KenMacro · Week Ahead · 26 to 30 October 2026

Week Ahead: The Fed, UK Budget and $116 Oil Collide Before the US Midterms

Brent settled at $116.72, US inflation is 3.7% and five central banks decide policy this week, alongside the UK Budget, US GDP, PCE inflation and big tech earnings. Here is what I am watching, and how I would tell an inflation scare from a growth scare.

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Brent crude finished Friday at $116.72 a barrel. US inflation is running at 3.7%. Treasury yields have retreated sharply from their early October highs, and the Federal Reserve is preparing to announce its next interest rate decision.

That would ordinarily be enough to make for a busy trading week. But Wednesday also brings the UK Budget and the Bank of Canada and Reserve Bank of New Zealand decisions. Thursday delivers US GDP, the Federal Reserve’s preferred inflation measure and the European Central Bank. Japan follows on Friday, alongside European growth and inflation figures, and Microsoft, Alphabet and Amazon are all reporting earnings.

All of this is happening less than two weeks before the US midterm elections, with the conflict involving Iran continuing to threaten global energy supplies. There is quite a lot for markets to absorb.

My main concern heading into Monday is that investors are having to contend with an energy driven inflation problem while also questioning how much pressure the wider economy can tolerate. Oil has been rising, government bonds have attracted buyers, technology shares have struggled and defensive sectors have performed considerably better.

Those moves are telling us that the market is not simply pricing higher inflation. Investors are also reassessing growth, corporate earnings and the consequences of keeping monetary policy restrictive. The next five trading days should give us a much clearer picture of which concern is beginning to dominate.

The short answer

The main event this week is Wednesday’s Federal Reserve decision, but Thursday’s US GDP and PCE inflation figures could prove just as important. The Fed is dealing with headline inflation of 3.7% and a renewed rise in energy prices. At the same time, the decline in Treasury yields and weakness across parts of the equity market suggest investors are concerned about the economic consequences of prolonged high interest rates.

The UK Budget introduces a separate fiscal test for sterling and gilts. The ECB and Bank of Japan decisions will influence international interest rate differentials, while major technology earnings will test confidence in the AI investment cycle.

I’m watching oil, the US 10 year Treasury yield and the dollar together. If oil continues higher and yields recover, inflation concerns may be regaining control. If oil rises while yields decline further, investors may be placing greater weight on economic damage and demand for safer assets. That distinction is particularly important for gold, EUR/USD, USD/JPY and US equity indices.

What changed last week?

Oil closed above $116, and the Middle East remains the immediate risk

Brent crude settled at $116.72 on Friday, up 3.14% on the day and its highest settlement since late April. West Texas Intermediate finished at $103.27. Houthi attacks involving Saudi Arabia, and growing concern about regional energy infrastructure, helped drive the renewed rally.

Over the weekend the situation deteriorated further. Saudi Arabia’s benchmark stock index fell 2.7% on Sunday, its worst session in 18 months, and Egypt’s main equity index dropped 3.6%. Saudi authorities reported intercepting further drones and ballistic missiles.

Diplomacy remains difficult. Iran’s ambassador to Pakistan said Tehran had told Washington, through Pakistan, that it was willing to reopen the Strait of Hormuz if the US naval blockade is lifted, although the IRGC linked Tasnim agency denied there was any new proposal. An offer to negotiate is not a settlement, and the underlying disagreements over sanctions, maritime access and regional security remain substantial.

With the midterm elections on 3 November, the political timing has become increasingly relevant. Reuters has reported that Iranian officials see prolonging negotiations as a way of increasing political pressure on President Trump, a dynamic I covered in Trump, Iran and the midterms. There have also been reports of US and Israeli preparations for possible renewed military operations, although such planning does not establish that another attack has been authorised.

The risk for markets is that expectations of further escalation can change before any actual operation occurs. Oil is already carrying a substantial geopolitical premium, and as the IMF warned earlier this month, expensive energy has consequences well beyond the commodity market.

The bond market is giving us a different message

The US 10 year Treasury yield closed Friday at 5.00%, according to the US Treasury official daily yield curve, and the 2 year finished at 4.69%. Earlier in October the 10 year had traded above 5.3%, and the decline since then has come despite US inflation remaining elevated.

September headline CPI rose 3.7% over twelve months. Monthly inflation increased 0.6%, while gasoline prices jumped 9.1% in a single month. The initial reaction to that report was higher yields and a stronger dollar. Then demand for government bonds increased and yields reversed.

