Global Market Overview
Last week, persistently high energy-driven inflation kept global bond yields near multi-decade highs. Markets remained focused on signs of progress in negotiations involving Iran, the United States and Gulf nations, while closely monitoring the risk of further military escalation and renewed strikes.

U.S. stock index futures edged higher on Friday, supported by a rebound in artificial intelligence infrastructure stocks and a sustained pullback in Treasury yields. S&P 500 and Nasdaq 100 futures rose 0.5% and 1%, respectively, approaching the record highs reached earlier in the week. Traditional sectors also found some relief as long-term bond yields retreated from multi-decade peaks. President Donald Trump's announcement that the United States would refrain from military action against Iran ahead of next month's midterm elections helped ease concerns over energy prices and inflation expectations.

The U.S.–Iran conflict, which began in 2025, has now dragged on for more than eight months. Originally intended as a swift military campaign to bring about regime change in Iran, the conflict has yet to reach a clear resolution. The war has produced a striking contrast: the United States has faced mounting strategic setbacks and geopolitical costs, while the global economy has demonstrated unexpected resilience, supported by multiple economic and financial buffers.

As strategic miscalculations continue to collide with the market's capacity to absorb shocks, one question has become increasingly important: How much longer can this fragile equilibrium hold, and is the global economy approaching its breaking point?

Meanwhile, Japanese Prime Minister Sanae Takaichi emphasised that the government would consider a broad range of economic factors when formulating fiscal policy, including interest rates and movements in the yen. She said the government would continue to monitor exchange rates and inflation closely and take appropriate action when necessary. Her remarks followed a statement the previous day that Japan's economy no longer required policies specifically designed to stimulate inflation. Together, these comments suggest that Japan's economic policy framework may be approaching a significant turning point.

Last Week's Market Performance
U.S. Equity Markets
U.S. equities closed higher on Friday as investors anticipated a strong corporate earnings season. The S&P 500 gained 0.6%, while the Nasdaq 100 advanced 0.5%, leaving both indices near record highs. The Dow Jones Industrial Average climbed 423 points.

Solid corporate performance across multiple sectors has been a key driver of this year's equity market returns. For the week, the S&P 500 advanced 0.9%, the Nasdaq declined 0.1%, and the Dow gained 585 points.

Gold
Gold rose more than 1% on Friday, reaching approximately $4,207 per ounce, its highest level in a week. Investors weighed a softer U.S. dollar and declining oil prices against the possibility of further interest rate hikes by the Federal Reserve.

After initially attempting to break above the previous week's high, gold surrendered part of its gains and slipped back below $4,200 per troy ounce on Friday.

The U.S. dollar's strong upward momentum, combined with rising Treasury yields across the curve, continued to limit gold's upside potential.

Silver
Silver surged more than 2% towards the end of last week, climbing to approximately $60.50 per ounce and rebounding from a two-month low.

A weaker U.S. dollar and lower oil prices supported the precious metal, although concerns over further Federal Reserve tightening remained.

Oil prices eased following their recent rally after President Trump stated that Washington would not launch strikes against Iran ahead of next month's U.S. midterm elections, while diplomatic efforts to end the conflict continued.

U.S. Dollar Index (DXY)
The U.S. Dollar Index traded broadly unchanged around 102.20 on Friday but remained on track for a weekly gain of nearly 0.2%. This would mark its fourth consecutive weekly advance, taking the dollar to its strongest level since April 2025.

Investors continued to assess developments in the Middle East and their implications for energy prices and inflation.

Markets nevertheless maintained expectations that the Federal Reserve would keep interest rates higher for longer to contain persistent inflationary pressures.

Current market pricing indicated an approximately 81% probability that the Fed would leave rates unchanged this month, alongside a roughly 69% probability of a 25-basis-point increase in December.

Major Currency Pairs
EUR/USD — Euro / U.S. Dollar

The euro recovered above $1.12 after hitting a 17-month low of $1.1161 earlier in the week.

Stabilisation in the French bond market, easing energy prices and declining U.S. Treasury yields helped curb the dollar's advance and provided support for the euro.

Nevertheless, the single currency remained on course for a fifth consecutive weekly decline, with cumulative losses of approximately 3% against the dollar. Investors continued to weigh concerns over France's record debt levels and the political challenges of implementing budget cuts against the resilience of the U.S. economy and the dollar's underlying strength.

USD/JPY — U.S. Dollar / Japanese Yen

USD/JPY held its gains around 158.00 after data released on Friday showed that Japanese household spending had declined for a ninth consecutive month, weighing on the yen.

Meanwhile, the dollar remained under pressure following an overnight decline in U.S. Treasury yields. This offset some of the support provided by the Federal Reserve's hawkish stance and ongoing geopolitical uncertainty, potentially limiting downside moves in the currency pair.

