Global Macro and Markets Briefing – 26 October 2026
Resilient growth meets a more demanding market
Investors enter the final week of October facing an uncomfortable combination. Economic growth, particularly in the United States, remains surprisingly strong. Yet higher oil prices, persistent inflation and growing questions about the returns on artificial intelligence investment are making it harder for equity markets to sustain their earlier enthusiasm.
The latest US business surveys underline the dilemma. The S&P Global composite PMI slipped from 58.4 in September to 57.6 in October, but still recorded its second-strongest expansion since March 2022. New business continued to grow rapidly, while firms reported their sharpest increase in selling prices in more than four years.
That hardly describes an economy in need of immediate monetary support. If anything, the strength of demand gives the Federal Reserve another reason to be cautious about inflation.
Elsewhere, the picture is more mixed. The eurozone composite PMI declined from 53.1 to 51.9, with renewed weakness in France weighing on regional activity. Britain offered a more encouraging surprise, with its composite PMI climbing to 53.1.
The divergence matters. While the US economy appears capable of absorbing restrictive borrowing costs, the eurozone has less room to manoeuvre if energy prices remain elevated.
AI investors are starting to ask harder questions
Corporate earnings have added another complication.
Meta reported strong third-quarter revenue growth of 26%, but its substantial investment commitments remain a concern. The company now expects capital expenditure of between $135 billion and $145 billion in 2026, compared with its previous forecast of $130 billion to $145 billion. Heavy spending contributed to negative quarterly free cash flow of $2.12 billion, while a separate $9.89 billion litigation charge weighed on operating profit.
The company also announced plans for a new class of non-voting shares, introducing another consideration for investors assessing its future financing needs.
Tesla provided a different example of the same uncertainty. Its latest filing reduced the minimum implied level of planned capital expenditure from more than $25 billion to more than $20 billion for 2026. Although the company generated positive free cash flow, the spending revision raised questions about the timing of its longer-term projects.
Neither example proves that AI investment is excessive. It does suggest that investors are becoming less willing to accept ambitious expenditure programmes without greater clarity on eventual returns.
This change in sentiment was visible across Wall Street last week. The NAS100 lost 0.7% and the SPX500 fell 0.3%, while the US30 gained 0.7% and the US2000 advanced 2.0%.
That divergence is worth watching. Investors have not abandoned equities, but they appear increasingly willing to look beyond the largest technology companies.
Oil remains the immediate inflation threat
Energy markets may prove even more important than corporate earnings.
UKOil gained 6.4% last week, settling at $116.79 a barrel as concerns about Middle Eastern supply disruptions intensified. Reports of renewed diplomatic efforts involving Qatar and Iran helped prices retreat towards $115 today, although tensions remain unresolved.
The economic consequences extend well beyond fuel costs.
Higher oil prices squeeze household purchasing power, increase business operating expenses and complicate the outlook for inflation. For central banks already concerned about price pressures, a prolonged energy shock makes policy decisions considerably harder.
There is an important distinction, however. Oil can simultaneously raise inflation and weaken economic growth. Whether policymakers respond by tightening further will depend partly on how persistent the shock becomes and whether higher energy costs spread into broader prices and wages.
Gold has also struggled despite geopolitical uncertainty, trading around $4,000 an ounce earlier today. Its weakness suggests that interest-rate expectations and profit-taking have, at least temporarily, competed with traditional safe-haven demand.
Central banks face a difficult balancing act
This week's policy decisions will help determine whether markets can regain some confidence.
The Federal Reserve is widely expected to leave its target range unchanged at 3.75% to 4.00% on Wednesday. In a Reuters survey, 94 of 100 economists anticipated no October change, while all respondents expected another quarter-point increase in December.
The decision itself may therefore contain few surprises. The more important question is whether Chair Kevin Warsh signals that another increase remains necessary, or places greater emphasis on the tightening already occurring through financial markets.
The European Central Bank faces a different problem. Eurozone growth is losing momentum just as expensive energy adds to inflation pressures. Policymakers are expected to hold rates this week, with December remaining a potential window for another increase.
The Bank of Japan is also expected to remain on hold following September's tightening. Investors will pay close attention to its assessment of inflation and the scope for further rate increases.
The Bank of Canada and the Reserve Bank of New Zealand complete an unusually busy week, with markets anticipating possible tightening from both institutions.
Bonds and currencies show caution rather than panic
US Treasuries have benefited from the retreat in technology shares, with the ten-year yield trading around 4.97% today and the 30-year yield close to 5.30%.
The decline in yields has taken some pressure off the dollar. FXCM's USDOLLAR eased towards 12,750, while the euro traded around $1.122, sterling near $1.339 and the yen around ¥157 per dollar.
These moves do not yet suggest a disorderly retreat from risk. Instead, markets appear to be reassessing valuations and positioning ahead of several potentially important policy announcements.
That distinction matters. A rotation away from expensive technology shares is manageable. A broader loss of confidence in corporate earnings, economic growth and monetary policy would be much more troublesome.
What matters next
Wednesday's Federal Reserve announcement and Thursday's US PCE inflation report are likely to dominate the macroeconomic calendar.
Earnings from Alphabet, Microsoft and Amazon will provide another important test of investor confidence in AI investment. Strong revenues alone may not be enough. Markets will also want evidence that spending is translating into sustainable earnings and cash flow.
Above all, oil remains the variable with the greatest potential to upset expectations.
A sustained retreat in crude prices would ease some inflation concerns and give central banks more flexibility. Another sharp increase, particularly one driven by physical supply disruptions, could leave policymakers confronting the least comfortable combination of all: slower growth and renewed inflation.
Final thought
The market still believes in AI's potential. What has changed is its willingness to pay for that promise without seeing the returns. With oil keeping inflation risks alive and interest rates elevated, the next phase of the rally may depend less on what companies intend to build and more on what those investments can earn.
Sources & references
Russell Shor
Senior Market Strategist
Russell Shor is a Senior Market Strategist at FXCM, having been promoted to the role in 2025 in recognition of his depth of insight and consistent delivery of high-impact market analysis. He originally joined FXCM in October 2017 as a Senior Market Specialist.
Russell holds an Honours Degree in Economics from the University of South Africa, is a certified FMVA®, and a full member of the Society of Technical Analysts (UK). With over 20 years of experience in financial markets, his work is renowned for its clarity, precision, and strategic value across asset classes.
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