The week that was …
Economic round-up
FOMC minutes flag a further 2026 rate hike
The latest Federal Open Market Committee meeting minutes have indicated the Federal Reserve is ready to hike US interest rates again in 2026 as the AI buildout replaces tariffs as the main driver of core prices. Most Fed members expected another rate rise would be necessary before year-end, with the minutes noting, “information available at the time of the meeting indicated inflation remained elevated”. Read more from Kitco here
Energy burden weighs on UK services firms …
British services firms reported mounting cost pressures last month as fuel prices surged due to the Middle East conflict. The S&P Global Purchasing Managers’ Index (PMI) for the services sector came in at 52.1 in September, down from 52.5 in August. More than a third of firms reported an increase in their average cost burdens. Read more from Reuters here
… as their US counterparts also feel the pain
US services sector activity slowed in September, while strong domestic demand stretched supply chains and pushed a measure of prices paid by businesses to its highest level in more than four years. Complaints about higher fuel prices dominated responses to the Institute for Supply Management survey published last week. Read more from Reuters here
High borrowing costs add to US consumer’s woes
The University of Michigan’s consumer sentiment index fell to 46.3 in early October 2026, according to the preliminary estimate – its lowest level since May’s record low and well below consensus market expectations of 47.6. Persistently high prices and borrowing costs were the main contributors to the lower reading. Read more from Trading Economics here
Eurozone business activity boosted by strong demand …
Eurozone business activity expanded at its fastest pace in nearly three and a half years in September as demand remained strong, even as inflationary pressures mounted. The S&P Global Eurozone Services PMI rose to a 10-month high of 53.0 in September, up from August’s 51.6 and in line with a preliminary estimate. The composite index, which combines services and manufacturing, increased to 53.1 from 52.0. Read more from Reuters here
… while Euro area retail sales volumes edge higher
Retail sales volumes in the Eurozone inched higher in August, rising 0.1% from the previous month – marginally ahead of market expectations. Sales were sharply higher for core non-food products (0.5% v -1.2% in July) while food, drinks and tobacco sales also inched up (0.1% v -0.1%). Automotive fuel sales volumes dropped 1.9% as the surge in fuel prices drove consumers to cut back. Read more from Trading Economics here
Markets round-up
UK 30-year bond yield briefly tops 6%
Long-term UK government borrowing costs briefly edged above 6% last Thursday to reach their highest level since 1998 amid a fresh global bond sell-off. The benchmark 10-year bond yield meanwhile rose to a near 20-year high of 5.5%. Read more from the Times here
Wall Street hopeful of Q3 earning surge …
US companies appear likely to deliver another earnings surge for the third quarter, with AI-related players fuelling most of those gains. Analysts on average expect S&P 500 earnings to rise some 31% year-on-year for Q3, with two-thirds of that increase coming from the technology sector. Read more from Reuters here
… with Nasdaq to the fore as US indices advance
US stock indices advanced on Friday to end up on the week as investors looked ahead to the start of earnings season. Big banks including JPMorgan Chase will kick off the reporting season for the July-September period on Tuesday, as Wall Street remains optimistic about robust earnings. The tech-heavy Nasdaq was set for a fourth straight weekly advance after hitting record highs earlier last week. Read more from Reuters here
France ‘too big’ for ECB to save, economist warns
France is on a “fiscally unsustainable path” and may have become “too big to save” for the European Central Bank, according to economist Paul Krugman. Meanwhile, as prime minister Sébastien Lecornu attempts to pass a divisive 2027 budget, former ECB president Jean-Claude Trichet told CNBC that French politicians must find a compromise to restore the country’s credibility. Read more from CNBC here
Oil falls as supply concerns ease
Oil prices fell on Friday as Middle East supply concerns eased after president Donald Trump said the US would not attack Iran before midterm elections next month and talked of “productive” talks to end the war. Prices were also hit by plans by China to resume refined fuel exports after a brief halt during its Golden Week holiday. Read more from Reuters here
“While the differential between emerging market debt and the developed-world equivalent has narrowed, sentiment has not necessarily caught up with reality.
