Fed lowers rates; ECB and BoJ keep policy unchanged

United States

Major U.S. equity benchmarks posted mixed performance over the week, reflecting strength concentrated in large technology companies while smaller firms lost momentum. The Nasdaq Composite outperformed all major indexes, supported by ongoing gains among mega-cap tech firms whose business models continue to benefit from rising investment in artificial intelligence infrastructure and applications.

Market breadth was notably narrow. Although the S&P 500 moved higher for the week, seven of its eleven sectors finished lower. The equal-weighted S&P 500 lagged its market-cap-weighted counterpart by 268 basis points (2.68 percentage points), underscoring the market’s continued reliance on a few influential names rather than broad participation.

The third-quarter earnings season progressed, with more than one-third of S&P 500 constituents announcing results. Among them were five companies within the so-called Magnificent Seven. FactSet data as of Friday morning showed that 64% of the index’s companies had reported earnings, and 83% exceeded analysts’ profit expectations. Nonetheless, the market reaction differed widely. Shares of Microsoft, Apple, and Meta Platforms declined after their results, while Amazon and Alphabet posted gains. NVIDIA shares advanced strongly and briefly lifted its market capitalization beyond USD 5 trillion, making it the first publicly traded company to surpass that milestone.

U.S. and China reach temporary easing of trade tensions

A significant point of attention was a bilateral meeting held in South Korea between U.S. President Donald Trump and Chinese President Xi Jinping. The two leaders agreed to a one-year truce intended to reduce tensions between the world’s largest economies. Key elements of the deal included modest reductions in U.S. tariffs on selected Chinese imports, China’s temporary suspension of export controls on rare earth materials, and the resumption of Chinese purchases of U.S. agricultural products such as soybeans. While the agreement fell short of resolving structural disputes and left the possibility of renewed friction in the future, it helped improve near-term market sentiment.

Fed lowers rates while cautioning against expectations of rapid follow-up cuts

The Federal Reserve’s October monetary policy meeting concluded with a widely expected 25-basis-point reduction in the federal funds target range to 3.75%–4.00%. The rate decision, however, was not unanimous. Two key policymakers dissented: Governor Stephen Miran expressed preference for a larger 50-basis-point reduction, while Kansas City Fed President Jeffrey Schmid argued for no cut at all. The split emphasized divisions within the committee regarding how to address persistent inflation alongside labor-market softening.

In his post-decision comments, Fed Chair Jerome Powell signaled restraint, cautioning investors that another rate decrease at the December meeting was not guaranteed. He also noted that the ongoing federal government shutdown has limited the availability of economic data, potentially influencing how policymakers approach decisions over the coming months.

Treasury yields rise on hawkish tone

U.S. government bonds declined as yields moved higher across most maturities. The Fed meeting outcome and Powell’s more hawkish tone contributed to upward pressure on yields. Municipal bonds showed uneven performance, demonstrating some resistance to volatility despite the choppier Treasury market.

Investment-grade corporate bonds underperformed U.S. government securities, while primary-market issuance exceeded expectations. According to trading desks at T. Rowe Price, optimism in the high-yield sector was initially supported by company-specific developments and earnings; however, sentiment weakened later in the week after investors reassessed the likelihood of another near-term rate cut.

This table is for illustrative purposes only and does not represent the performance of any specific investment. Past results do not guarantee future outcomes.

Sources: Reuters, Yahoo! Finance, Bloomberg; closing pricing as of 4 p.m. ET.

Europe

The STOXX Europe 600 Index dipped 0.67% in local-currency terms after touching a fresh high, as expectations for additional monetary easing narrowed. Major regional benchmarks were mixed: the CAC 40 fell 1.27%, Germany’s DAX declined 1.16%, while Italy’s FTSE MIB advanced 1.62%. The United Kingdom’s FTSE 100 gained 0.74%, helped by a weaker British pound that enhances foreign earnings for multinational firms listed in the index.

ECB holds rates with inflation close to target

The European Central Bank paused rate adjustments for the third consecutive meeting as inflation remained near its 2% goal. Policymakers reiterated that decisions would continue to be made on a meeting-by-meeting basis and would remain sensitive to incoming data rather than predetermined plans. ECB President Christine Lagarde noted that the eurozone’s economic picture is broadly stable but warned that geopolitical uncertainty and continued trade-related friction still pose risks.

