.
German economic growth: Consensus forecasts have the flash reading of Q3 German GDP growth at 0%, quarter on quarter – down from 0.3% previously – and 1%, year on year, which would be in line with the previous period.
Japan interest rate decision: Consensus expectations are that the Bank of Japan will hold interest rates at 1.25% in the wake of its meeting on Thursday and Friday.
In focus: Healey hands
In the run-up to the UK Budget in 2025, the country’s small and mid-sized stocks suffered. The FTSE Small Cap and 250 indices dropped markedly in early November, only to recover slightly when then-chancellor Rachel Reeves did not prove quite as cruel as expected. This year has been surprisingly different – so does the pre-Budget bounce being enjoyed by the UK stockmarket suggest a new-found confidence among investors?
For its part, the FTSE 100 started to improve some time ago and – notwithstanding its distinct lack of AI-related businesses – is only 2% behind the S&P 500 over the past 12 months. The real surprise, however, has come from those mid and smallcaps. The FTSE 250 (excluding investment companies) index is up 2.9% over three months – putting it ahead of the S&P 500 – while the FTSE Small Cap has also been strong, rising 1.5%. For international investors, both markets have included an additional boost from the strength of the pound.
“We saw the second longest and second most severe period of relative underperformance of smallcaps to largecaps from August 2021 to March 2026,” says Artemis UK Future Leaders fund manager William Tamworth: “Since then, smallcaps are up 17% while largecaps are up 7%. We are already starting to see the recovery – but that has barely made a dent in the valuation gap that has built up in that time. And we are starting to see it because confidence is just starting to come back.”
This – admittedly nascent – turnaround has been a long time coming. For years, UK equity managers have been bemoaning the lack of support for the domestic stockmarket. The UK has looked cheap relative to its history, to other markets and to the operational performance of the companies that call it home.
The FTSE 100’s performance is perhaps easier to explain. The main UK index has benefited from its position as an ‘anti-AI’ trade, making it a natural choice for investors looking for diversification as the US and Asian technology giants have teetered. The banking sector has had a particularly good run and lifted the index, while there has also been strength in some of the mining companies as commodity prices have risen.
The small and midcap rally, on the other hand, is relatively new and its cause less obvious. If anything, given the direction of gilt yields, investors might have expected smaller companies to sell off. Rising gilt yields have, after all, proved a significant headwind to smaller companies since 2022.
The IMF has revised its position that the UK economy would be hardest-hit by rising oil prices and, in its latest World Economic Outlook, went so far as to commend the country’s debt management strategy.”
Gary Channon, manager of the Aurora UK Alpha fund, suggests small and mid-sized stocks may also be benefiting from the tentative reversal of the AI trade. “The UK has been drained of liquidity while active funds have been consistently redeemed – and that big sucking force has been the bubble in AI investment, which has dominated indices,” he says.
“We think that is peaking. It has run its course and the signs are it is near an end. That will help. Those who are already fleeing that situation are beginning to look around – and the UK is one of those havens.”
There are other reasons for optimism too. The UK economy has been doing surprisingly well, which has helped support share prices for domestic companies – which are more often found in the mid and smallcap spaces. The UK was the fastest growing economy in the G7 in the first half of 2026 and, in spite of the war in the Persian Gulf, has managed to maintain momentum in the second half of the year.
The IMF has meanwhile revised its position that the UK economy would be hardest-hit by rising oil prices and, in its latest World Economic Outlook, went so far as to commend the UK’s debt management strategy. “The UK has started the consolidation process and it is the country that stands out,” said IMF chief economist Silvana Tenreyro. “The message is to stay the path.”
Improving consumer spending may also be playing a role, believes Georgina Brittain, small and midcap portfolio manager at J.P. Morgan Asset Management. After years of squirrelling away their savings, she argues, Britons are finally starting to spend again. This can be seen in the falling savings ratio, which has dipped from north of 10% to its current level of 9%, while recent earnings from consumer stocks, such as Dunelm, Greggs and Wickes, have reflected this improvement.
