MACRO
Currencies: Euro pressure, Swiss franc resilience
David A. Meier, Economist, Julius Baer
French politics have triggered a sharp EUR repricing, which appears to be halted for now. Longer-term USD weakness remains our base case, but the path to a EUR recovery may be tedious. The Swiss franc remains supported by eurozone risks amid potential headwinds from a Swiss rate repricing.
In the second half of September, the euro came under notable pressure due to French political concerns. A massive widening of French government bond spreads versus German bunds reflected growing unease over future political and fiscal developments. Yet despite spreads continuing to widen in October, the euro has largely been trading sideways, suggesting that investors reacted decisively when political risks first came into focus. Options markets provide evidence of this adjustment: EUR risk reversals moved sharply in favour of downside protection, reaching levels seen prior to the EU fiscal policy U-turn. Since then, the demand for additional hedging has moderated. A similar pattern is visible in speculative positioning data, suggesting that investors have now moved into a wait-and-see stance. Against this backdrop, our three-month EUR/USD target of 1.15 looks ambitious. We continue to expect longer-term US dollar weakness, but a euro recovery could now prove more difficult.
The euro’s struggles have been mirrored by renewed strength in the Swiss franc. Earlier in the year, the franc experienced a softer patch due to its widening interest rate disadvantage, while sensitivity to energy prices limited its safe-haven appeal during the Hormuz conflict. However, the franc continues to serve as a reliable hedge against eurozone-specific risks, as is illustrated by its decoupling from rate differentials during recent events. Looking ahead, the franc could soften modestly if Swiss rate expectations are repriced. We still expect the SNB to hold rates until the middle of next year, whereas markets still anticipate a faster normalisation. Any resulting franc weakness should be less pronounced than that implied by our current three-month EUR/CHF forecast of 0.95.
India: Strong fundamentals amid external headwinds
Mark Matthews, Head of Research Asia, Julius Baer
Rising crude oil prices have weighed on sentiment and broadened the correction in Indian equities, but strong earnings, resilient domestic flows, and India’s limited dependence on the global AI trade support the investment case. As investors reassess technology-heavy markets after the recent AI-led sell-off, India is increasingly emerging as a diversification beneficiary.
Indian equities have faced a more challenging backdrop recently, with the correction broadening beyond headline indices to mid- and small-cap stocks. This is consistent with our preference for large caps, which continue to offer superior earnings visibility and more attractive risk-reward characteristics amid a more volatile market environment. Importantly, fundamentals remain stronger than sentiment suggests. Q1 FY3/2027 earnings exceeded expectations, while the ongoing Q2 reporting season has also been encouraging. Domestic institutional inflows in 2026 remain robust at USD7bn per month, while foreign investor flows have been far less disruptive than during the sharp selling earlier this year. Sector leadership has also shifted meaningfully. After being among the weakest-performing sectors in H1 2026, the information technology sector has rebounded sharply, gaining ~20% in October. While the pace of gains suggests that some consolidation may be warranted, improved valuations have supported the sector’s recovery. More broadly, India’s limited dependence on the global artificial intelligence (AI) trade is proving advantageous. While several markets remain heavily influenced by AI-related positioning, India’s market continues to derive support from domestic consumption, financials, and infrastructure spending. The key challenge remains crude oil (now ~USD 115/bbl), which is above levels typically associated with pressure on India’s macroeconomic outlook. A sustained decline in oil prices, potentially due to an easing of Middle East tensions and a move closer to our USD 60/bbl 12-month view, would be the most important positive catalyst for Indian equities. Meanwhile, speculation about potential tax cuts has provided a further tailwind for sentiment, but any material changes will likely be considered during the regular budget process in February. We remain constructive, favouring large caps over mid- and small caps.
COMMODITIES
Gold and silver: Who is selling?
Carsten Menke, Head Next Generation Research, Julius Baer
The pressure on precious metals persists, but it is not clear what is pushing prices lower. One source of selling could be Chinese investors being forced to raise cash in reaction to the crackdown on offshore capital. Short-term risks seem skewed to the downside, but the longer-term outlook remains compelling. We remain Constructive on gold and Neutral on silver.
Gold prices have fallen towards USD 4,000/ounce, and silver has broken below USD 55/ounce. While the trajectory of the trend has not changed significantly since prices peaked early in the year, it is not clear to us what is behind the latest downturn. Typically, there is a close co-movement between prices and the holdings of physically backed products. Purchasing such products lifts prices, and selling them pushes them lower. That said, there has been a remarkable disconnect recently, particularly for gold. The holdings of physically backed gold products are up by around 70 tonnes since the summer, while prices are down more than 13%. We have not seen significant selling by speculative futures traders either. Also, the usual suspects, a stronger US dollar or higher US bond yields, have been absent during the past few days. One potential source of selling could be Chinese investors who are forced to raise cash as a result of the country’s crackdown on offshore capital. Footing the tax bill could cause the liquidation of parts of their precious metals positions, creating a source of selling pressure that is not immediately visible. This is a thesis based on the latest available news, the timing of the sell-off, and the broader pressure on Chinese assets. Would such selling have the potential to push precious metals lastingly lower? Probably not. However, it could spill over into the Western world, prompting investors to part with their positions as well. For gold, breaking below USD 4,000/ounce would likely trigger some selling. Short-term price risks seem to be skewed to the downside, but we still see a compelling longer-term backdrop. Both gold and silver should be supported by concerns about the indebtedness and interest rate burden of the United States. While gold also benefits from central-bank buying as a strong structural source of demand, this is not the case for silver. We stick to our Constructive view on gold and Neutral view on silver.