Eurozone price pressures ease; activity gradually improves

Preliminary readings showed that headline inflation slowed to 2.1% in October from 2.2% in September, consistent with market expectations. Core inflation, which excludes food and fuel, remained unchanged at 2.4%. Eurozone GDP expanded 0.2% over the third quarter, up slightly from 0.1% growth in the previous quarter, with France and Spain contributing most strongly. The unemployment rate held at 6.3% for the third straight month.

UK housing activity remains active

UK housing sustained momentum, with the Nationwide House Price Index ticking up 0.3% in October. Although slower than September’s 0.5% rise, the figure surpassed expectations for no growth. Bank of England data showed mortgage approvals increased to 65,900 in September, the highest reading in nine months.

Japan

Japanese equities advanced to new record levels. The Nikkei 225 climbed 6.31%, and the broader TOPIX rose 1.91%. The Nikkei’s 16.6% jump in October represented its strongest monthly gain since January 1994. Enthusiasm was fueled by speculation that the government may introduce a large-scale economic stimulus package, along with strong earnings reports from major technology companies, including Amazon and Apple.

At the Bank of Japan’s press briefing, Governor Kazuo Ueda maintained a hawkish posture, saying the probability of a future rate increase continued to rise. Interestingly, he shifted emphasis away from underlying inflation—a metric he had highlighted previously—and instead pointed to wage negotiations, particularly in the automobile sector, as a more important signal when determining future rate outcomes.

The yen weakened from around JPY 152.9 to JPY 154 versus the U.S. dollar as expectations for a near-term rate hike faded. The new Finance Minister, Satsuki Katayama, emphasized that authorities continued to monitor currency volatility, particularly movements driven by speculation. The 10-year Japanese government bond yield remained close to 1.65%.

Tokyo’s core consumer prices rose 2.8% year-over-year in October, exceeding expectations and remaining above the central bank’s 2% inflation target. Retail sales rose 0.5% after declining 0.9% the month before. The unemployment rate held at 2.6% in September, matching the highest level since July 2024.

China

Mainland Chinese markets ended the week mixed. The CSI 300 fell 0.43%, while the Shanghai Composite edged up 0.11%. Hong Kong’s Hang Seng Index declined 0.97%.

Concerns regarding longer-term Chinese growth returned after a top-level policy meeting failed to produce major new stimulus measures. Following the conclusion of the country’s fourth plenum, officials pledged to promote growth by transitioning toward a consumer-driven economic model. Although analysts viewed this as a constructive step, they noted the lack of specific policy targets. According to World Bank data, China’s household consumption currently represents around 40% of GDP, well below the global average of roughly 56%.

Other Key Markets

Argentina: Midterm results support reform agenda

Argentina’s midterm elections resulted in a much stronger-than-expected showing for President Javier Milei’s La Libertad Avanza coalition, which secured around 41% of congressional seats compared with forecasts near 35%. The party also won in the Province of Buenos Aires, reversing a 14-point loss in recent local elections.

According to commentary from T. Rowe Price analysts, several factors likely contributed to the outcome: President Milei adopted a more moderate tone; the opposition remained divided; and the country benefited from strong U.S. backing, including a USD 20 billion Treasury swap line. Additionally, concerns over potential financial instability if Milei lost may have influenced voter sentiment.

The administration is expected to continue pursuing aggressive reform efforts, including changes to labor markets, tax policy, and currency management. Analysts believe Argentina could see improving economic conditions due to strengthening confidence, softer inflation, and a more supportive monetary stance. Some expect the country could regain access to international debt markets before year-end.

Chile: Central Bank keeps policy rate unchanged

Chile’s central bank left its policy rate at 4.75%, with unanimous agreement among board members.

Officials observed that global financial conditions had broadly improved since the prior meeting. Many Latin American currencies appreciated, and copper—Chile’s main export—experienced notable price gains, supported by limited global supply and geopolitical concerns.

Local economic data showed steady but mixed development. While mining and business services contracted, retail, wholesale, and manufacturing activity strengthened. Private consumption met expectations, and investment improved, especially in machinery and equipment. Inflation remained in line with forecasts, with headline inflation at 4.4% and core inflation at 3.9% in September. Policymakers indicated they would continue assessing data before resuming interest-rate adjustments to move toward a neutral policy stance.