There is never a dull moment in financial markets, and with Trump in charge, boredom is almost out of the question. The list of his off-the-cuff bright ideas over the nearly two years he has been in office is so long that it would not fit in this article. Some raise a smile (Recently, he declared himself in favour of keeping daylight saving time all year round so that he can play golf in the afternoons), while others are considerably less benign, such as the decision to attack Iran last February. We began the summer with the announcement of the “end of the war”, and ended it with crude oil in triple figures and no sign of a resolution. If anything, quite the opposite. The November midterms may be what is keeping him on pause, as the latest polls suggest the Republicans could lose their majority in both chambers.
Neither the rebound in crude oil nor the rise in geopolitical tensions (which have been at stratospheric levels for far too long and are reminiscent of some of history’s darker periods) has halted an extremely robust economy: US PMIs are at five-year highs, and Europe’s at three-year highs. The combination of economic growth and still excessively high inflation has left central banks with little choice. The Fed raised its benchmark rate in September for the first time since 2023, and signalled that it most likely would not be the last increase. The ECB also raised rates for a second consecutive time, and the BoJ added one more hike to the series it began two years ago (slow but sure, the current 1.25% has not been seen since 1995).
Equities remain unruffled, supported by the favourable macro backdrop and by stellar earnings growth. And by AI, lest we forget. It is not easy to invest in the stock market without investing in AI and still do well. Companies that miss investors’ expectations by even a millimetre are hammered as if there were no tomorrow (Author’s note: that is where the best opportunities lie, if you have a little patience, or a lot of it). Those that promise to build villas on Mars are doing spectacularly well.
Fixed income is faring less well. As might be expected, the combination of solid growth, rising crude oil and central banks on a war footing against inflation has driven sovereign yields sharply higher, in rebounds of considerable magnitude. To this writer, the above is merely a normalisation. Let’s consider that we were coming from a historical aberration (zero rates) that was entirely unsustainable given the accumulated levels of debt (particularly public debt). Add to that the fact that governments now face competition for savings, which are being channelled into data centres, defence, electrification, automation and Camp Nou (apologies for the last to anyone who is not a Barça fan).
As long as the rebounds in yields are underpinned by a healthy macro backdrop, there is nothing to worry about. For the fixed income investor, in fact, it is an opportunity to lock in better coupons (forget the valuation effect, which is much faster and will be offset over time). The problem would be if they were driven by fears over the health of public finances. That is the case in France, for example, and things are looking very ugly: the risk premium is at levels seen during the eurozone crisis. The coming months will be intense in Europe, with elections in France, Italy and Spain, which we hope will serve to ease fears rather than stoke them.
So for now, in the financial markets, all is well, thank you. Earnings and macro data are excellent, and the main financial assets continue to perform well. Just keep an eye on the tough guys. And no, these aren’t Trump, Putin or Xi Jinping. They are interest rates.
Date of report: October 9th of 2026