GBP/USD — British Pound / U.S. Dollar

Sterling rebounded from a three-month low to trade around $1.324.

Lower oil prices and greater stability in global bond markets improved risk sentiment, providing support for the pound. Investors were also assessing hawkish comments from Bank of England policymakers, which reinforced expectations of a relatively restrictive monetary policy stance.

AUD/USD — Australian Dollar / U.S. Dollar

The Australian dollar regained momentum on Friday, extending the previous session's rebound from its weekly low and targeting the 0.7000 level during Asian trading hours.

An overnight retreat in U.S. Treasury yields kept the dollar below its 18-month high, offering support to AUD/USD.

At the same time, expectations of a hawkish Reserve Bank of Australia continued to underpin the currency pair.

Crude Oil
Crude oil traded around $91 per barrel towards the end of last week after President Trump stated that Russian President Vladimir Putin had agreed to release diesel supplies into global markets.

Meanwhile, the U.S.–Iran conflict continued to disrupt shipping activity. Numerous tankers remained outside the Strait of Hormuz, conducting ship-to-ship transfers and contributing to a surge in global freight rates to record highs.

Earlier in the week, Trump indicated that the United States would not launch further strikes against Iran before November's midterm elections and described ongoing discussions with Tehran as productive.

Despite these developments, oil prices rose approximately 0.65% over the week.

U.S. Treasury Market
The 30-year U.S. Treasury yield encountered substantial buying interest as it approached 5.75%, triggering a significant single-day reversal. A $22 billion reopening auction attracted strong demand, highlighting investor appetite for long-duration government bonds at elevated yields.

Meanwhile, hedging costs in the options market remained high. Hedging activity associated with AI-related corporate bond issuance, together with mortgage convexity hedging, continued to generate short-term selling pressure.

The 10-year Treasury yield also remained firmly anchored at elevated levels, supported by two structural factors: substantial U.S. fiscal deficits and the significant capital investment required by the artificial intelligence industry.

Together, these forces continued to reinforce expectations of a structurally higher long-term interest rate environment.

Market Outlook: October 12–16
In the week ahead, investors will focus primarily on September's U.S. inflation data, including the Consumer Price Index (CPI) and Producer Price Index (PPI), alongside a series of speeches from senior Federal Reserve officials.

These developments will be critical in assessing the likelihood of interest rates remaining elevated and the potential for further gradual monetary tightening. The resulting shift in expectations could influence the near-term direction of U.S. equities, Treasury bonds and commodities.

The Federal Reserve has maintained its current restrictive interest rate stance, while several policymakers have delivered hawkish signals in response to persistent inflationary pressures. These pressures have been driven by both supply- and demand-side factors, with tariffs adding another layer of inflation risk.

As one senior Wall Street chief investment officer observed:

“When you look beyond the day-to-day market noise, the Federal Reserve and interest rates remain the dominant drivers. Inflation data, together with the balance of hawkish and dovish commentary from policymakers, will provide the clearest indication of how the Fed's policy outlook is evolving. These factors will be central to market pricing throughout the fourth quarter.”
Despite multiple risks, particularly persistently elevated long-term Treasury yields, U.S. equities have continued to demonstrate underlying resilience, although performance remains uneven across sectors.

Investors are increasingly demanding higher returns to compensate for duration and inflation risks. As a result, Treasury yields are likely to remain elevated, with heightened volatility continuing to characterise the bond market.

Conclusion
The central theme for the week ahead will be the resilience of U.S. inflation and the Federal Reserve's commitment to maintaining restrictive monetary policy.

The upcoming CPI and PPI releases will provide an opportunity to reassess the inflation outlook, while a series of speeches from Federal Reserve officials will help shape expectations for monetary policy during the fourth quarter.

At the same time, substantial capital expenditure across the artificial intelligence industry and persistent U.S. fiscal deficits are providing structural support for longer-term Treasury yields.

These factors reinforce the higher-for-longer interest rate narrative, creating ongoing valuation pressure for U.S. equities, particularly growth-oriented sectors.

In the near term, the market outlook can be summarised by three key drivers:

Economic data will determine direction, Federal Reserve commentary will set the pace, and developments in AI and energy markets will shape sector performance.

Stronger-than-expected inflation readings or more hawkish comments from Fed officials could push Treasury yields higher and trigger renewed volatility in U.S. equities.

Conversely, signs of easing inflationary pressure could provide temporary relief for bond markets and create opportunities for a recovery in growth stocks.

Overall, investors should remain attentive to inflation surprises, policy signals and geopolitical developments, as these factors are likely to determine market sentiment and asset price movements in the coming week.