Global markets had another rocky week, according to AMP's weekly market update published on 23 October 2026. AMP Deputy Chief Economist Diana Mousina wrote that for most of 2026 investors had benefited from strong earnings and AI investment, but rising oil prices, rising bond yields and central bank rate hikes are now making the outlook more fragile. US shares were broadly flat over the week and had changed little over the month.
The tech-heavy Nasdaq fell 0.5% over the week and 3.2% over the month. Investors moved into safe havens, with funds rotating into US bonds as yields looked attractive at high levels. The US 10-year Treasury yield fell nearly 12 basis points during the week to 4.96%.
The US dollar was unchanged, while the Australian dollar rose again to 70 US cents. Australian shares fell 0.5% over the week, with energy, materials and IT lower, while communication, industrials and financials performed better (Source: Macrobond, AMP). AMP notes that 2026 has been a disappointing year for Australian equities, which have barely risen.
US shares are up nearly 12% year to date, Japan is up 25% and Europe is up around 5% (Source: Macrobond, AMP). AMP argues that the main downside risk for markets has shifted from an earnings-led correction to a broader repricing of interest rates, inflation and risk premiums. Market concern has grown that spending on data centres, power, GPUs and other AI build-out components may exceed the future demand needed to justify it, in other words that there has been over-investment.
Higher interest rates are adding another layer of pressure. Projects that looked viable when the cost of capital was low become much harder to justify as financing costs rise. This is starting to show in the corporate bond market, particularly among the lowest-quality borrowers.
Credit spreads on US corporate bonds rated CCC and lower have risen sharply to around 11 percentage points over Treasuries, while spreads across the broader high-yield market have risen much more modestly (Source: Bloomberg, AMP). AMP's view is that this looks more like pockets of stress than a broad-based credit crisis, but it is a risk to monitor. Tech markets also saw several setbacks.
After concerns last week about CoreWeave, a specialised AI-native cloud computing provider, this week saw the listing of Elice Group, a South Korean AI computing supplier, dropped. AMP says strains in the AI ecosystem are showing most clearly in leveraged businesses with rising fixed commitments from heavy capital expenditure. In Australia, data centre operator NextDC saw its share price fall by more than 40% after it slashed its FY27 earnings guidance.
The company's proposed expansion at its Melbourne data centre could not secure the electricity supply it required, due to intense community backlash. By contrast, earnings guidance from US-listed technology companies this week was solid, including from SpaceX and Meta. Investors remain focused on whether the large volume of hyperscaler capital expenditure expected in 2027 can generate enough AI revenue and earnings to justify the investment (Source: Bloomberg, AMP).
AMP's conclusion is that the AI trade is not necessarily over but is changing. It is no longer a case of “buy everything”, and investors need to be far more selective about which companies are actually making money from the technology. Nonetheless, AMP says it is hard to become too bearish on equities overall, given that earnings growth remains positive and hard economic data is holding up well.
In Europe, French 10-year bond yields have risen above 5%, their highest level since 2002. AMP notes that French yields were already rising due to a difficult fiscal backdrop and political uncertainty ahead of the 2027 presidential election, which currently points to a victory for populist Marine Le Pen. Yields rose further after civil unrest last weekend, when hundreds of thousands of people protested nationwide.
The protests initially concerned deteriorating education conditions but later broadened into cost-of-living concerns and declining public services. The key question for markets is whether the unrest and bond-market pressure spread to other European countries and push up their borrowing costs. AMP sees some signs of spillover into other European bond markets, although this could also reflect the global rise in bond yields.
So far, there is nothing resembling the broad-based sovereign stress seen during the Eurozone debt crisis. French equities have also come under pressure, although the weakness has occurred against a generally softer backdrop for European equities (Source: Macrobond, AMP). Oil prices rose this week, with Brent crude above $110 per barrel.
Hopes for a US-Iran deal briefly resurfaced during the week and put some downward pressure on prices, but these hopes were quickly dismissed. Concerns cited include the possibility that Trump could resume strikes after the mid-term elections, ongoing Houthi rebel attacks on Saudi Arabia, and a US State Department notice advising non-emergency staff and their families to leave Saudi Arabia. AMP expects oil prices to remain above $100 per barrel, which will keep petrol and diesel prices elevated (Source: Macrobond, AMP).
