Central banks sit still while oil, AI and an election do the moving

The week in one paragraph

Three big central banks met and all three did nothing. The Federal Reserve held rates steady on 28 October, so did the European Central Bank, and the Bank of Japan kept policy unchanged while saying inflation has finally reached its target. The real movement came from elsewhere: attacks on shipping in the Strait of Hormuz pushed oil up and then back down again as peace talk emerged, a spending scare hit the biggest artificial-intelligence companies, and Christine Lagarde announced she is leaving the ECB early. American voters go to the polls on Tuesday. Markets ended the week jittery rather than panicked: the S&P 500 closed at 7,580.07 on 30 October, down 0.57% on the week, while the Nasdaq Composite fell 2%.

United States

The Fed left its policy rate alone, saying it wanted an "accumulation of more information" before moving again, despite inflation it called elevated. It is easy to see why it is stuck. September CPI inflation was 4.02% year on year, up from 3.71% in August, but core inflation — which strips out food and energy — was much calmer at 2.79%. In other words, the headline jump is largely an energy story, and energy is being set in the Gulf rather than in Washington. Unemployment was 4.2% in September, a touch above August's 4.1%.

Borrowing costs stayed high. The 10-year Treasury yield, the benchmark for corporate borrowing and US mortgages, closed at 4.93% on 30 October; the two-year was 4.61% on 29 October. The gap between the two — the "yield curve", which shows whether investors demand more to lend for longer — was a positive 0.38 percentage points, the normal shape, but at a high level overall. For finance directors that means refinancing in 2027 will not be obviously cheaper than refinancing today.

Equities had an uncomfortable month. The Nasdaq is down 6.45% over four weeks, while the Russell 2000 index of smaller companies actually rose 1.29% on the week — a rotation away from the biggest technology names rather than a broad retreat. This week brings the October jobs report and the midterm elections on 3 November, with investors already gaming out what different outcomes in Congress mean for spending and AI policy.

Euro area

The economy grew 0.4% in the third quarter from the second, with France contracting while the bloc as a whole held up. German inflation cooled, helped by a fuel tax cut, and the German economy grew more than expected. Euro area HICP inflation was 3.75% in September, up from 3.23% in August, and unemployment held at 6.5% — low by the region's own history.

The week's surprise was personnel, not policy. Lagarde said she will step down early, in February, telling reporters she could not remain neutral on world events and, as several outlets framed it, allowing EU leaders to choose a successor before France's elections. The deposit rate stayed at 2.5%. French government bond yields were already the highest of the big three at 4.48% in September, against 3.47% in Germany, a reminder that politics still shows up in national borrowing costs.

In Britain, the Bank of England is expected to raise rates this week, while possibly pushing back on bets for more. Millions of households are due to remortgage onto worse deals — a direct hit to disposable income. Away from markets, Gen Z protests in Germany turned violent as unrest in France eased, and Bulgaria elected a new president.

Asia

The Bank of Japan held, but with a notable line: it judged that trend inflation has hit the 2% target. Tokyo CPI rose 2.8% in October, and core inflation stayed above target ahead of the decision. The yen was at 157.89 to the dollar, barely changed on the week; Japan's 10-year yield was 3.05% in September, a level that would have been unthinkable a few years ago. The Nikkei rose 1.43% on the week but is down 9.81% over the month.

China went the other way. The official manufacturing PMI fell to 49.3 in October, with the non-manufacturing index at 49.7 — both below the 50 mark, meaning activity is shrinking. New export orders weakened, and it was the third contraction in four months. The Shanghai Composite fell 1.61% on the week. India looks very different: the RBI raised its FY27 inflation forecast to 5.2% while projecting 7.1% GDP growth, and the finance ministry pegged second-quarter growth at 7.35%. The Sensex gained 2.83%. Korea's KOSPI jumped 7.12% as investors looked past the US tech rout. Elsewhere, Australia's housing slump deepened as the RBA prepares another rate rise, and Taiwan accused China of harassment after a standoff between ships.

Debt and politics

Oil dominated. Iran's IRGC Navy said two tankers exploded after hitting mines in Hormuz, with ships carrying around 2m barrels affected, though tankers kept crude flowing. Then on Monday prices fell more than 4% as peace talks eased supply fears, leaving Brent at 108.63 a barrel, down 6.2% on the week but still 8.28% higher over the month. That swing is the single biggest input into household fuel bills and freight costs right now. Meanwhile nine big oil firms are on track to share more than $95bn of profit for a second straight quarter.

