The week that was …
Economic round-up
Republicans routed in US midterms
Republicans suffered a sweeping midterm rout last Tuesday, losing control of both the House and Senate as voters abandoned president Donald Trump’s party nearly everywhere – from Hispanic strongholds to deep-red territory Democrats had not cracked in generations. Republicans lost ground in 99% of counties. Read more in ‘In focus’ below and from Reuters here
BoE raises UK rates to 4%
The Bank of England raised UK interest rates for the first time in more than three years last Thursday – from 3.75% to 4%. Governor Andrew Bailey pointed to the war in the Middle East, which is pushing up energy prices, as the main factor in deciding future rates while the central bank now expects UK inflation to peak next year at 4.9%. Read more from the BBC here
UK house-price falls accelerate
Britain’s housing market is seeing prices fall at their fastest pace for three years, according to the country’s largest mortgage lender. House prices fell for the fourth month in a row in October – by 0.6% on average – according to Lloyds Banking Group, leaving them 1.2% lower than they were 12 months ago. Read more from the Times here
Rising US manufacturing activity at odds with sentiment …
US manufacturing activity picked up in October amid strong domestic demand, with the ISM manufacturing purchasing managers’ index (PMI) increasing to 55.5 from 54.5 in September. Sentiment among manufacturers remained overwhelmingly downbeat, however, with some complaining “economic policies coming out of Washington continue to weigh on business conditions” and that the situation was “making it impossible to make sound long-term decisions”. Read more from Reuters here
… while tariffs and fuel costs continue to drag on US services
The ISM US services PMI meanwhile decreased to 54.5 in October, compared with 54.9 in September and its lowest level in three months. Tariffs and fuel costs continue to be the most-cited issues impacting respondents’ supply chains, with many businesses indicating they are not yet seeing the full impact of these cost escalations or have not passed them through to customers. Read more from Trading Economics here
Professional services leads surprise US hiring rebound
The US economy added 165,000 jobs in October in a hiring rebound – led by growth in professional services – that beat Wall Street expectations. Friday’s figure from the Bureau of Labor Statistics rose from an upwardly revised 60,000 in September and was ahead of the 65,000 forecast in a Bloomberg poll of analysts. Read more from the FT here
Eurozone inflation hits 4% in October
Eurozone inflation rose to 4% in October, up from 3.8% the previous month and its highest level in three years, according to a flash estimate. Energy inflation accelerated to 20.8% across the currency bloc, up from 18.9% in September. Read more from CNBC here
China continues manufacturing hot streak
China sustained the growth in its manufacturing sector at the start of the final quarter of the year. The country’s latest PMI survey data read 52.0 in October, little changed from September’s 52.1. The reading has now been above the 50 mark, which signals expansion, for 11 straight months – the longest streak of improving manufacturing sector health since mid-2021. Read more from S&P Global here
Markets round-up
AI stocks take $3tn hit in chaotic Friday …
US stocks shed $3.2tn (£2.4tn) in a day of chaotic trading that saw the tech-heavy Nasdaq 100 index plunge 6.4%, after the Democrats’ sweeping US midterm election victory upended Wall Street’s mammoth AI bet. Traders stampeded out of tech shares on fears the defeat of Donald Trump’s Republicans in Tuesday’s polls would cool the AI spending boom. Read more in ‘In focus’ below and from the FT here
… but Anthropic to press ahead with IPO
Anthropic is pressing ahead with its high-stakes public listing even as the brutal tech rout convulses markets, with the Claude maker prepared to accept a valuation well below the $2tn that had been hoped for by its most bullish investors. The group wants to raise $80bn to $100bn in total. Read more from the FT here
FTSE 100 posts weekly decline
The FTSE 100 fell 1% on Friday after touching a more than three-week low earlier in the session, also registering a weekly decline. The blue-chip UK index fell 1.01% to 10,673.94 points and was down 0.5% for the week, while the midcap FTSE 250 slipped 0.80%, though still eked out a tiny weekly gain. Read more from Reuters here
Dollar suffers post-midterms drop …
The US dollar suffered its sharpest post-election setback in weeks after the Democrats swept Congress in the US midterms. Falling treasury yields and uncertainty over Washington’s economic policies pushed investors away from the currency. The US Dollar Index (DXY), which measures the greenback against six other major currencies, touched 101.10 on 4 November, a five-week low. Read more from Yahoo Finance here
… while oil prices fall on Iran concerns
Crude oil prices posted a steep weekly loss, as investors weighed the risk of renewed military escalation between the US and Iran. Brent crude futures added 3 cents to close at $98.32 per barrel while Brent fell more than 16% for the week. Investors are assessing whether the conclusion of the US midterms could pave the way for renewed actions against Iran, potentially threatening oil supplies from the Persian Gulf. Read more from CNBC here
“Many of the victorious Democrat candidates incorporated rhetoric that questioned the environmental and societal costs of the ongoing AI data-centre buildout.