Source: US Treasury official daily par yield curve rates, 1 September to 23 October 2026. Daily closes, not intraday highs.

What it shows: the 10 year peaked at 5.31% on 5 October and has since given back 31 basis points, even though September CPI came in hot and oil kept climbing.

That matters. When investors buy existing bonds, prices rise and yields fall, and during periods of economic concern bonds can attract demand even when inflation remains above target. A lower yield can reflect expectations of less restrictive monetary policy. But it can also reflect concern about deteriorating growth, credit conditions or the sustainability of equity valuations, and those explanations have very different implications for risk assets.

Friday’s modest rebound in yields doesn’t change the broader decline from the early October highs. The question now is whether that decline continues through the Fed meeting, or whether the latest energy rally forces investors to reassess the inflation outlook again. I examined the initial CPI and Treasury yield reversal in detail in Hot CPI, Falling Bond Yields and the US Dollar Outlook.

Technology stocks face another difficult test

US equities finished Friday lower. The Dow declined around 1.2%, the S&P 500 lost approximately 0.5% and the Nasdaq edged down. Energy shares benefited from the oil rally, while defensive sectors continued to attract interest.

Technology shares have been under pressure as investors reassess the scale of AI infrastructure spending, funding costs and the earnings required to justify elevated valuations. That is particularly relevant with Microsoft, Alphabet and Amazon scheduled to report this week. Their results will tell us more about the demand supporting AI investment, the costs of expanding infrastructure and whether earnings growth can justify current expectations.

For the Nasdaq, the reaction to these results could be at least as important as the headline numbers. A company can deliver strong earnings and still see its shares fall if investors were expecting more.

Market snapshot heading into Monday

Sources: US Treasury, BLS, ONS, Bank of England, ECB and Reuters. These are dated figures, not live quotes. Central bank rates for every major economy are on my world interest rates page.

Economic calendar: 26 to 30 October 2026

This is one of the busiest central bank weeks of the quarter.

Important timing change: UK clocks returned to GMT on Sunday 25 October, but the United States does not change its clocks until 1 November. American releases and market sessions therefore land one hour earlier in London this week than they did last week. The Fed announcement is at 18:00 London time on Wednesday, and US GDP and PCE arrive at 12:30 on Thursday.

Indicative times checked against the Federal Reserve, BEA, ECB, Bank of Canada, RBNZ, Bank of Japan, ABS, ifo and company investor relations calendars, and Newsquawk’s 23 October Week in Focus. Highlighted rows are the events I expect to move markets most. Schedules can change.

Monday and Tuesday: positioning ahead of the policy decisions

I would be careful about treating Monday’s opening moves as a reliable indication of how the whole week will develop. There is a considerable amount of weekend geopolitical news to absorb, but there are also major policy decisions and economic releases approaching.

The reaction in oil and Treasury yields will be particularly important. If Brent moves higher and Treasury yields follow, investors may be increasingly concerned about inflation and the policy response. If yields decline while oil rises, that would point towards a stronger defensive bid in bonds.

China and Australian dollar sentiment

China’s Fifth Plenum takes place from 26 to 29 October. Markets will be watching for signs of further support for domestic demand, infrastructure spending and the management of local government debt. An immediate large scale stimulus announcement is not necessarily expected, and the language around economic priorities is more likely to shape expectations for future policy.

That matters for industrial metals, commodity sensitive currencies and Chinese equities. For AUD/USD and AUD/JPY, I’d be interested in whether any improvement in Chinese growth expectations coincides with better global risk sentiment. A positive development in China alone may not be enough to support the Australian dollar if international equity markets remain under pressure.

Tuesday’s Israeli election also deserves attention given the wider regional security backdrop. Coalition negotiations and the eventual political configuration could influence expectations around Israel’s approach to the conflict. However, I wouldn’t assume a particular result automatically produces a predictable oil market reaction, because the response will depend on its implications for security policy and diplomatic negotiations.

Wednesday: the Federal Reserve meets an increasingly difficult inflation problem

The Federal Reserve announces its October decision at 18:00 London time on Wednesday, followed by the press conference at 18:30. The current federal funds target range is 3.75% to 4.00%. The immediate focus is likely to be whether the Fed maintains that range and how officials describe the balance between inflation and growth risks. This meeting does not include a new Summary of Economic Projections, so the statement and press conference will carry particular weight.