On debt, Wall Street is bracing for the biggest overhaul of Treasury issuance in years, with long-bond cuts and greater reliance on short-dated bills in focus. US federal debt was 121.19% of GDP in the second quarter, and commentators argue the Treasury is now managing debt costs as much as inflation. Euro area government debt was 88.8% of GDP in the second quarter.

AI and technology

The AI trade had its worst stretch in a while. Big Tech shed close to $900bn in a rout over soaring AI spending, and the Nasdaq faced a roughly $2trn wipeout in October as those fears deepened; Google and Microsoft held off raising their capital-spending forecasts. Against that, Anthropic plans to sell up to $3.5bn of shares to Japanese investors as part of its US IPO, and Marvell agreed to buy optical-components maker Lumentum in a $115bn deal aimed at AI data centres. The gap between enthusiasm for AI infrastructure deals and nervousness about who pays for it is the defining market tension of the moment.

Company news and results

Reported figures this week were mixed across sectors. Linde, the industrial gases group, reported third-quarter sales of $9,404m, up 9% year on year, with diluted EPS of $3.66, down 11%, and adjusted EPS of $4.59, up 9%, in its SEC filing; it guided full-year adjusted EPS to $17.82–$17.92 and capital expenditure of $5.5bn–$6.0bn. Volumes grew fastest in electronics, chemicals and energy — the same end markets feeding the data-centre build-out.

In deals and incidents: Marvell's purchase of Lumentum was confirmed after earlier reports of advanced talks; the FBI linked North Korea's TraderTraitor group to a record $6.43bn crypto heist at Binance; and supermarket freezers in Belgium, Sweden and Luxembourg were hit by a suspected cyber-attack — a reminder that operational resilience is now a board-level cost line.

Market mood

Fear is the word. The VIX stood at 19.41 on 2 November, up about 25% over the month, and CNN's Fear & Greed index fell to 25 — "extreme fear" — from 30 a week earlier and 38 a month ago. High-yield credit spreads, the extra interest riskier companies pay over the government, widened to 3.26 percentage points on 29 October from 3.14 the previous day: a nudge wider, not a credit event. Gold fell 3.19% on the week to 3,909.40 and bitcoin dropped 4.49%, so this was not a simple flight to safety. On Reddit, attention was split between broad index trackers and a cluster of chip and AI names — unverified opinion, but it suggests retail investors are still watching the same story as everyone else.

On the calendar next week

• →US midterm elections, Tuesday 3 November, and the days of counting that follow
• →US October employment report
• →Bank of England rate decision, Thursday
• →US Treasury quarterly refunding announcement on issuance sizes
• →China October trade data and further PMI readings
• →Reserve Bank of Australia meeting and Australian housing data

The Observer por email

Recibe The Observer en tu correo

Un email cada lunes, cuando se publica la nueva edición (en inglés): el titular, el ánimo del mercado y las tres regiones, con un enlace al texto completo y al audio.

Tu dirección de emailSuscribirme

Solo guardamos tu dirección de email, en nuestro proveedor de correo Resend, para enviarte The Observer. Cada email lleva un enlace para darte de baja con un clic.

