The Cambridge Weekly – 26th October

Last week was a volatile one for global markets, as renewed pressure in energy markets combined with political uncertainty in Europe and concern around debt-funded AI investment continued to weigh on sentiment. Brent crude oil rose to c.$112 per barrel by Thursday, up almost 4% from where it started the week, while major equity indices in Europe and Asia moved lower in response.

Geopolitical developments also remained in focus: US representatives proposed rekindling discussions between Ukraine and Russia and a potential subsequent three-way summit involving the US, Russia and China. Meanwhile, demonstrations over living costs, public services and government policy took place across several European nations. France was particularly in focus, placing pressure on French equities and government bonds as investors weighed up whether the disruption could limit the government’s ability to address its existing budget challenges.

AI-sentiment shifted from its potential growth opportunities to the cost of financing it. Trading in credit default swaps (CDS) – financial contracts that act as insurance against a company in the event it cannot repay its debt – increased as investors sought protection against the risk that large technology companies could struggle to pay off their growing debt bases. Higher demand for CDS generally indicates greater investor concern.

US Equity Market:

US equities displayed relative resilience despite global themes, Performance was supported by financial and energy companies in the face of a mixed showing from technology stocks.

Tesla and SpaceX made headlines after both boards established special committees to explore the potential of a merger between the businesses. SpaceX, currently valued at just over $2tn, and Tesla, at nearly $1.5tn, would combine to create a group theoretically worth more than $3.5tn. However, the committees are yet to agree terms and Elon Musk, the CEO of both groups, acknowledged that any transaction would require the support of both respective shareholder groups. In the meantime, Tesla reduced its longer-term vehicle sales targets and expressed an increased focus on robots, autonomous vehicles and AI.

Elsewhere, Microsoft announced its withdrawal from an agreement with UK-based tech company Nscale after it emerged that its proposed Essex data centre would likely not have a power supply until after 2030. The decision added to broader uncertainty surrounding whether the rapid expansion of AI infrastructure can continue at its current pace.

UK Equity Market:

The UK borrowed more than expected in September at £24.5bn (compared to the £23.9bn forecast) as debt crossed over £3 trillion mark for the first time according to the Office of National Statistics (ONS). This added to the challenges that Chancellor Healey will look to address with his October 28th Budget, with a tax, spending and borrowing plan now expected to be cautious. This means one of limited changes, with disciplined borrowing and bigger decisions being deferred. The ONS also announced that average weekly earnings grew by 3.7% in the 3 months to August compared to the earlier year lows of 3.4%, suggesting that previously weakened hiring could be reversing.

Elsewhere, Andy Burnham set out plans to scrap fixed daily fees from gas bills to cut household costs this winter, coming in the same week as Ofgem approved a deal to maintain the UK gas import capacity and the UK’s approval of the new Jackdaw gas field. The latter of these being done on the grounds of reinforcing energy security domestically underlines how central energy considerations have become for the UK economy amid the continued fallout from the Middle East conflict.

In markets, Barclays fell 3.7% the week through to Thursday despite a 12% increase in year-on-year profits following an announcement that it would cut 5,000 jobs and step up the adoption of AI. The FTSE index closed the week down 1.74% off the back of the higher-than-expected Consumer Price Index (CPI) figure, and France’s political unrest dragging general European stock sentiment down. Strength in energy majors BP and Shell, off the back of rising oil prices, proved insufficient to offset this. Sterling currently trades between 1.33 and 1.34 against the US dollar.

Inflation, Interest Rates and Bond Markets:

UK inflation rose to 3.5% in the 12 months to September, up from 3.1% in August. This was higher than expected, fuelling further speculation that the Bank of England may raise interest rates when they next meet in early November.

UK bond markets were relatively steady ahead of this week’s Budget as investor concerns eased amid expectations of a more cautious approach. Despite experiencing the largest gilt sell-off among G7 countries over the summer, UK gilt performance has improved, and yields have fallen relative to other G7 markets. The 10-year gilt yield peaked at c. 5.45% last week, almost 0.8% below its highest level so far this month, while the equivalent French yield rose to just below 5.1%, its highest level so far this month.

In the US, 10-year Treasury yields remained elevated at around 5.0%, reflecting analyst concerns after last week’s inflation print revealed a 3.7% rise over September. Markets currently price in a 90% probability of a hold at next week’s Federal Reserve meeting, with a rise at Decembers meeting much more likely.

What’s on the horizon

The October 28^th UK Budget will be the most notable event for UK investors this week, however geopolitical events in the Middle East and political unrest across continental Europe will continue to be front of mind.

Macroeconomic data wise, a big week of interest rate decisions is on the horizon, with the US, Canada, Japan and the Eurozone all set to release their latest decisions. Germany will announce Q3 GDP data and October’s CPI print on Friday, before China closes out the week with its October Purchasing Managers Index (PMI) data. As a reminder, PMI is an indicator of if the economy is expanding or contracting.

Investors will also be paying close attention to Q3 earnings announcements from tech heavyweights, with Google’s parent company, Alphabet, and Microsoft both reporting on Wednesday, while Amazon report on Thursday. These earnings will give a strong read into the resilience of the commercialisation of AI, which continues to be a key driver of markets globally.

You can read our Quarterly review here: Q3 2026

This material has been written on behalf of Cambridge Investments Ltd and is for information purposes only and must not be considered as financial advice. We always recommend you seek financial advice before making any financial decision.

Past performance is not a guide to future performance.

The value of your investments can go down as well as up and you may get back less than you originally invested.

Source of financial market data: MorningstarDirect.