September CPI at 3.7% is hardly a comfortable inflation reading. Energy has been a major contributor, but the Fed also needs to consider whether higher prices begin influencing business pricing decisions, wage expectations and underlying inflation. There is a legitimate argument for maintaining a restrictive stance until policymakers see stronger evidence that inflation is moving sustainably towards target.

At the same time, higher borrowing costs have consequences. Consumers become more cautious, businesses reassess investment, and highly valued companies become more sensitive to financing conditions and future earnings expectations. The Fed is operating between those pressures.

What I’d listen for in the statement and press conference

I’m especially interested in whether the Fed places greater emphasis on the persistence of inflation or on the downside risks to economic activity. If policymakers sound more concerned about renewed inflation pressure, short term Treasury yields could rise as investors reassess the possibility of further tightening. That could support the dollar, particularly if US yields rise relative to those in Europe and Japan.

A more cautious assessment of growth might push yields lower. But lower yields are not necessarily a signal that equities should rally. If the market interprets the change as evidence of deteriorating economic conditions, defensive flows could overwhelm any initial relief from the interest rate outlook.

The reaction in the 2 year yield, the 10 year yield and the dollar immediately after the decision will tell us how investors interpret the message. I would also watch the Nasdaq carefully. A relief rally driven by lower yields is considerably more convincing if equity market breadth improves and the earnings outlook remains supportive. If yields fall while equities keep struggling, I would be much more cautious about assuming the market is entering a straightforward risk on environment.

Wednesday: the UK Budget becomes a major test for sterling

The UK Autumn Budget takes place on the same day as the Federal Reserve decision, which creates the potential for a difficult session in GBP/USD, with separate domestic and American catalysts.

The fiscal backdrop is already uncomfortable. September public sector net borrowing reached £24.5 billion, compared with an Office for Budget Responsibility forecast of £22.6 billion. UK consumer price inflation also accelerated to 3.5% in September, from 3.1% in August.

The Bank of England held Bank Rate at 3.75% in September, with six members voting to hold and three favouring a quarter point increase. That split is worth remembering. The BoE is not dealing with an economy where the inflation problem has disappeared.

Gilts are where I’ll be looking first

The Budget could affect government borrowing expectations, future gilt issuance, growth prospects and the inflation outlook. A fiscally credible package that reassures bond investors may support sterling through lower risk premia and improved confidence.

But the relationship isn’t entirely straightforward. A decline in gilt yields caused by expectations of weaker growth or easier monetary policy could have a different effect on the pound from a decline driven by reduced fiscal concerns. Equally, higher gilt yields are not automatically good for sterling. If yields rise because investors demand more compensation for fiscal uncertainty, the pound could weaken alongside government bonds, and we have seen how damaging that combination can be.

I want to assess the gilt market reaction before drawing strong conclusions about the currency. For GBP/USD, the Budget and the Fed decision may pull relative rate expectations in different directions during the same session, which makes the sequencing of the moves particularly important. The next Bank of England decision follows on 5 November.

Wednesday: Canada, New Zealand and Australia matter too

The Bank of Canada announces its rate decision and Monetary Policy Report on Wednesday. Canadian inflation remains exposed to higher energy costs, while consumer spending and wider activity are also being affected by borrowing conditions. Canada’s position is different from that of an economy that imports most of its energy, because higher crude prices can support parts of its export sector and terms of trade even while adding to inflation and raising costs elsewhere.

For USD/CAD, I’ll be comparing the Bank of Canada’s message with the Federal Reserve’s, while also watching oil and the relative movement in Canadian and US yields. If the Bank of Canada sounds more concerned about inflation than markets expected, that could support the Canadian dollar. However, any deterioration in global risk sentiment could work against the currency, particularly if investors favour the US dollar.

The Reserve Bank of New Zealand also delivers a Monetary Policy Review on Wednesday. Its Official Cash Rate stands at 2.75% following September’s increase, and the RBNZ faces the challenge of keeping inflation under control while supporting an economic recovery. A more restrictive message could support NZD through interest rate expectations, provided global risk conditions are reasonably stable.

Australian September CPI arrives earlier on Wednesday and will be an important test of domestic inflation pressure. For AUD/NZD, the combination of Australian inflation and the RBNZ decision could materially change expectations for relative monetary policy. These are relationships I’d assess through rates and market structure, rather than relying on the headline surprise alone.