In Australia, petrol is around $2.40 per litre. The cost of filling a 60-litre tank is back up to about $140, near its highs but below the $155 seen in March when the Iran war began. AMP describes this as bad news for consumer confidence (Source: Bloomberg, MotorMouth, AMP).
US earnings have been strong. With 25% of the top 500 US companies having reported third-quarter results, 83% have beaten expectations, a higher proportion than normal. Earnings growth is likely to reach around 30% over the year to September, its highest rate in more than two decades, excluding the initial post-recession rebound (Source: Real Clear Politics, AMP).
US housing data was weak again. Housing starts fell 5.2% and building permits declined 0.2% in September. AMP says this is not surprising, given that mortgage rates are at 7.5%, their highest level since around 2000 (Source: Macrobond, AMP).
China's monthly activity data was stronger than expected and points to a rebound in the September quarter. Annual GDP growth rose to 4.5% from 4.3% in the previous quarter. Retail sales rose 1.1% over the year to September, well above the 0.4% recorded in the previous month.
Industrial production rose 5.5%, also an improvement. However, fixed asset investment fell 7.2% over the year and property investment fell 20.6%. AMP's assessment is that domestic demand remains weak while external growth is better.
It also warns that the September improvement may be seasonal. Historically, Beijing has pushed the economy through September to November after a mid-year slowdown by increasing stimulus and local government bond issuance, so the rebound may not be persistent (Source: Macrobond, Macquarie Bloomberg, AMP). In New Zealand, headline inflation rose 0.7% in the September quarter, slightly below the 0.8% expected, and annual growth slowed to 3.7% from 4.1%.
Non-tradable inflation, which reflects more domestic price pressures, rose 1% over the quarter, while tradable prices rose 0.2%. AMP expects the Reserve Bank of New Zealand to raise interest rates again before the end of the year, as inflation remains too high overall, particularly for non-tradables. Japan's consumer price index rose 2.1% over the year to September, in line with expectations.
Core inflation, excluding food and energy, rose 2.2% over the year. Both measures were higher than the previous month and strengthen the case for a Bank of Japan rate hike in December (Source: Macrobond, AMP). In Canada, headline inflation rose to 3.1% in September from 3% in August, mainly due to higher energy prices.
Core inflation measures are tracking at 2%, which is at target, but AMP notes that underlying inflation pressures are building. The Bank of Canada is expected to start raising rates in 2027 (Source: Macrobond, AMP). UK consumer prices rose 0.4% in September and 3.5% over the year.
Core inflation was 2.8%, unchanged from the previous month and slightly higher than expected, as higher energy costs are now feeding into core prices, especially food (Source: Macrobond, AMP). UK labour market data was somewhat stronger than expected. The unemployment rate fell to 4.7% from 4.9% in the three months to August, while average weekly earnings growth eased to 3.7% over the year to August from 3.9%.
AMP describes the UK labour market as stabilising after a period of easing rather than strengthening, and expects rate hikes in early 2027. In Australia, Reserve Bank Deputy Governor Andrew Hauser spoke at Citi's Investment Conference this week. Given his record of shifting market expectations, investors paid close attention.
His remarks struck a hawkish tone and reinforced the possibility of further interest rate increases. Hauser said the inflation outlook looks “materially worse” than the RBA projected in August. July inflation data had come in higher than expected, which led to the RBA's rate hike in late September.
August data was broadly in line with expectations, with some components, such as dwelling construction costs and rents, looking better. On activity indicators such as consumer and business confidence, the labour market and home prices, Hauser acknowledged the slowdown but said that “we need a period of below trend growth to bring inflation down”, so he did not sound alarm about the activity data (Source: Bloomberg, AMP). Following the speech, financial markets priced in roughly a 40% chance of a November rate hike, with the probability reaching nearly 70% at one point, compared with about 30% beforehand.
Another increase would take the cash rate from 4.6% to 4.85%. Markets also price around an 80% chance of another hike by December (Source: Bloomberg, AMP). AMP, however, says it believes the central bank is done.
Activity is slowing and, after four rate increases, including one last month, it makes sense to allow those hikes time to work through the economy. Nonetheless, AMP says the risk is firmly on the upside and that another hike over the next few months cannot be ruled out. RBA Assistant Governor (Financial Markets) Chris Kent, speaking to News 24, mainly discussed the central bank's pandemic-era quantitative easing program.
