Three holds in 48 hours: Fed at 4.00% on 28 October, ECB at 2.50% on the 29th, BoJ at 1.25% on the 30th. None signalled the end of the cycle: markets price an ECB hike in December.
Long yields eased: US 10Y from 5.29% to 4.91% (−38bp), 30Y at 5.28%, Bund from 3.60% to 3.34%. The move came through real yields; inflation expectations (2.29% on the 10Y) barely moved.
Euro-area inflation rose to 4.0% in October (3.8% in September), the highest since 2023. France at 3.8%, Italy at 5.6%, Germany back down to 2.8%. Energy +20.8% year on year.
Equities rotated: Nasdaq 100 −6.6% in October, STOXX 600 +2.0%, Dow Jones +1.8%. US semiconductors −21% over one month; healthcare +14.9% in Europe and +10.8% in the US.
Democrats won both houses of Congress on 3 November: US 10Y at 4.90% on 4 November, dollar at a one-month low, gold back above $4,000.
Brent back at $104 after a peak of $112 on 22 October, on signs of progress in talks with Iran; the energy shock remains the main risk to inflation.
ASSET ALLOCATION
US and Japanese equities raised from neutral to overweight, overall equity exposure kept at neutral: the question is no longer how much risk, but where it sits.
The US is favoured for the strength of earnings, driven by AI and by upward revisions that keep surprising, despite a tighter rate regime.
Japan is raised for cyclical and structural reasons: rising capex, semiconductor exports, governance reform and share buybacks.
Europe and emerging markets kept at neutral: persistently expensive oil, a tightening Fed and the risk of a stronger dollar. The upgrade is funded by relative weightings, not by the risk budget.
Bonds neutral with a positive view on duration: yields are attractive and sovereigns can once again cushion a slowdown.
Gold returns to neutral after −6.3% in October: higher real yields weigh on a non-yielding asset. Cash moves to underweight in favour of bond carry.