Selected equity and bond markets: 02/10/26 to 09/10/26
| Market | 02/10/26 (Close) |
09/10/26 (Close) |
Gain/loss |
|---|---|---|---|
| FTSE All-Share | 5651 | 5694 | +0.8% |
| S&P500 | 7723 | 7812 | +1.2% |
| MSCI World | 4926 | 4962 | +0.7% |
| CNBC Magnificent Seven | 468 | 475 | +1.5% |
| US 10-year treasury (yield) | 5.28% | 5.24% | |
| UK 10-year gilt (yield) | 5.40% | 5.44% |
Investment round-up
UK investors retreat from equity funds
UK investors withdrew £858m from equity funds in September – the 15th month of outflows in the last 16, according to Calastone data. UK-focused funds meanwhile dropped £708m – the 63rd month in the last 65 to see net selling. US equity funds suffered their largest outflow since November 2025.
Jupiter launches Global Monthly Income Bond fund
Jupiter Asset Management has launched a Global Monthly Income Bond fund to invest in global corporate credit, mixing higher-quality investment grade bonds with high-yield credit. The fund will be managed by Hilary Blandy who has overseen the similar UK strategy.
Capel AM launches after MBO
A team of former Downing investment professionals has launched boutique firm Capel Asset Management, following a management buyout. The new firm has £405m of assets under management and is targeting growing demand for liquid alternatives and defined-outcome strategies.
Merlin range to be spread over two ‘wings’
Jupiter has rejigged its Merlin Select fund-of-funds range, including a reduction in charges – the culmination of a four-year project to broaden its appeal to the advice market. From 2 November, the £7.2bn Merlin range will comprise two ‘wings’, with the legacy unfettered Balanced, Growth, Income and Worldwide portfolios grouped under a new ‘Signature’ sub-brand.
JPM and Brown Advisory US smallcap trusts to merge
The boards of the JPMorgan US Smaller Companies and Brown Advisory US Smaller Companies investment trusts have agreed non-binding terms for a merger, which will be implemented through a proposed members’ voluntary winding up of the latter. Shareholders will be entitled to receive new shares in the JPMorgan trust and/or realise some or all of their holdings for cash.
Activists helping narrow infrastructure discounts – Achilles
The strong positive correlation between bond yields and discounts for infrastructure trusts has weakened significantly in the last year, according to Achilles Investment Company. Activist investors have helped narrow discounts, it added.
Jupiter funds secure clean sweep on ‘value delivered’
Jupiter Asset Management’s latest Assessment of Value (AoV) report found that all share classes had delivered value, although 14% had not done so consistently. Overall, 23 out of 160 share classes (14%), among a total of 37 funds, were rated two stars. All funds and share classes received a green light for ‘value delivered’.
… and the week that will be
All eyes on US quarterly earnings …
The banking sector this week kicks off the quarterly earnings season, offering US stock investors insight into the strength of corporate profits. Banks including JPMorgan and Goldman Sachs are up first in what is expected to be an exceptionally strong quarter overall for US corporate profits. Following a robust first half, S&P 500 earnings are expected to have jumped more than 30% in Q3, according to LSEG IBES. Read more from Reuters here
… and IMF/World Bank meetings
“Winter is coming,” the IMF’s managing director has warned. Kristalina Georgieva believes the remarkable resilience of the global economy in the face of multiple challenges cannot be maintained forever. She is likely to elaborate on this in Bangkok this week as central bankers and economists gather for the annual IMF and World Bank meetings. Georgieva has urged national leaders to rein in public spending and get a grip on borrowing costs as bond yields surge. Read more from the FT here
The week in numbers
UK economic growth: Consensus forecasts are that UK GDP growth will come in at 0.1%, month on month, for August.
US inflation: Consensus expectations have US prices rising 0.5% month-on-month and 3.6% year-on-year in September, from 0.4% and 3.4% in August. Core inflation, which excludes food and energy prices, is meanwhile expected to be 0.2% month-on-month and 2.4% year-on-year, versus 0.3% and 2.4% in August.
US retail sales: Consensus expectations have US retail sales showing a 0.1% rise in September, versus a 1.2% rise the previous month.
China inflation: Consensus expectations have prices in China over September up 0.9% year-on-year and 0.2% month-on-month.
