By Daniela Hathorn, senior market analyst at Capital.com
Oil near $114 a barrel is keeping inflation risks in focus as global markets prepare for a week of central bank decisions and major US technology earnings. For MENA investors, the link between Middle East supply disruptions, interest rate expectations and the dollar will be central to the outlook. The Nasdaq has come under renewed pressure as investors reassess stretched valuations and the sustainability of AI-related spending. In Europe, political and fiscal uncertainty continues to cloud the outlook, while UK inflation accelerating to 3.5% has reinforced expectations of further Bank of England tightening despite signs of weakening consumer demand.
The Federal Reserve, European Central Bank and Bank of Japan announce policy decisions next week, putting currencies and borrowing costs firmly in focus. The Fed is expected to hold rates steady, but a pause would not necessarily signal an end to tightening. Investors will be watching whether persistent inflation and elevated energy prices leave the door open to further increases. A hawkish message could lift Treasury yields and the dollar, adding pressure on equities. The Bank of Japan’s outlook will also be important for the yen as markets assess the prospect of further rate hikes. The Bank of England meets the following week, with expectations of another increase keeping sterling sensitive to economic data.
Technology earnings could be just as influential, with Microsoft, Alphabet and Amazon among the major companies reporting. The test for AI is shifting from how much companies spend to what that spending delivers. Revenue growth alone may no longer be enough: investors will be scrutinising profitability, capital expenditure and tangible returns. Strong results and reassuring guidance could help restore confidence in the Nasdaq, while disappointing margins or further spending increases could deepen concerns about elevated valuations. Given these companies’ weight in US indices, the implications extend well beyond individual technology stocks.
The central question is whether resilient corporate earnings can offset the pressure from restrictive monetary policy and persistent inflation. Measured central bank guidance and strong technology results could support a recovery in risk appetite; hawkish signals and disappointing earnings could trigger another round of selling. US gross domestic product (GDP) and personal consumption expenditures (PCE) inflation data will provide further tests of the growth and inflation outlook, potentially prompting investors to reassess interest rate expectations. With the US midterm elections on 3 November adding another layer of uncertainty, volatility could remain elevated into November. For MENA investors, oil, the dollar and the Fed’s policy signals remain closely connected parts of that picture.