Selected equity and bond markets: 30/10/26 to 06/11/26
| Market | 30/10/26 (Close) |
06/11/26 (Close) |
Gain/loss |
|---|---|---|---|
| FTSE All-Share | 5784 | 5759 | -0.4% |
| S&P500 | 7580 | 7377 | -2.7% |
| MSCI World | 4844 | 4740 | -2.1% |
| CNBC Magnificent Seven | 441 | 436 | -1.2% |
| US 10-year treasury (yield) | 4.93% | 4.87% | |
| UK 10-year gilt (yield) | 5.29% | 5.16% |
Investment round-up
Quilter rejigs management of Cirilium funds
Quilter has announced that Sacha Chorley and Ian Jensen-Humphreys have stepped down from managing the Cirilium portfolios with immediate effect, as the £11bn multi-asset range remains beset by poor performance and persistent outflows. The fund manager duo will be replaced on an interim basis by Quilter Investors chief investment officer Marcus Brookes.
IA September data suggests pre-Budget resilience …
Retail funds sales recorded inflows of £1.2bn in September, marking the 11th consecutive month of inflows, according to data from the Investment Association. September’s inflows contrast with the past two years, when greater speculation about potential policy changes coincided with outflows during the month preceding the Budget. Outflows totalled £3.9bn in September 2024 and £4.6bn in October 2025.
… but Calastone numbers point to October outflows
Investors withdrew a net £1.41bn from equity funds in October, according to Calastone – the ninth-largest month on record for outflows and the third-largest this year. Equity funds have now seen outflows in 16 of the last 17 months. Passive equity funds suffered their first outflows since August 2023. Reduced buying, not higher selling, caused the outflow, the firm suggested.
Fidelity Asia Pacific Ops manager leaves
Titan Square Mile has removed its A rating from the Fidelity Asia Pacific Opportunities fund, after manager Anthony Srom announced he would leave Fidelity International at the end of the year. Srom has managed the strategy since 2014 and, according to Titan Square Mile, was the “architect” of its investment process. James Trafford will assume responsibility for the fund.
Q3 UK dividends grow at 13.2%
Dividends from UK companies grew strongly in the three months to the end of September 2026, according to Capital Group’s latest Dividend Watch. UK dividends reached $32.2bn (£24bn) in Q3, with year-on-year underlying growth – excluding one-off payments – of 13.2%, making the UK one of the fastest growing markets internationally in terms of payouts. Mining accounted for half the increase, driven by stronger commodity prices, particularly copper.
Albermarle launches low-cost MPS
Albemarle Street Partners has launched a low-cost, actively managed model portfolio service, built using exchange-traded funds. The firm, which was bought by WisdomTree in May, has created the WisdomTree Core ETF Model Portfolio range of five funds to sit alongside its current suite. These will adopt the same asset allocation and portfolio construction processes that are used across Albemarle’s existing range.
HANetf and Defiance launch Mag7 ETF
HANetf and Defiance ETFs have launched a Magnificent Seven ETF for European investors. The seven constituents – Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla – are equally weighted and rebalanced monthly. The ETF has launched on the London Stock Exchange, Xetra, Borsa Italiana and Euronext Paris.
Passives driving ESG flows – Morningstar
Net inflows into passive investment strategies such as ETFs account for an increasing proportion of overall assets in ESG funds, according to data from Morningstar for the third quarter of 2026. Its latest report showed active ESG funds with net outflows in both Europe and the US over the three months to the end of September, while passive vehicles saw significant net inflows of $10.8bn in Europe and $2.7bn in the US.
Janus Henderson launches China active ETF
Janus Henderson Investors has launched the China Equity Active Core Ucits ETF. It invests in a diversified portfolio of 100 to 150 Chinese businesses, balancing exposure between companies tied to structural growth themes and those with attractive valuations and improving shareholder returns. The fund will be managed by Victoria Mio, Benjamin Wang and Zoey Zhu.
ESG rating providers to require FCA authorisation
From 29 June 2028, ESG ratings providers will require Financial Conduct Authority authorisation to operate in the UK, after the regulator published its final policy statement. The FCA says global spending on ESG ratings and data has more than doubled between 2021 and 2025, but users find it difficult to understand how ratings are produced, compare different products and assess potential conflicts of interest.