In focus: EMD’s anomaly
Government debt is increasingly seen as a difficult place to invest in the current environment as yields continue to climb, fuelled by an unwelcome combination of rising inflation and serious concerns around fiscal credibility and some pretty incontinent spending habits. And yet these problems would appear largely a developed-world issue, given emerging markets are not experiencing the same pressures.
Remove the labels and a country with a debt-to-GDP ratio of 82%, GDP growth of 7.8%, stable politics and no history of defaulting on its debt should be a safer bet than a country with debt-to-GDP of 116%, GDP growth of zero and where a leading candidate in the upcoming presidential election talks openly about defaulting on its debt obligations. Yet investors can obtain a 7.3% yield on Indian 10-year debt and just 4.9% on the French equivalent.
Nor is that example a one-off – optically, many emerging markets nations appear in better economic shape than their developed-world counterparts and yet they continue to offer higher yields. It is an anomaly that has certainly not gone unnoticed by strategic bond fund managers, who have started to snap up emerging market debt as the outlook for developed market economies has worsened.
For Jupiter Strategic Bond fund manager Ariel Bezalel, for example, the investment appeal of emerging market local currency sovereign bonds is “compelling”. “The resilience of emerging markets economies has been underpinned by credible monetary policy frameworks and relatively contained external imbalances,” he explains. “While energy price shocks have historically represented a headwind for emerging markets, the current environment has produced a more differentiated outcome.”
For his part, Wim Vandenhoeck, co-head of emerging markets debt at Invesco, says the group is now forging partnerships with institutional investors such as pension plans and sovereign wealth funds. “They want to allocate as that debasement trade out of the US is playing out,” he says. “Emerging markets is very much an area that is benefiting.”
We just went through an entire election cycle in Latin America, which delivered a lot more market-friendly governments. We will shortly see whether that continues with Brazil ...”
Understandably enough, emerging market debt has historically commanded a risk premium to the developed market version. With the politics more unpredictable, the economies more cyclical and the currencies less resilient, investors have demanded higher yields. Today, that risk premium persists – but with only the label ‘emerging market’ bringing higher yield levels. “Rating for rating – so triple-B versus triple-B – investors still get a 50-75 basis points pick-up for investing in emerging markets,” notes Vandenhoeck.
Yet emerging market debt has changed – and while the differential between it and the developed-world equivalent has narrowed, sentiment has not necessarily caught up with reality. “This is no longer my grandmother’s or my mother’s emerging markets,” is how Vandenhoeck puts it.
“Yes, we had the crises in the late 1990s and early 2000s, where the World Bank or IMF had to step in. Yet many emerging markets introduced flexible exchange rates to absorb those transitions – as well as inflation targeting and fiscal prudence – and that is really what is playing out now.”
Emerging markets have a number of factors on their side. They start with lower debt burdens while many did not spend as heavily in the Covid crisis and have been more fiscally prudent. Indeed, in many instances, bond investors have not given them the flexibility to borrow with the same recklessness as developed markets.
Fidelity data shows major emerging markets such as Brazil, Indonesia, Mexico, South Africa and Turkey all have an annual deficit of less than 1% – and, in some cases, a surplus. There are some notable exceptions, such as China and Poland, but overall the debt picture is sound. Most have also been prudent on monetary policy, with central banks moving to respond to higher inflation significantly ahead of developed market central banks.
Furthermore, these countries tend to have growth on their side. “The growth is there because of demographics, because of structural opportunities,” says Philip Fielding, portfolio manager for emerging market debt at Fidelity. “The capex cycle in the US is very strong and some emerging markets exporters are very much benefiting from that. Commodity exporters are also doing well. Overall growth rates continue to be significant.”
Politics had been the major bugbear of emerging market economies as even those that had looked quite prudent could suddenly take an unexpected political turn and plunge themselves into crisis. Increasingly, however, that risk appears more evident in developed markets. “We just went through an entire election cycle in Latin America, which delivered a lot more market-friendly governments,” says Fielding. “We will shortly see whether that continues with Brazil but we are very much focused on some of these stories where you have a new market-friendly government.”
The risks for emerging markets would now largely appear external as rising bond yields in the US – and a subsequent rise in the dollar – could crowd out the asset class.”