AMP notes that his comments carried no major policy signal, but reinforced the RBA's view that the world is operating with higher-for-longer neutral interest rates, driven by higher inflation, fiscal expansion and AI-related investment. The RBA believes financial conditions are somewhat restrictive, but the question is whether they are restrictive enough to return inflation to target. Australia's composite PMI illustrates the RBA's dilemma.
The index fell into contraction at 47.7, down from 51.3 the previous month, with both manufacturing and services declining. However, output and input prices rose again, which is a poor sign for inflation. In AMP's view, growth is weakening but the inflation problem has not gone away (Source: Bloomberg, S&P, AMP).
Looking ahead, October flash PMI readings will show how manufacturing and services activity is progressing worldwide. AMP notes that US and European manufacturing and services readings have been solid, a good sign that global growth is holding up and far from recession-like levels. The US Federal Reserve meets on Wednesday and is expected to keep the federal funds rate unchanged at 3.75%-4%, after a hike last month.
AMP says a follow-up increase is unlikely at this meeting, as financial conditions have already tightened following the last rise and the increase in bond yields. The Fed is expected to wait and see how inflation evolves over the coming months. Investors should not expect clear forward guidance from new Fed Chair Kevin Warsh, who, unlike his predecessor, has largely avoided signalling the likely path of interest rates and has preferred to focus on incoming economic data.
The Atlanta Fed GDPNow indicator is running high at 3.5%, and markets expect third-quarter US GDP growth of around 3%, up from 2.2% in the previous quarter. PCE price data is expected to show annual growth of 3.6%, up from 3.4% last month, with core PCE at 3.1%, well above the Fed's 2% target. Australia's September quarter inflation figures are the key release.
They will likely determine the RBA's decision at its early November meeting. AMP expects headline inflation to rise 1.2% over the quarter, up from 0.6% previously, with annual growth slowing slightly to 3.9% from 4%. The main drivers are a large increase in transport costs, with fuel expected to rise 8% due to the reinstatement of the fuel excise, higher urban transport fares as many states withdrew support, and higher spare parts and services prices.
AI-related inflation is also expected to show up in higher audio, visual and computing equipment costs, and household services are also expected to have risen strongly. Fruit and vegetable prices, garments and medical products and equipment are expected to decline. AMP expects the quarterly trimmed mean to rise 1%, with annual growth of 3.6%, which it describes as the key number to watch.
AMP believes the RBA's current forecast is close to its own. If the trimmed mean is higher than 1%, a November hike becomes likely. On AMP's current forecast, the RBA will debate another increase in November but ultimately keep rates unchanged, although the risk of a hike in December or early 2027 remains if inflation risks are rising rather than abating.
Producer price figures and private sector credit data, which has been slowing in line with weaker housing lending, are also due. RBA Economic Assistant Governor Sarah Hunter is due to speak on 60 Minutes on Sunday. Next week, Assistant Governor (Financial System) Brad Jones will speak at the AFR Super and Wealth Summit, and RBA leaders will appear before the Senate.
The Bank of Japan is expected to keep its policy rate unchanged at 1.25% this month, after a hike last month, although further tightening is still expected (Source: AMP). AMP's outlook for investment markets is cautious. Global and Australian shares are at risk of a further correction, given the lack of resolution to the Iran war, high oil prices, rising bond yields, stretched valuations, sticky inflation, central bank rate hikes, political uncertainty linked to the US mid-term elections, and concerns about AI and a possible AI bubble.
However, AMP expects returns to remain acceptable over the next 12 months, supported by continued economic growth, with recession likely avoided, although the risk is rising in Australia. Strong global profit growth and likely rate cuts next year are also supportive. AMP expects subdued returns from bonds.
Unlisted commercial property returns are likely to be solid, helped by strong demand for industrial property linked to data centres, although rising bond yields could become a constraint. AMP expects Australian home prices to fall around 10-15% from peak to trough, with about 5.2% already declined, through to the June quarter of next year, due to poor affordability, RBA rate hikes, reduced investor demand following changes to negative gearing and the capital gains tax discount, weak confidence and a rising risk of distressed sales. AMP expects cash and bank deposits to return around 4-5%.
The Australian dollar is likely to rise, reflecting the wider interest rate differential with the US, although Fed hikes may limit that gain. AMP sees fair value for the Australian dollar at around US$0.72.
Source: amp.com.au