FIXED INCOME
Global bonds on the move
Dario Messi, Head of Fixed Income Analyst, Julius Baer
October has brought renewed pressure on French government bonds and pockets of weakness in corporate credit. Yet recent equity sell-offs related to artificial intelligence (AI) also offered an important reminder: despite structural headwinds, high-quality bonds with duration can still provide valuable portfolio stability.
Bond markets remain on the move in the first month of the final quarter of 2026, with distinct developments across segments. Top of mind remain vulnerabilities in French government bonds. Spreads over German government bond yields have widened, but the stress has yet to trigger a major policy response. As argued in our previous weekly publication, the pain point has seemingly not been reached, leaving French bonds vulnerable. Corporate credit is also showing pockets of weakness. While these areas of weakness remain contained, they reinforce our preference for quality in credit portfolios.
More importantly, October has shown that bonds can still play a valuable role through their hedging characteristics. Long-duration bonds have faced scepticism because their stabilising effect has been inconsistent this year. The stock-bond correlation has shifted decisively since 2022, and structural headwinds remain. Yet correlations do not tell the full story. The rare episodes of AI-slowdown fears and related equity drawdowns suggest that bonds retain useful hedging properties, as recent weeks have demonstrated once again.
This makes economic sense. An AI slowdown would reduce investment needs – weakening a key growth driver – while making consumers more cautious and adding to disinflation. In short, it would resemble a typical aggregate-demand slowdown, the environment in which duration tends to perform best. Such a slowdown is not our near-term base case. Nevertheless, intermediate-maturity, high-quality debt remains a meaningful portfolio stabiliser, with an attractive starting yield adding to its appeal.
EQUITIES
European equities: Defensive rotation deepens
Nenad Dinic, Equity Strategy Research, Julius Baer
Elevated oil prices, rising yields, and weaker sentiment have driven a rotation from cyclicals towards defensives. While the rotation suggests that investors are increasingly positioning for an end-cycle environment, activity and earnings data remain more consistent with mid-cycle conditions. We stay Neutral on European equities and retain our cyclical tilt, including a positive view on European banks.
The underperformance of European versus US stocks has widened since mid-September as oil prices rose above USD 100/bbl and the global bond sell-off pushed yields higher. European financials and industrials have declined by 6.8% and 4.4%, respectively, from their mid-September peaks, while consumer defensives and healthcare are up 9.0% and 8.4%. In aggregate, European cyclicals have underperformed defensive stocks by 13.7% since the start of Q4, the largest downside move since March 2020 (see chart). While the rotation suggests that investors are increasingly positioning for an end-cycle environment, activity and earnings data remain more consistent with mid-cycle conditions. October’s flash PMI data continues to point to an expansion in the eurozone (except in France), while earnings revisions for European equities remain in net positive territory. Moreover, Q3 earnings for the Stoxx Europe 600 point to a solid 25% y/y growth (12% excluding oil & gas). The Q3 reporting season has entered its busiest week, with 25 European banks reporting, which provides the clearest near-term test of whether the sell-off has been excessive. Against this backdrop, we remain Neutral on European equities overall but see reasons to maintain a cyclical tilt. If earnings remain resilient, yields peak, oil prices ease, and the widening in sovereign spreads remains contained to France, banks and other investment related cyclicals have room to recover. At the country level, our views remain unchanged since the rating changes in May. We are Overweight Spain and Italy, Neutral Germany, and Underweight France and the UK.
CHINA FIXED INCOME & EQUITIES
China: Policy benchmark shift underpins bonds
Magdalene Teo, Fixed Income Analyst Asia, Julius Baer
The move by the People’s Bank of China (PBoC) to anchor operations to the lower overnight reverse repo rate signals an effective easing bias, which is supportive of China government bonds. Yield-seeking domestic investors may extend duration into the 5-to-10-year sector, lowering borrowing costs further along the curve.