This makes the perception of risk in emerging market debt look outdated. Virtually half (49%) of emerging market sovereign debt is investment grade, along with 64% of emerging market corporate debt. This rises to 79% for emerging market local currency debt.
“We have attractive yields for really attractive credit quality in emerging markets,” says Fielding, “and we have really good diversification in most of our industries across several different sectors.”
Investors can now build more diversified income portfolios with emerging market debt, argues Fielding, adding: “Some emerging markets are hiking, other emerging markets are cutting rates and so there are quite a few things to do for active management. There are always good stories and bad stories playing out.”
The risks for emerging markets would now largely appear external as rising bond yields in the US – and a subsequent rise in the dollar – could crowd out the asset class. Invesco’s Vandenhoeck argues the dollar is overvalued, noting: “Over the last three to six months, the US dollar – as measured by the DXY index – has been trading between 97 and 102. The fair value of the dollar, depending on which model you use is around 85 – so around 15% away from fair value. We believe there is quite a bit of room for other currencies to strengthen.”
Risk may indeed be more perceived than real but investors could very well retreat to developed market bonds if the sell-off continues and the yield gap narrows. That said, investors in emerging market debt are paid to wait out the volatility.
Yields on funds in the sector are as high as 7% or 8% while, as Jupiter data shows, emerging market bonds have far higher real yields – for example, 10.1% for Brazil, 5.2% for Mexico, 4.5% for South Africa and 2.4% for Czechia – than the sub-1% on offer from Australia, Germany or Japan.
Over the longer term, emerging market debt has significant outpaced that of its developed-market peers. The average fund in the IA Global EM Bond (Local Currency) sector is up 20.1% over three years, compared with just 3.5% for the IA Global Government Bond grouping. Amid the current turmoil in developed market bonds, emerging market debt increasingly looks a more stable option.
In focus: Diesel words
US president Donald Trump is worried about diesel prices. So far, this has led him to threaten export bans to European partners, ultimately forcing them to release reserves. More recently still, it has seen him cosy up to Vladimir Putin to secure the release of 300,000 tonnes of diesel immediately “to the American and global marketplace”, with more set to follow.
Fuel prices have soared since the start of the war in Iran and, last week, US diesel prices edged towards $6.30 (£4.76) per gallon – significantly above the $3-$4 level seen before the war started. Estimates from commodities intelligence firm Argus, reported by Reuters, suggest around 60% of the diesel price increase is linked to the Strait of Hormuz and around 40% to the Russia-Ukraine conflict.
Previous attempts by Trump to influence the price – pressuring European powers to release reserves and expanding access to ‘red-dyed’ diesel have failed. And while the deal with Putin has had some impact on the price, Trump’s recent social-media declaration that “Diesel prices for Americans and, indeed, the world, will be COMING DOWN, IN RECORD NUMBERS, AND FAST!” looks wide of the mark.
There are other worries too – for example, analysts at Oxford Economics have warned difficult weather conditions could push the price higher again. “Hurricane Isaias will likely make landfall on the Gulf Coast and, while oil prices are normally the focus of hurricanes in this region, the bigger concern is diesel given current prices ahead of the hurricane,” they noted last week.
“Around 2.7m barrels per day of capacity – roughly 14% of the US total – sits within or near the projected path. The good news is that the main refining hubs in Texas and western Louisiana are not in the hurricane’s direct path.”
Trump’s actions suggest one, potentially reassuring, element – he actually cares about the mid-terms. There had been a sense that with his name not on the ballot, a rout for the Republicans would not trouble him overly much. Now, however, he appears to recognise how much damage higher fuel costs are doing to Republican chances – and it bothers him.
Ultimately, a more straightforward path towards pushing down diesel prices would be to work harder on a ceasefire with Iran and reopen the Strait of Hormuz. As Ashley Kelty, an energy analyst with the investment bank Panmure Liberum, wrote of Trump’s Putin deal in the Guardian: “It is not going to have any impact on prices. The first amount [due to be shipped to the US] is so small.
“They are going to have to charter vessels, load them and transport the cargo to the US. That will take about three weeks – so we are pretty much at the end of the month and about a week before the midterms.” If Trump was hoping to change his party’s electoral fortunes, this latest move appears likely to come too late.