… and the week that will be
All eyes on key negotiations …
Some tough negotiations are happening across the world this week, which will have consequences for investors. In Israel, new Knesset members will be sworn in on Tuesday although a final agreement on which bloc will govern could take weeks. A trilateral Ukraine peace talks in Abu Dhabi, brokered by the US and involving representatives from Washington, Kyiv and the Kremlin, will also take place this week. Elsewhere, COP 31 climate change talks begin in Turkey. Read more from the FT here
… and US inflation data
The October CPI report comes as investors are expecting the Fed to raise interest rates in December to fight inflation. The US central bank held rates steady last month after hiking in September – the first time in three years. As the market sold off last week, traders pulled back modestly on rate-hike bets although, following a strong jobs report on Friday, Fed fund futures were suggesting a roughly 80% chance the central bank hikes at its 8/9 December meeting, according to LSEG data. Read more from Reuters here
The week in numbers
UK Q3 GDP: Consensus expectations for the UK’s third-quarter GDP data have the economy growing by 0.4% quarter-on-quarter and 1.7% year-on-year, versus 0.5% and 1.4% respectively in Q2.
US inflation: Consensus expectations are that US prices over October rose 0.2% month-on-month – versus 0.6% in September – and 3.7% year-on-year, which would be in line with the previous month. Core inflation is expected to be 0.2% month-on-month and 2.5% year-on-year, versus 0.3% and 2.6% in the previous period.
US producer price inflation: After September’s 1.3% month-on-month rise, US price growth over October is expected to slow to 0.1% month-on-month.
China inflation: Consensus expectations have China prices over October rising 0.9% year-on-year and 0.2% month-on-month, in line with September.
In focus: Midterm misgivings
If the current market volatility is any sort of guide, investors are struggling to make up their minds just how they feel about the results of the US midterms. On the one hand, things could turn out badly for AI as the Democrats seek to curb the tech bros’ ambitions on data-centres. Then again, last week’s ‘blue sweep’ may see president Trump’s global ambitions curtailed, which could prove positive for the oil price, US treasuries and inflation.
The days since US voters delivered their uncompromising verdict on the Trump administration have so far been characterised by significant swings. Initially, there was some elation there was no chance of a disputed verdict – while the president might argue about a few million votes, it was near-impossible to challenge tens of millions. Furthermore, it was felt the Democrats might exercise control over an increasingly erratic and unaccountable administration and restore some normality to the US economy and foreign policy.
Just 24 hours later, however, financial markets were reeling from a huge sell-off in AI names, with some $2.5tn (£1.9tn) wiped off the Nasdaq alone in the index’s deepest one-day drop since ‘Liberation Day’. The overriding concern here was that the Democrat victory could stall AI infrastructure development and test the credit limits for the smaller and more indebted firms that were already hurting from higher bond yields.
While president Trump was characteristically quick to pin responsibility for the market falls on the Democrats and those who voted for them – “You only have yourselves to blame!” – the vulnerability of AI stocks was already well-established. The AI trade had been teetering since Q3 results season, which revealed the extent of the continuing cash ‘burn’ from the hyperscalers alongside some slowing of momentum for AI adoption.
According to Janus Henderson’s head of technology research Denny Fish, investors are now justified in assigning a higher level of regulatory risk to the AI ecosystem. “The catalyst for the sell-off, in our view, is not found in divided government returning to Washington but in the states where governorships – and in some cases legislative chambers – switched from Republican to Democratic control,” he says. “Many of the victorious Democrat candidates incorporated rhetoric that questioned the environmental and societal costs of the ongoing AI data-centre buildout.”
Fish points out that Georgia, Michigan, Ohio and Texas will all soon have their governors’ mansions occupied by people who campaigned against data-centres. “The 3 November result, in our view, creates a thicker veil of policy uncertainty across the entire AI infrastructure value chain,” he adds. “Importantly, we believe the AI buildout will continue but the locations in which it will be concentrated, and the pace of the rollout, are now in question.”
The president will still have broad authority over foreign policy, including over any future decisions over US action in Iran.”
War efforts: The other major question mark for investors has been over whether the mid-term result could change the outlook on the war in the Persian Gulf. The initial verdict from the market appeared optimistic, with the oil price dropping from around $104 to $93.50 in the immediate aftermath of the result. Oil prices had, however, started to rise again by Friday.
Lizzy Galbraith, political economist at Aberdeen is not optimistic here, observing: “A Democratic congress will more closely scrutinise the president’s agenda, but Trump has already indicated he intends to use his presidential veto to curtail any legislative attempts. Congressional investigations of the actions of the president and his allies – as well as into AI safety – are likely.”