China government bonds (CGBs) rallied after the PBoC signalled a shift to the overnight rate as the main tenor of open-market operations. With this shift, the central bank looks set to deliver additional easing, as the overnight rate last set in June at 1.25% is lower than the seven-day rate, now at 1.4%. Using the overnight rate as the policy benchmark will help to improve monetary policy transmission and assure the economy that liquidity conditions will remain accommodative. Floating rate loans could reference loan prime rates or the overnight repo rate, depending on the borrowing’s financial strengths. Given that a reduction in the loan prime rate (LPR) would weigh on banks’ net interest margins and deplete policy headroom, the new policy rate offers the PBoC a more flexible channel to ease financial conditions while preserving the scope for future action. The benchmark shift is supportive of CGBs, as it lowers the expected path of short-term interest rates, reducing discount rates and increasing the present value of future cash flows. This has the effect of compressing term premia and supporting demand for duration, even if yields for CGBs are already very low, with the ten-year yield at 1.624%. Lastly, the CGB yield curve could flatten, as investors seeking yield may extend duration into 5-to-10-year maturity segments. CGBs rallied following the announcement, amid strong demand from domestic investors and banks. Lower long-term bond yields should help reduce borrowing costs given the weak domestic economy and if the other engine of growth comes under pressure due to rising external risks. We also expect the PBoC to step up on risk management, as system leverage is likely to increase due to cheaper funding costs.
China: Is the national team coming to the rescue?
Richard Tang, Head Equity Research Analyst Asia, Julius Baer
Multiple drivers have fuelled the poor performance of Chinese equities in recent weeks. While recent buying by China’s national team offers hope for a temporary market stabilisation, we anticipate a major inflection point in H1 2027.
We attribute the accelerated declines in Chinese equities in recent weeks to a few factors. First, China’s tightening of capital and tax policies in H2 2026, including the new outbound direct investment regulatory framework and the new offshore trust tax rules, has hurt investor sentiment badly. Second, investors have grown more pessimistic about economic growth expectations for next year, as export growth will likely slow due to increasing trade barriers, while the phase-out of the pre-sale system may lead to a sharp decline in property investments. Third, China’s reporting season did not start on a strong note, with earnings misses by several notable large-cap stocks. The liquidity backdrop in H2 2026 has also been less favourable for the Chinese market, as heightened capital-raising activities have arguably drained liquidity away. We have also seen net outflows from Hong Kong stocks by mainland Chinese investors through Southbound Stock Connect over the past week. We understand that some regional institutional investors may be selling too, potentially indicating some capitulation. However, the national team has clearly stepped up its purchase of A-shares, as is evidenced by the surge in turnover of index exchange-traded funds, raising hope that a market stabilisation may be in sight. Historical evidence suggests that strong buying by the national team usually leads to a temporary market trough within one to three months. That said, in our view, a more sustained recovery will likely take place when policymakers are finally compelled to step up their policy stimulus, potentially early next year. For investors in the Chinese market, our current strategy is ‘get paid to wait’. We recommend owning high-dividend stocks like the offshore Chinese banks and telecom stocks. Those who are patient with a much longer investment horizon may consider adding artificial intelligence infrastructure stocks towards year end.
NEXT GENERATION
Artificial intelligence: Anthropic’s vision, ‘a country of geniuses in a data centre’
Enrico Chinello, Next Generation Research, Julius Baer
Anthropic has finally released its long-awaited IPO filing today. The document shows many elements that had already leaked to the press: fast growth, large compute power commitments, high founder voting control, and the vision of AI collaborators forming ‘a country of geniuses in a data centre’. The filing drops at a turbulent time for the AI ecosystem, where credit worries and questions on monetisation have muddled the strong fundamental outlook for AI infrastructure. We remain Constructive on the Cloud Computing & AI theme.
Anthropic’s IPO prospectus was released today. The document combines extraordinary ambition with financial and governance disclosures not often seen in a public company. The majority of indicators and financials are in line with what had been reported by news outlets in recent months: fast revenue growth, fuelled by capital raises and increasing compute capacity commitments. However, this growth is predicated on a highly capital-ntensive model. Expected minimum compute and infrastructure commitments are about USD 266 billion, with terms ranging from one to twenty years. Earlier news reports indicated up to USD 750 billion over the near- and medium term, indicating potential upside to those figures. Beyond the numbers, the governance structure is also peculiar: the founder share class carries 50.1% of shareholder voting power. Public investors therefore receive economic exposure, not meaningful control. The filing explicitly states that shareholder returns may be balanced against broader stakeholder interests and the company’s public-benefit mission. As expected, the prospectus highlights technological risk. Anthropic expects artificial intelligence (AI) systems to match top human experts, work autonomously for days or weeks, and eventually enable millions of virtual collaborators to operate in parallel. This is what Anthropic envisions as ‘a country of geniuses in a data centre’. At the same time, it concedes that capabilities could advance faster than safety systems and that releases may need to be delayed for safety reasons. Regarding the physical infrastructure, Anthropic has notably committed to covering electricity price increases imposed on consumers by its data centres. While eagerly awaited, the filing arrives at a time where markets have increasingly been questioning the ability for AI model providers to retain premium pricing, due to the rising competition from open-weight alternatives, and – most recently – the stability of pockets of infrastructure developers (e.g. the so-called ‘neoclouds’). We believe the Anthropic IPO prospectus is unlikely to calm all these questions, but it certainly provides a first step in terms of transparent disclosures and reporting for a major AI frontier model provider. We continue to believe we could begin to see commoditisation signals among AI models, making the technology more accessible and inter-changeable for users. This could ultimately boost adoption and broader infrastructure spending, supporting our Constructive view on the Cloud Computing & AI theme.
