Equities remained in positive territory last week. In both Europe and the US, the Stoxx Europe 600 and S&P 500 posted modest weekly gains, extending the more robust rebound seen the week before. Early November's jitters have faded, though a sector rotation appears to be under way.

All eyes are now on the Fed's monetary policy decision due Wednesday evening. A 25 basis point cut is widely priced in (87% probability according to futures markets). But it's what comes next that's prompting debate. Analysts agree the US central bank will have to opt for a so-called "hawkish cut" - lowering rates, but pairing the move with a message along the lines of: "We've trimmed rates, but we're not convinced it was the right call, so don't expect an all-out monetary easing party." More soberly put, the Fed needs to retain control over upward price pressures, since inflation remains high in the US, and lower rates risk stoking it further. It cannot afford to give the impression of opening the floodgates, lest it lose its grip on the macroeconomic narrative. A restrictive tone from Fed Chair Jerome Powell on Wednesday evening is therefore to be expected.

The clearest sign that markets are anticipating such an approach lies in the bond market. Ordinarily, the prospect of a rate cut would push US yields lower. Instead, yields have climbed in recent days, surpassing 4.1% on the 10-year over the weekend. This is a clear signal that fixed income investors are pricing in fewer rate cuts than equity markets are. And that's a source of tension for stocks, as rate-cut expectations have become a primary engine of equity market performance: particularly when other drivers are sputtering.

Artificial intelligence, for instance, has taken a breather after a stunning bull run. Recent exuberance has even prompted Ed Yardeni - renowned for his long-standing bullish stance - to trim his overweight on tech stocks, a position he has held since 2010. He's particularly wary of the "Magnificent Seven", whose earnings dynamics are shifting. Yet he maintains a broadly constructive view on the sector, believing newer players will challenge the dominance of hyperscalers. To rebalance his allocation, Yardeni has upped his overweight in financials (whose earnings share in the S&P 500 is significantly underrepresented), as well as in industrials and healthcare.

Let's move on to the key headlines not to be missed as the week gets under way:

French President Emmanuel Macron warned in Les Echos that "China is now striking at the heart of the European industrial model." He floated the idea of additional tariffs on China, while also urging the ECB to place greater emphasis on growth and employment in its monetary policy. Is the French President edging towards a Trumpian radicalisation?

Speaking of which, across the Atlantic, Donald Trump has revived the Monroe Doctrine and taken aim at Europe in a strategically charged policy paper. Meanwhile, US trade officials described recent talks with the Chinese Vice Premier as "constructive", and praised Beijing's efforts to comply with the interim bilateral trade deal.

Staying in the region, tensions between Japan and China escalated following a provocative air encounter between fighter jets over the weekend. The diplomatic spat was triggered by an unfiltered statement from Japan's Prime Minister on Taiwan, prompting a cascade of retaliatory measures from Beijing, particularly targeting Chinese tourism to Japan and import-export flows. China, incidentally, announced a sharp rise in exports this morning, which will do little to alleviate the trade deficits of either the US or Europe with the former Middle Kingdom.

European leaders are gathering in Germany today in a bid to support their Ukrainian ally, as part of a US-backed peace plan that conspicuously favours Russia.

In the macro calendar,  the Fed's rate decision on Wednesday threatens to overshadow the rest of the economic newsflow. Other central banks - ncluding those of Australia, Canada, Switzerland, Brazil and Turkey - are also due to meet. In the US, the delays in data release caused by the recent shutdown are gradually being cleared. Labour market indicators are on the docket this week, alongside September data on international trade and wholesale commerce.

In the corporate calendar, just when you thought it was over, there's more. Results from Oracle, Adobe and Broadcom will be closely watched: all three tied to AI. Will Broadcom remain centre stage? Is Adobe losing ground to mounting competition? And crucially: will investors keep backing Oracle's AI pivot now that last quarter's earnings have been revealed as too good to be true, and debt markets are growing nervous about the sums poured into the transition?

The week began on a mixed note in Asia-Pacific. Japan, South Korea and Taiwan are up, while India and Australia are retreating slightly. European futures are pointing to a mild decline.

Today's economic highlights:

On today's agenda: the seasonally adjusted industrial production in Germany. See the full calendar here.

  • GBP / USD: US$1.33
  • Gold: US$4,208.25
  • Crude Oil (BRENT): US$63.84
  • United States 10 years: 4.13%
  • BITCOIN: US$91,701.2

In corporate news:

  • Unilever faces pressure as Ben & Jerry's board chair refuses to resign amidst Magnum's spin-off plans.
  • Ageas acquired a full stake in AG Insurance from BNP Paribas, establishing a long-term bancassurance partnership in Belgium.
  • L'Oréal increased its stake in Galderma to 20% by purchasing an additional 10% from an EQT-led consortium.
  • TKMS forecasts a slight decrease in adjusted operating profit for fiscal 2026, projecting earnings between 100-150 million euros.
  • CellaVision AB received CE marking for its Bone Marrow Aspirate Application, enabling EU-wide use for cancer diagnostics.
  • Stillfront Group AB appointed Emily Villatte as their new Group Chief Financial Officer.
  • Acast AB appointed Katrin Vogel as interim Chief Financial Officer and Deputy CEO.
  • IBM is nearing a deal to acquire Confluent for approximately $11 billion.
  • Eli Lilly will have Mounjaro included in China's national health insurance reimbursement list starting January 1, 2025.
  • Brookfield Asset Management and GIC agreed to a $4.5 billion takeover of Australian self-storage REIT National Storage.

See more news from UK listed companies here

Analyst Recommendations:

  • Easyjet Plc: BNP Paribas initiates an outperform recommendation with a target price of USD 10.
  • Shell Plc: BNP Paribas maintains its outperform recommendation and raises the target price from GBX 2950 to GBX 3000.
  • Rotork Plc: Morgan Stanley downgrades to market weight from overweight and reduces the target price from GBX 374 to GBX 350.
  • Rio Tinto Plc: Oddo BHF maintains its outperform recommendation and raises the target price from GBP 62 to GBP 68.
  • Gsk Plc: Rothschild & Co Redburn maintains its buy recommendation and raises the target price from GBX 2520 to GBX 2570.
  • Baltic Classifieds Group Plc: Investec maintains its buy recommendation and reduces the target price from GBX 325 to GBX 300.
  • Paragon Banking Group Plc: Deutsche Bank maintains its buy recommendation and raises the target price from GBX 1050 to GBX 1100.
  • Breedon Group: RBC Capital maintains its outperform recommendation and raises the target price from GBX 500 to GBX 525.
  • Vodafone Group Plc: Barclays upgrades to overweight from equalweight with a price target raised from GBP 1 to GBP 1.20.
  • Halma Plc: Goldman Sachs maintains its buy recommendation and raises the target price from GBX 4080 to GBX 4120.
  • Hiscox Ltd: JP Morgan maintains its overweight recommendation and raises the target price from GBP 15 to GBP 16.
  • Shell Plc: BNP Paribas maintains its outperform recommendation and raises the target price from GBX 2950 to GBX 3000.