She continues: “The president will still have broad authority over foreign policy, including over any future decisions over US action in Iran. His frequent use of executive orders in relation to immigration and trade policy also limits the likelihood of significant policy change in these areas.”
While president Trump will be able to veto any legislation aimed at ending the war, the question is whether Congress could now block access to funding here. Once the new Congress is sworn in in January, the Department of War will need House and Senate approval for every dollar it wants to spend – and we could see specific clauses in the defence budget that prohibit the use of funds for Iran. That would be a high-risk manoeuvre, threatening US credibility abroad and leaving the Democrats open to the accusation they are not supporting American troops.
The immediate read-through is a softer fiscal outlook and potentially less need for aggressive rate hikes.”
Dollar and debt: The US dollar has weakened in the immediate aftermath of the midterm result while the 10-year treasury yield is marginally down – though not by enough to suggest any real expectation of lower borrowing. A fiscal stalemate seems more on the cards, where neither big spending packages from the Democrats nor significant tax cuts from the Republicans now seem likely.
“The immediate read-through is a softer fiscal outlook and potentially less need for aggressive rate hikes,” says Eva Sun-Wai, a fixed income fund manager at M&G Investments. “The US treasury curve did not meaningfully move in response – a small flattening is how it closed – so not a strong indication of markets thinking either hikes or a fiscal premium were overpriced more than the other.
“I would, however, be cautious about treating this as a simple weaker-dollar, lower-rates story. A Democratic sweep also raises the question of how president Trump responds – potentially increasing policy unpredictability and the likelihood of greater use of executive action.”
There are different competing factors for treasury yields. On the one hand, if oil prices drop, it would ease inflationary pressures and potentially cut yields. On the other, a de-escalation of international conflict could reduce the demand for safe havens, such as treasuries. Overall, the two factors could cancel each other out.
“Even in a situation characterised as a continuation of the status quo in the Middle East, US inflation is likely to peak over the next few months and may be expected to be back below 3% by the middle of next year,” concludes Mark Dowding, chief investment officer at RBC BlueBay Asset Management.
“On this basis, we still see Fed chair Kevin Warsh hiking rates in December, with a further move to follow in Q1 – but thereafter rates are likely to be on hold. As this trajectory is not far from what is discounted in markets, it is hard to project a substantial rally in yields, unless growth slows materially.”
Markets actually appeared to be settling down by the end of the week. Rather than significantly changing the outlook, the Democrat win has disrupted certain assumptions – the ongoing build-out of data-centres, the stalemate in Iran and a rising dollar. Yet these trades were already starting to look vulnerable.
Read more on this from the Conversation here
In focus: Gilt trip
When the Bank of England raised UK interest rates 25 basis points to 4% last Thursday, governor Andrew Bailey laid the blame squarely on the war in the Persian Gulf, as it continues to push up energy costs. A “long sequence of hikes” was not inevitable, he added, but more hikes were plausible if there was no resolution to the situation.
The precise level of those future rises is a source of ongoing debate. The two-year gilt yield is currently hovering at around 4.75%, suggesting the market believes there could be as many as three rate rises in the near term. Most economists, however, believe the market is exaggerating the risks of this.
Peder Beck-Friis, economist at PIMCO, says he expects the Bank of England to hike in February or – if the economic data is particularly strong – in December. “The outlook thereafter is more uncertain and will depend in part on energy prices,” he continues. “While there are risks of further tightening, we do not see the UK economy as overheated and expect underlying inflation pressures to remain relatively benign over time.”
Three further hikes “looks steep and likely reflects some risk premium”, he argues, adding: “Over time we would be surprised if the UK policy rate settled above the US policy rate, as markets currently price. We continue to find gilts attractive at current levels as part of a diversified portfolio of global fixed income.”
Similarly, Aberdeen economist Felix Feather thinks any forecast of three hikes overstates the case for further tightening – “especially given energy-market strains have eased a little since Tuesday and the US midterm results” – and sees at least one further hike, “probably coming in February next year”.
“That relatively shallow tightening cycle could leave some space for UK assets, including gilts, to rally,” Feather continues. “A return to US strikes against Iran or a rise in domestic political uncertainty poses downside risk to this view, however.”
Treasury yields have come down significantly over the past month and the Democrat victory makes further falls plausible. For their part, while gilts have tracked treasuries lower, they have not kept pace so there is some scope for them to catch up. The outcome of the war in Iran remains an unknowable factor yet the Bank of England is now forecasting inflation will peak at 4.9%. Current rate-hike expectations do look overdone.
