By Anna Szymanski
Oct 30 (Reuters) – Markets have long been stuck in a wait-and-see mode ahead of the US midterm elections, another potential round of fighting in Iran and the latest sweep of AI earnings. With answers now set to come on all these fronts, the next few weeks could be some of the most consequential of the year. And in 2026, that’s saying something.
Let’s begin with the AI narrative. Over the past week, a serious case of “cash burn” has upset stomachs across Wall Street.
Chip stocks and hyperscalers initially got a boost early in the week amid a wave of AI-related funding announcements from SpaceX, Meta, Broadcom and, most notably, Anthropic, which on Monday officially filed for its IPO, revealing eye-popping 1,368% year-on-year revenue growth in the second quarter.
There were also some positive tech earnings. South Korea’s SK Hynix leapt 13% on Wednesday after announcing a more than sevenfold jump in quarterly profit, while Microsoft reported a hefty cash flow beat and a robust outlook for cloud growth.
But the reprieve didn’t last long, as concerns about AI cash burn mounted.
First, Alphabet released disappointing search advertising results and negative free cash flow, sending its shares down more than 12% on Thursday.
Amazon shares also tumbled in after-hours trading on Thursday after it reported that it had burnt through $42.4 billion on a trailing 12-month basis in the third quarter, largely due to capex that was roughly $20 billion above estimates. And then there was Intel, which fell over 20% after-market following, you guessed it, more revelations of cash burn, driven by hefty spending, faltering PC demand and capacity constraints.
Away from equities, Friday morning’s news of a $6.3 billion cryptocurrency heist at Binance, the world’s biggest cryptocurrency exchange, probably won’t help market sentiment.
Moving to central banks, this was a packed week for monetary policymaking. The biggest surprise came from the Reserve Bank of New Zealand, which kept interest rates on hold at 2.75%. Traders had been pricing in a roughly 70% chance of a rate hike.
While this was a reminder that central banks don’t always follow the market’s lead, the rest of the big ones mostly did.
The Bank of Canada increased its policy rate by 25 basis points to 2.5%, as expected, reflecting energy-driven inflation concerns. Otherwise, “hawkish holds” were the order of the day, with the European Central Bank, Federal Reserve and Bank of Japan all keeping rates unchanged while signalling the potential for tightening ahead.
At the ECB, the big news came before the meeting, when President Christine Lagarde announced that she would be stepping down from her post in February before her term is up so that she can speak freely on matters beyond monetary policy.
Discussions about her possible replacement have been underway since February, when reports of an early exit first emerged. Whoever takes over will have a particularly challenging job ahead of them, not least because of the problems facing Lagarde’s native France.
Over to the Fed, US policymakers kept rates on hold and offered little in the way of news beyond the announcement that there’ll be fewer rate-setting Fed meetings beginning next year. That speaks to Chair Kevin Warsh’s longstanding aversion to what he perceives as excessive Fed communication.
Speaking of communication, Warsh had a challenging message to deliver at Wednesday’s press conference: economic growth is strong, inflation is too high, financial conditions are tightening but not “tight” – yet the Fed was not raising rates.
This comes at a delicate juncture for the Fed, as the AI boom looks vulnerable and conflict-driven energy prices remain high, a combination that could revive stagflationary fears.
On the energy front, there has been little relief. While crude prices slipped on Thursday on renewed hopes for diplomacy between the US and Iran, Brent spiked above $117 a barrel on Friday. Fears remain very high that the US and Israel could strike Iran after the US midterm elections on November 3, though the White House has sent mixed signals on the matter.
Staying in the Middle East, Israelis went to the polls on Tuesday. Although Prime Minister Benjamin Netanyahu’s bloc outperformed the opposition bloc, it failed to win the 61 Knesset seats needed to secure an outright majority. Netanyahu will likely be given the opportunity to form a government and may seek to siphon off support from the right of the opposition.
In other election news, Brazilian President Luiz Inacio Lula da Silva won a surprise fourth term on Sunday, defeating Flavio Bolsonaro, who had led in the first round. The shock result sent Brazilian assets tumbling on Monday.
The result also dealt a blow to President Donald Trump’s foreign policy strategy – dubbed the “Donroe Doctrine” – aimed at securing a “sphere of influence” for the US in the Western Hemisphere.
On the other side of the Atlantic, John Healey, the UK’s new finance minister, delivered the first budget of the Andy Burnham era. While the budget appeared designed not to ruffle any feathers, by deferring major public spending decisions until next year, the new prime minister risks repeating the mistakes of his predecessor.
Looking to next week, the big story will obviously be the US midterm elections, with the Democrats expected to retake the House, based on recent polling, though the Senate remains very much a toss-up.
It’ll also be a big US jobs week, with both October nonfarm payrolls and September job openings data on the docket.
Meanwhile, the Bank of England will issue its interest rate decision on Thursday, and earnings season continues with reports from the likes of Apple, AMD and Palantir.
Before you head off, take a look at some questions ROI columnists have recently been exploring:
• Are today’s sky-high earnings growth forecasts a massive warning sign?
• What happens when “energy dominance” becomes energy hubris?
• Are Fed credibility concerns returning?
• What might the midterms tell markets about the 2028 presidential race?
• How is Canada taking a page from Saudi Arabia’s oil playbook?
• Who will blink first in zinc bull/bear standoff?
• Why might the ECB keep rate hikes on hold?
• Why was Dr. Copper the talk of the town in London last week?
• Can Beijing’s high-export economic model continue?
• Can the West catch up with China in critical metals processing?
• Could natural gas lose its place as the energy transition “bridge fuel”?
• Why might Mexico become an energy-transition cautionary tale?
• What battle is building in the iron ore market?
• Is private credit obscuring risks in the AI boom?
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