Sources

1. Taiwan accuses China of harassment after standoff between ships - Politico — Politico
2. French protest violence eases while scattered riots hit Germany ahead of school return - AP News — AP News
3. Initial results indicate victory for Iotova in Bulgarian presidential vote - Al Jazeera — Al Jazeera
4. Gen Z protests in Germany turn violent as tens of thousands take to streets - The Washington Post — The Washington Post
5. FBI Links North Korea's TraderTraitor to Record $6.43 Billion Binance Crypto Heist - The Hacker News — The Hacker News
6. Investors gaming out Congress control for spending, AI outlook - Reuters — Reuters
7. Anthropic plans to sell $3.5 billion of shares to Japan investors in IPO, filing shows - Reuters — Reuters
8. Marvell to buy Lumentum in $115 billion deal in AI data-center bet - CNBC — CNBC
9. Oil Prices Fall More Than 4% as Iran Peace Talks Ease Supply Fears - WSJ — WSJ
10. Australia’s Housing Slump Deepens as RBA Prepares Another Rate Rise - WSJ — WSJ
11. Nine big oil firms on track to share more than $95bn profit two quarters in a row - The Guardian — The Guardian
12. Kevin Warsh is managing US debt costs not inflation as interest rates risk topping GDP growth soon - Fortune — Fortune
13. Euro zone economy slows to 0.4% growth in Q3 as crisis-hit France contracts - CNBC — CNBC
14. German inflation cools on fuel tax cut, economy grows more than expected in Q3 - Reuters — Reuters
15. Fed leaves rates unchanged as it awaits 'accumulation of more information' - Reuters — Reuters
16. Fed holds interest rates steady in last decision before midterms - The Guardian — The Guardian
17. Fed Holds Rates Steady Despite ‘Elevated’ Inflation - The New York Times — The New York Times
18. VIEW Analysts react to BOJ decision to keep rates steady - Reuters — Reuters
19. BOJ Says Japan’s Inflation Trend Hits 2% Target as it Holds Rates - Bloomberg — Bloomberg
20. China's factory activity shrinks in October, third contraction in four months - Reuters — Reuters
21. China's manufacturing PMI at 49.3, non-manufacturing PMI at 49.7 in October - CGTN — CGTN
22. Tankers defy sharp escalation of Iranian attacks to keep crude oil flowing through Strait of Hormuz - CNBC — CNBC
23. Ships carrying 2M barrels of oil hit mines, explode in Strait of Hormuz: Iran - New York Post — New York Post
24. Oil price falls on optimism talks will bring end to Iran war - The Times — The Times
25. These are the House races to watch in the 2026 midterm election on Nov. 3 - NPR — NPR
26. Wall Street Braces for Biggest Treasury Sales Overhaul in Years - Bloomberg — Bloomberg
27. US Treasury issuance guidance set for biggest overhaul in nearly three years, with long-bond cuts and greater T-bill reliance in focus - BigGo Finance — BigGo Finance
28. Tokyo core inflation exceeds BOJ target in October - Reuters — Reuters
29. Breaking: Japan’s Tokyo CPI inflation climbs 2.8% in October - FXStreet — FXStreet
30. RBI MPC raises FY27 inflation forecast to 5.2%, projects GDP growth at 7.1% - Business Standard — Business Standard
31. Finance ministry pegs real GDP growth at 7.35% in Q2 FY27; cautions about ‘considerable’ uncertainties - The New Indian Express — The New Indian Express
32. Big Tech sheds nearly $900bn in rout over soaring AI spending - Financial Times — Financial Times
33. AI buildout hits snag as Google and Microsoft put off raising capex forecasts - CNBC — CNBC
34. Nasdaq faces $2 trillion wipeout in October as AI spending fears deepen - Reuters — Reuters
35. ECB Leaves Rates Unchanged as Challenges Mount for Lagarde’s Successor - WSJ — WSJ
36. ECB's Lagarde steps down, saying she can't remain neutral on world events - Reuters — Reuters
37. Christine Lagarde is resigning early to let EU leaders pick a successor before France's elections - Fortune — Fortune
38. Christine Lagarde to step down as ECB president in February - Financial Times — Financial Times
39. Marvell to buy Lumentum in $115 billion deal in AI data-center bet - Reuters — Reuters
40. [Closing Market] KOSPI Surges Past 6,000 on SK hynix Earnings - Businesskorea — Businesskorea
41. KOSPI rallies over 2% as investors look past US tech rout - The Korea Times — The Korea Times
42. Week Ahead for FX, Bonds: U.S. Midterms, Jobs Data in Focus; BOE Expected to Raise Rates - WSJ — WSJ
43. Bank of England poised to raise rates but may push back on bets for more - Reuters — Reuters
44. Millions in UK brace to remortgage on worse deals as rate rise looms - The Guardian — The Guardian
45. Linde third-quarter 2026 results (Exhibit 99.1) — SEC EDGAR
46. China’s factory activity slips as new export orders weaken - AP News — AP News
47. Iran's IRGC Navy says two tankers 'exploded' after hitting mines in Hormuz - Reuters — Reuters
48. Marvell Technology in advanced talks to buy optics maker Lumentum, source says - Reuters — Reuters
49. Supermarket freezers in Belgium, Sweden and Luxembourg hit by suspected cyber-attack - BBC — BBC

The audio version is read by Kokoro, an open-source text-to-speech model. The Observer is written by an AI agent (claude-opus-5) from public data — FRED, Eurostat, Yahoo Finance, SEC EDGAR filings, CNN Fear & Greed, Reddit and news headlines — and reviewed before it is published. Market data is as of 2 November 2026. It is general commentary, not investment advice or a recommendation to buy or sell anything.