Thursday: US GDP, PCE inflation and the ECB

Thursday could be even more revealing than Wednesday. At 12:30 London time, the United States releases its advance estimate of third quarter GDP alongside September personal income, spending and PCE inflation. The latest completed quarter showed real GDP growing at an annualised 2.2% in Q2, and annual headline PCE inflation stood at 3.4% in August. The incoming releases will show whether the economy kept expanding at a healthy pace in the third quarter and how much underlying price pressure remained in September.

A strong GDP number isn’t automatically good news

If GDP surprises to the upside while PCE inflation remains elevated, investors could see less reason for the Fed to move towards easier policy. That could lift yields and support the dollar. But the composition of GDP matters, and growth driven by strong domestic demand is different from a headline boosted by volatile trade or inventory movements.

Likewise, a soft GDP reading accompanied by sticky PCE inflation would present a much more difficult policy picture, because slower growth doesn’t immediately solve an inflation problem. For Treasury yields, I’d be comparing the reaction to both releases rather than treating the GDP number in isolation. The timing matters too, because these figures arrive less than a day after the Fed has announced its decision.

The ECB faces its own energy driven inflation challenge

The European Central Bank announces its decision at 13:15 London time, with its press conference at 13:45. The deposit facility rate stands at 2.50% following September’s increase. Europe remains particularly exposed to expensive imported energy, which can push consumer prices higher while weakening real household incomes and corporate margins.

For the euro, that creates a complicated mix. An ECB that maintains a restrictive stance because of inflation may provide support through interest rate differentials. But if high energy prices weaken European growth more severely than US growth, the euro may struggle despite tighter policy. The ECB’s assessment of that balance will be important for EUR/USD and the euro crosses, and I will be watching the German and wider euro area spreads against US yields closely.

Friday: the Bank of Japan, European GDP and inflation

The Bank of Japan concludes its two day policy meeting on Friday, with the Outlook Report and the governor’s press conference providing further guidance. Japanese inflation, wages and the outlook for activity remain central to its decisions. There is also an international dimension. Higher global energy prices create difficulties for Japan as a major energy importer, while Japanese interest rates and the gap between Japanese and US yields are important drivers of yen positioning.

USD/JPY and the carry trade

A more restrictive Bank of Japan message could support the yen, especially if US Treasury yields are declining. But the yen’s reaction will also depend on global risk sentiment. During periods of financial stress, investors sometimes reduce leveraged positions financed in low yielding currencies, and that process can support the yen independently of any immediate change in BoJ policy.

If US yields continue falling and the BoJ signals a willingness to remain restrictive, I’d be watching for further narrowing in the US and Japan rate differential. On the other hand, renewed US yield strength could offset some of that yen support. I set out the wider case in Japan Rate Hikes, the Yen Carry Trade and USD/JPY.

Friday also brings euro area GDP and German inflation, which will help investors judge Thursday’s ECB decision against the incoming growth and inflation evidence.

Corporate earnings: the Nasdaq faces a serious test

The final week of October is exceptionally busy for US corporate earnings. Microsoft reports after the US close on Wednesday, with Alphabet expected the same evening, followed by Amazon on Thursday. Those three reports alone cover several of the largest companies in the world and important parts of the global technology economy.

The issues go beyond whether quarterly revenue beats analyst estimates. I want to see how AI related investment is affecting capital expenditure, free cash flow, margins and management expectations for future growth. Investors have committed enormous amounts of capital to the AI investment cycle, and the market is now asking whether future earnings will justify the scale of that spending.

Strong results could help stabilise technology sentiment after the recent selling. But disappointing guidance, higher than expected investment requirements or margin pressure could renew concerns about valuations, and those concerns become even more important if Treasury yields rise again. A higher discount rate reduces the present value investors assign to earnings expected far into the future, which tends to matter disproportionately for richly valued growth companies.

The combination of Fed communication, Treasury yields and technology earnings could decide whether the Nasdaq’s recent weakness remains a correction or develops into something more substantial.

Gold outlook: yields, real rates and geopolitical risk

Gold has several competing drivers heading into this week. The continued confrontation involving Iran may support defensive demand, and falling US real yields would generally reduce the opportunity cost of holding gold. But persistent inflation and a more restrictive Federal Reserve could produce the opposite pressure if real yields recover or the dollar strengthens.

