Rate rises are back on the table as oil, France and AI rattle markets

Opening

This was a week in which the direction of travel on interest rates flipped in several places at once. American inflation is running at 4% again, euro area inflation is back near 3.75%, Indian rate-setters are debating how much more to tighten, and Japan's central bank is widely expected to keep nudging rates up. Meanwhile oil touched a five-month high on attacks on Saudi energy sites, France's borrowing costs crossed a line not seen since 2002, and a wobble in AI and chip shares knocked Asian markets. The S&P 500 closed Friday at 7,623.68, down 0.47% on the week; the Nasdaq fell 0.71%; the Nikkei dropped 4.2% and the KOSPI 5.18%.

United States

The Fed meets on Wednesday with an awkward set of numbers. September CPI inflation came in at 4.02% year on year, up from 3.71% in August, while core CPI — which strips out food and energy — was steadier at 2.79%. Unemployment edged up to 4.2% in September from 4.1%. Nearly all economists in a Reuters poll expect the Fed to skip October and raise rates again in December, though at least one large bank stuck with an October move even as markets bet against it. One analysis this week argued US inflation is neither getting much worse nor much better, while consumers hold up.

Bond yields eased into the weekend: the 10-year Treasury yield closed at 4.99% on Friday, with the gap between 10-year and 2-year yields (the "yield curve", a rough read on growth expectations) at 0.31 percentage points. That still leaves households paying a lot: the average 30-year fixed mortgage was 7.32% on 22 October. Estate agents report that sellers are cutting prices and helping buyers close deals in a stagnant market. Politics is pressing in too, with the midterms two weeks away: a Reuters/Ipsos poll put President Trump's approval at a record low 31%, and a tariff pause on beef angered some US ranchers while lifting Brazilian imports.

Euro area

France was the story. The 10-year French government bond yield passed 5% for the first time since 2002 as a budget deadlock and street protests collided; the government deployed troops after weekend unrest and admitted failures, and protest groups are demanding more rallies. On Friday, France avoided a downgrade from Moody's, a modest relief after a week in which Paris-listed stocks, bonds and the euro all fell. Why it matters beyond France: government borrowing costs set the floor for what banks charge companies, and a stressed sovereign tends to drag on credit conditions across the single currency area. Analysts were openly asking whether French bond turmoil could force the ECB's hand.

The ECB's deposit rate was 2.5% as of Thursday, with euro area inflation at 3.75% in September (up from 3.23%) and unemployment steady at 6.4% in August. The Financial Times reported the ECB is on course for another rate rise this year, and economists surveyed by Bloomberg expect a December increase after a pause. Euro area government debt was 88.8% of GDP in the second quarter. The Euro Stoxx 50 fell 0.85% on the week; the DAX rose 0.27%; EUR/USD was 1.12. In Britain, attention turns to the Budget, with the BBC framing the task as sustaining a stronger economy through gathering clouds.

Asia

China's third-quarter GDP grew 4.5% year on year, beating forecasts on an export surge, with September activity stabilising and growth helped by an AI-related export boom. Benchmark lending rates were left unchanged for a 17th straight month. Party leaders gather this week for the Fifth Plenum, with Xi Jinping's anti-corruption campaign in the spotlight.

Japan's central bank meets on 29-30 October. It is expected to hold rates around 1.25% while assessing whether underlying inflation has hit 2%, possibly raising its inflation forecast, with a Reuters poll pointing to a hike to 1.50% in December. The yen was 157.37 to the dollar, having strengthened during the week as risk aversion rose. Japanese firms are also compensating users as cyberattacks buffet the economy.

In India, the central bank governor said rate cuts are off the table for now and that further hikes depend on inflation, with the Reserve Bank's minutes showing rate-setters flagging more hikes but wary of an aggressive cycle and the governor describing growth as resilient at 7.1% with inflation a red flag. Korea took the hardest hit: chip losses after a US selloff and a weak debut for a Korean AI-cloud company left the KOSPI down 5.18% on the week and 20.61% over a month.

Debt and politics

Energy and geopolitics drove prices. The Houthis said they attacked Saudi oil pumping stations and Riyadh airport; the airport reopened even as further strikes were threatened. Brent hit a five-month high and settled at its highest since April on Friday, before slipping on Monday as traders weighed US-Iran diplomacy and demand destruction. Brent stood at $109.94 and WTI at $101.05 on Monday, with WTI down 2.52% on the week but up 9.13% on the month — a direct input into transport costs and headline inflation everywhere. Gold fell 3.21% on the week to $4,026.70; bitcoin fell 4.41%.

The electoral calendar is crowded: Aleksandar Vucic conceded defeat in Serbia, Bulgaria's presidential race went to a runoff on record low turnout, Brazil's Lula and Bolsonaro voted in the deciding round, and Israel holds an election amid continued operations in the West Bank.

AI and technology

The AI trade is now a macro story. S&P Global flagged potentially hidden AI-related debt at hyperscalers as spending surges, and leaked Anthropic filings showed large losses. Elon Musk said so-called "neoclouds" are "cooked" and that SpaceX would not buy them. Governments are being pulled in, with the US and China forming rival AI blocs that leave other countries torn, and one report warned AI spending fears could swamp big tech's earnings. For finance teams, the practical question is less about share prices than about power bills, data-centre contracts and the credit markets now funding this build-out.

Company news and results

With more than a third of S&P 500 companies about to report, two semiconductor-linked sets of numbers stood out. Lam Research reported September-quarter revenue of $8.22bn, up from $6.72bn in the June quarter, with GAAP diluted EPS of $2.19 against $1.81, and guided to $8.60bn plus or minus $400m for the December quarter (per its SEC filing). Western Digital reported fiscal first-quarter revenue of $4.381bn, up 55% year on year, non-GAAP diluted EPS of $4.64 versus $1.78 a year earlier, raised its quarterly dividend 17% to $0.175 a share and guided to about $5.1bn of revenue next quarter (per its SEC filing).

Elsewhere, SpaceX filed quarterly results with the SEC on 20 October, and in pharma, Roche targeted the emerging oncology market with a new lung-cancer drug while AstraZeneca readied a portfolio of targeted cancer therapies. A trial of a cancer vaccine cut melanoma recurrence or death risk by 42%.

Market mood

Nervous. The VIX closed at 19.52, up 5.86% on the week. CNN's Fear & Greed index was 21 — "extreme fear" — unchanged on the week and down from 37 a month ago. High-yield credit spreads, the extra yield investors demand to lend to riskier companies, were 3.40 percentage points on 22 October, up from 3.27 the day before: a small widening, not a rupture. Reddit's most-mentioned tickers mixed broad index funds with speculative AI and cloud names, an unverified but telling sign that retail attention is split between hiding and chasing. Monday brought stock futures climbing after the S&P 500's losing week even as Asian shares slipped and oil fell.

What to watch next week

Three central banks, one Chinese plenum and two elections, in a week when the inflation data has already made the arguments harder.

On the calendar next week

• →US Federal Reserve rate decision, Wednesday
• →Bank of Japan policy meeting, 29-30 October
• →European Central Bank rate decision, Thursday
• →China's Fifth Plenum of the Communist Party leadership
• →Israel's general election
• →Brazil's presidential runoff result and Bulgaria's presidential runoff

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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 26 October 2026. It is general commentary, not investment advice or a recommendation to buy or sell anything.