October was characterised by renewed escalation in the Gulf and the first signs that the AI-driven equity rally was becoming more selective. Attacks on shipping in the Strait of Hormuz intensified, while Houthi strikes on Saudi infrastructure pushed Brent crude above $116 a barrel on 23 October, its highest settlement since April. Prices subsequently eased to around $114 as renewed diplomatic efforts in Tehran raised hopes of a negotiated resolution. European gas prices also surged, crossing €100/MWh for the first time since 2022.
Despite the energy shock, global bond markets recovered from September’s sell-off. Government bond yields initially rose amid renewed inflation concerns but subsequently retreated by approximately 20-30 bps across the US, UK and Germany, as heightened geopolitical uncertainty and a global semiconductor sell-off prompted demand for safe-haven assets. Equity markets remained volatile, with a mid-month technology-led sell-off followed by intermittent recoveries. US and European indices ended the month modestly higher, while Japanese and Chinese markets came under pressure as concerns over AI-related capital expenditure weighed on technology stocks. Gold also retreated from record levels to trade below $4,000 an ounce, as a firmer US dollar and changing interest-rate expectations weighed on prices.
United States
US entered November with a dual policy and political focus: the Federal Reserve’s October pause and the Midterm elections. The US economy continued to expand at a strong pace, with Fed Chair Kevin Warsh indicating that third-quarter growth was estimated above 3%. Annual inflation accelerated to 3.7% in September from 3.4%, with petrol prices up 34% year on year. The labour market softened, however, with September payrolls up just 29,000 and unemployment at 4.2%.
The Federal Reserve held rates at 3.75%-4.00% on 28 October, citing elevated inflation and the need for more evidence before acting again; markets nevertheless continued to price a meaningful chance of another hike in December. Treasury yields retreated from multi-decade highs, with the 10-year falling from 5.29% at the end of September to around 5.03%.
US equities delivered mixed performance in October. The S&P 500 gained around 0.9% in October while the Nasdaq Composite slipped roughly 2.5% after reaching record highs early in the month, as a semiconductor sell-off and concerns over the scale of AI-related capital expenditure following Alphabet’s earnings update unsettled investors. Large-cap technology and communication services stocks maintained modest gains on the back of resilient quarterly corporate earnings and sustained AI infrastructure spending, while real estate, utilities, and small-caps faced severe downward pressure from elevated borrowing costs. Broad market trading remained cautious as the US midterm elections approach. The dollar index rose about 0.7%.
United Kingdom
The UK’s economic and market outlook in October was shaped by the Autumn Budget, delivered by Chancellor John Healey on 28 October, and on the Bank of England’s tightening dilemma. UK markets faced a combination of rising inflation, elevated energy costs and uncertainty surrounding fiscal policy.
Annual CPI inflation increased to 3.5% in September from 3.1% in August, driven by motor fuel prices, while services inflation rose to 3.7%. The flash composite PMI jumped to 53.1 in October, an eight-month high, and unemployment fell to 4.7% in the three months to August.
The Bank of England held Bank Rate at 3.75% in September, however markets now overwhelmingly expect a 25 bps hike at the 5 November meeting. Meanwhile, Gilt yields were volatile; the 10-year breached 5.5% on 1 October, its highest since 2007, and 30-year Gilt yields briefly breached 6.0% for the first time in decades. Sterling strengthened to around $1.33.
On 28 October, the UK government presented a cautious Budget prioritising fiscal stability, with commitments to existing fiscal rules and a smaller fiscal cushion amid higher energy prices and borrowing costs. It avoided broad-based tax increases while maintaining fiscal discipline. The Office for Budget Responsibility still revised its inflation and borrowing assumptions higher. Markets reacted relatively modestly, with UK equities, bonds and sterling showing limited immediate movement.
The UK equity market proved to be one of the relatively stronger performers among developed peers during October. The FTSE 100 benefited from its significant exposure to multinational energy producers, miners and financial institutions Shell reported its strongest quarterly earnings since 2022. However, mid-cap domestic equities (FTSE 250) traded with heightened volatility ahead of expected UK Autumn Budget tax adjustments.
