This week’s market narrative has been shaped by fresh PMI data, expectations surrounding the Bank of England’s next interest rate decision, and the U.S. midterm elections, with investors assessing the implications for the economic and geopolitical outlook.
The UK manufacturing sector started the final quarter of 2026 on a stronger footing, with the PMI rising to 52.8 from 51.9 in September, its highest level in five months. As a reading above 50 signals expansion, the data suggests factory output is growing at its fastest pace in more than two years, supported by stronger domestic and overseas demand. However, higher energy and transport costs continue to pressure manufacturers, while hiring slowed after six months of employment growth, leaving the overall picture positive but not without challenges.
Attention is also turning to the Bank of England’s interest rate decision on Thursday. Markets are anticipating an increase in Bank Rate as policymakers weigh the inflationary consequences of higher energy prices against the risks of weakening economic activity. The Bank has so far adopted a cautious approach, allowing time to assess how the energy shock is feeding through into inflation and the wider economy. Although a rate increase is increasingly expected, it would not necessarily signal the start of a sustained tightening cycle. Much will depend on whether inflationary pressures persist and how they affect domestic prices, wages, and demand.
This week, oil prices have experienced a sharp reversal in sentiment. Crude fell by more than 7% on Monday as renewed diplomatic efforts involving Iran raised hopes of progress towards ending the conflict and easing disruption to energy supplies. That optimism proved short-lived, however, with prices recovering on Tuesday after reports emerged that U.S. forces had carried out limited strikes on Iran’s Qeshm Island.
The midterm results are in! President Trump acknowledged that the war in Iran and the resulting rise in fuel prices were likely significant contributing factors to Democratic gains, as a wave of blue swept across the country in the early hours of this morning UK time. The Democrats secured victories in both the House of Representatives and the Senate, shifting the balance of power in Congress. The result could have important implications for the direction of fiscal policy, regulation, and the Trump administration’s ability to push through its domestic agenda.
So far, the initial market reaction has been overwhelmingly positive. At the time of writing, U.S. futures, including the S&P 500, Nasdaq and Dow Jones, were all trading higher. While U.S. markets have yet to open, the FTSE 100 also moved higher this morning. Looking ahead, the result could provide further support for market sentiment in the months to come. With a stronger opposition presence in Congress, President Trump may face greater challenges in advancing some of his more controversial policy proposals, potentially reducing the risk of policy-driven uncertainty. This, in turn, could help to moderate market volatility through the remainder of the year and potentially throughout much of Trump’s presidency. Notably, President Trump also struck a conciliatory tone in his response to the outcome, expressing a willingness to work constructively with Democrats. If that cooperative approach continues, it could further reassure investors and support a more stable market environment.
Still to come this week we have the Eurozone inflation data and U.S. jobs data.
Nicola Tune, Portfolio Specialist