Global Markets Overview: October 2026

In the U.S., over the course of 2026, strong economic growth, persistent core inflation, and higher headline inflation from rising energy prices have caused investors to move from expecting U.S. interest-rate cuts to pricing-in further increases. This continued over September, driving a sharp rise in U.S. government bond yields. U.S. policy interest rates and bond yields are a bellwether for global interest rates. Consequently, while different countries are facing different domestic drivers of their interest rates, rising U.S. interest rates are also having an important global ripple effect.

• In the U.S., economic strength has flowed into stubbornly high core inflation – key drivers of the shift from expected rate cuts to hikes over 2026, in addition to the U.S.-Iran conflict. At the start of the year, markets expected the Federal Reserve to cut rates two or three times. Instead, we have seen strong U.S. real economic activity – stronger than consensus U.S. GDP growth, supported by AI-related investment, fiscal spending, a resilient consumer, and a robust labour market. These have contributed to U.S. core inflation remaining elevated. At the same time, higher energy prices from the ongoing conflict in the Middle East have also added to both U.S. core and especially headline inflation. These have led to the Federal Reserve raising rates in September for the first time in more than three years. Elsewhere, the European Central Bank and Bank of Japan have both raised interest rates twice this year.
• In September, government bond yields rose sharply, while global equities proved resilient. U.S. Treasury yields moved the most, with the 10-year yield rising by around half a percentage point. At the headline level, U.S. equities weathered the increase in interest rates well, supported by continued AI investment and strong earnings expectations. Beneath the surface, sectors sensitive to borrowing costs and energy prices struggled, while returns outside the U.S. were generally weaker.