For gold, I want to distinguish between nominal Treasury yields and real yields. A fall in nominal yields isn’t necessarily as supportive as it appears if inflation expectations are falling even faster, because real yields may stay elevated. Likewise, gold can benefit from defensive flows during geopolitical uncertainty, but that support can be interrupted when investors are raising liquidity or the dollar strengthens sharply. That is close to what happened last week, which I broke down in Oil Surged. Gold Fell.

I’m watching the relationship between XAU/USD, the US 10 year real yield and DXY, which I explain in how the dollar moves gold. If yields keep falling while gold starts showing strength against the dollar, that would be constructive. If yields rise alongside the dollar and gold struggles to recover, I would be more cautious. The technical structure will determine where any actual trade makes sense.

US dollar outlook: the Fed could determine the next phase

The dollar has struggled to hold some of the gains made during the initial inflation driven Treasury sell off. My broader view remains that a short term dollar correction doesn’t automatically mean the larger bullish argument has disappeared. A decline in US yields relative to other economies can weigh on the dollar, but the dollar may also benefit from defensive international flows, renewed Fed tightening expectations or relative economic resilience.

This week provides several opportunities for those expectations to change. The Fed, GDP and PCE releases will directly affect US rate expectations, the ECB and Bank of Japan decisions will influence the important international comparisons, and geopolitical developments may alter risk appetite.

I wouldn’t assume the direction of DXY from one Treasury yield move. I want to see whether the dollar is weakening broadly across major currencies, which yield differentials are driving the move, and whether those changes survive the central bank decisions.

EUR/USD

The scope for a euro recovery remains dependent on softer US yields, European growth expectations and the ECB’s policy stance. My earlier roadmap allowed for a recovery towards higher resistance before assessing whether the broader dollar trend could reassert itself, and I would keep that conditional approach. The Fed and ECB meetings, followed by European GDP and inflation, may decide whether such a recovery has enough fundamental support.

GBP/USD

Sterling faces the extra complication of the UK Budget. I will be looking at the reaction in gilts, UK rate expectations and the dollar. The pound could struggle if fiscal concerns push gilt yields higher while damaging confidence, while a credible fiscal package may produce a more favourable reaction, although the direction of UK policy expectations still matters.

USD/JPY

This is one of the more important pairs of the week, because the Fed and the BoJ meet within two days of one another. A narrower US and Japan yield differential may support the yen, while renewed US yield strength could work in the opposite direction. Any broader reduction in carry trade exposure could amplify the moves.

AUD/USD, NZD/USD and USD/CAD

Australian inflation, New Zealand’s policy review, Canada’s rate announcement and developments in China all give reasons to watch the commodity and growth sensitive currencies. But each country has a different relationship with energy, trade and interest rates, so I don’t want to treat them as one uniform commodity currency trade.

Three scenarios for the trading week

My market watchlist

The macro view informs direction and conviction. It does not replace a sensible technical setup, position sizing or risk management.

My view heading into Monday

The bond market remains the part of this environment I’m paying closest attention to. Oil has climbed above $116, inflation is still elevated, and the major central banks have to decide how restrictive policy needs to remain. Yet Treasury yields have fallen considerably from their highs earlier this month, and that combination deserves attention.

Markets are trying to determine whether persistent energy driven inflation or the economic consequences of prolonged restrictive policy represent the greater risk. The Federal Reserve may provide some answers on Wednesday, but Thursday’s GDP and PCE figures could force investors to reassess the outlook almost immediately. The UK Budget adds another significant risk for sterling and gilts, the ECB, BoJ, Bank of Canada and RBNZ decisions could reshape international yield differentials, and technology earnings arrive when investors are already questioning the cost and sustainability of the AI investment cycle.

I wouldn’t be comfortable heading into this week with a rigid view that the dollar must rise, gold must rally or equities must fall simply because tensions in the Middle East remain elevated. There are competing forces at work. The more useful approach is to establish which one is influencing capital flows and whether price structure is confirming the move.

I will be watching Brent crude, US Treasury yields and the dollar together from Monday. If yields climb while oil continues higher, inflation and restrictive policy expectations may be regaining influence. If yields fall despite expensive energy, that would encourage me to look more closely at deteriorating growth expectations and defensive positioning. Neither relationship should be treated as permanent.

My concern is that this week has enough catalysts to produce several changes in direction as investors move between those two risks, and the US midterms follow immediately afterwards. The next few sessions could tell us a great deal about how markets are positioned for the final two months of 2026.

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