There are few signs domestic investors are being seduced by their home market yet – then again, pension funds have probably sold as much as they are going to sell.”
Even the – relative – stability of domestic politics could be a factor. The UK government remains unloved but has shown a greater degree of competence than its predecessors. It is a small bar to clear, perhaps, but the lead-up to the budget has been a case in point: last year’s endless media briefings and noise were hugely disruptive for sentiment towards UK equities. This year, new chancellor John Healey appears to have greater control over the messaging.
Merger and acquisition activity continues to be buoyant too, offering some much-needed support for share prices. Since January 2023, there have been 166 bids for UK companies, with a total value of £180bn, according to Peel Hunt research. Bigger and bigger deals have been coming to the table as private equity and international corporate buyers have recognised the value in the UK market.
It is, of course, entirely possible that Wednesday’s Budget will disrupt this happy picture. There are plenty who believe the current government has little understanding of the challenges facing the UK economy and will happily tax and spend until a crisis hits.
Even so, it is difficult to see how the key players could have tuned out the extraordinary volume of economic ‘advice’ that has come its way. Healey has effectively made a virtue of being boring and promised a ‘no drama’ budget. At the very least, he appears to have recognised that the environment for UK companies has become increasingly hard and he needs to focus on the cost of doing business as much as the cost of living.
Will investors return? There are few signs the domestic variety are being seduced by their home market yet – then again, pension funds have probably sold as much as they are going to sell. No-one should be counting any chickens just yet – but the UK stockmarket may finally be rediscovering its footing.
Read more on this from the Times here and from Trustnet here
In focus: Control issues
With just over a week to go until the US mid-term elections, the outcome still looks uncertain. While the polls are increasingly predicting the Democrats will win control of both the Senate and the House of Representatives, few voters really trust such predictions. And even if there were such a clean sweep, few can really say what that might mean for the governance of the US. Experience would suggest president Donald Trump is unlikely to hold up his hand and quietly accept such an eventuality.
Investors have speculated that, having lost his domestic power, a defeated Trump could turn his attention to global affairs. Given his track record, that could spell bad news for the US’s traditional allies. That said, a Democrat-controlled Congress could seek to exert financial pressure to curb the war in Iran and/or deliver more support to Ukraine. Any new aid to Ukraine would need a two-third majority to block a presidential veto but this is possible, if the current polling does reflect reality.
Democrat control of both Houses could also prevent Trump further cosying up to his Russian counterpart Vladimir Putin. New York congressman Gregory Meeks, for example, has already introduced bipartisan legislation to block the US president’s plan to bring in Russian diesel. With Democrat control, this could now pass.
It is also possible that administration officials will be required to testify publicly about their plans. That would be a particular worry for ‘secretary of war’ Pete Hegseth, who many commentators believe could even be in line for impeachment.
Any return to a more ‘normal’ geopolitical landscape could be good news for financial markets. Higher oil prices have left the bull market looking increasingly precarious in recent weeks. And, while US government bond yields have started to ease back, they remain a looming threat for finance ministers across the world.
Equally, there are risks to financial markets from a Democrat clean sweep. According to Luca Paolini, chief strategist at Pictet Asset Management, key among these would be the prospect of a hike in corporate taxes and increased AI regulation. “The progressive wing of the Democratic Party has supported stronger government involvement in, and oversight of, AI companies,” he says.
“Many influential figures have stated that they consider AI services as public utilities and favour a large government stake in AI companies. This would mean a dilution of existing shareholders in AI stocks. Together, worries about corporate taxation and AI oversight could trigger a marked sell-off in equity markets, led by tech.”
It is tempting to believe the US mid-terms will have little impact – that Congress is too toothless and craven to curb the US administration’s trickier instincts – yet there are significant implications to a Democrat clean sweep. While few investors may be overhauling their portfolio in the short term, many are poised to move if necessary.
Read more on this from Al-Monitor here