Eurozone
European markets faced notable headwinds throughout October, weighed down by the region’s acute vulnerability to imported energy inflation. Euro area inflation accelerated for a third consecutive month to 3.8% in September 2026, the highest in three years.
Following a 25 bps interest rate hike by the European Central Bank (ECB) in late September, the ECB paused policy adjustments in October while signalling a possible December move. President Lagarde announced her resignation on 29 October, and effective February 2027.
Broader European economic growth remained modest, hovering near stagnation. Heavy manufacturing and energy-intensive industrial bases across Germany and Central Europe experienced margin compression due to elevated power costs.
The STOXX Europe 600 edged up 2.24% for the month until 29 Oct. Bund yields fell roughly 20 bps to around 3.37%, but French bonds remained under pressure, with the OAT-Bund spread widening to as much as 175 bps on fiscal concerns. The euro weakened to a 17-month low near $1.11.
Japan
Japanese markets were particularly sensitive to developments in global technology stocks, currency movements and expectations for domestic monetary policy. A sharp technology-led sell-off this month demonstrated the vulnerability of semiconductor and AI-related shares to changing expectations around future earnings and capital expenditure.
Japan’s core inflation rose to 2.1% in September from 1.9%, the highest since December 2025, keeping the Bank of Japan on a tightening path even though energy was the principal driver. At its 30 October monetary policy meeting, the BoJ held its policy rate steady at 1.25%. The 10-year JGB yield eased from 3% to around 2.78% as global yields fell, and the yen traded at approximately ¥158 against the US dollar.
The Nikkei 225 fell around 5% in October after a sharp mid-month sell-off in semiconductor-related names, although it remains up around 22% year to date.
China
China’s economy grew 4.5% year on year in the third quarter, slightly ahead of expectations, with industrial production up 5.5% and retail sales up 1.1% in September. Exports surged 36.3% year on year, producing a trade surplus of $133.5 billion, the second largest on record, as AI-related demand lifted shipments. Property investment, however, fell by 20.6% year on year during the first nine months of the year.
In contrast to Western economies, consumer price inflation in China remained muted, reflecting persistent soft domestic consumption and ongoing weakness in the property sector, though producer prices rose 5.0%, the fastest pace in over four years. The People’s Bank of China (PBoC) kept its benchmark loan prime rates unchanged in October, opting to rely on targeted liquidity injections rather than broad rate cuts. The yuan strengthened to a four-year high of 6.66 to the dollar.
China’s equity market was the weakest major region in October. Mainland stocks entered bear-market territory during the month, prompting reports that state-backed funds stepped in through ETF purchases to stabilise sentiment. The CSI 300 posted an 11th consecutive weekly decline, the longest streak on record, the Shanghai Composite fell around 5% and the Hang Seng around 6%, as AI capital expenditure concerns and a draft to restrict exports of 40 technologies weighed on semiconductor and technology names.
The global energy shock still mattered indirectly. Higher oil raised China’s import bill and could pressure industrial margins, while weaker external demand from Europe and the US would weigh on exports. At the same time, China’s lower inflation environment gave policymakers more room to ease domestically, even as Western central banks were considering further hikes.
Looking ahead, investors will remain focused on the duration of the energy shock, the implications for inflation and interest rates, and whether corporate earnings can justify elevated technology valuations. The US midterm elections and the evolving fiscal outlook in the UK will provide additional considerations as markets move into November.
Contact us
Disclaimer:
This article is provided for general information purposes only and does not constitute financial, tax or legal advice. The information is based on current legislation and HMRC guidance, which may be subject to change. Individuals should seek independent advice based on their personal circumstances before making any financial decisions.
Past performance is not an indicator of future performance.
GSB Capital Ltd is regulated by the Dubai Financial Services Authority (DFSA) under reference number F006321 and is registered in the Dubai International Financial Centre under licence number CL4377.