Dear Quay Financials,

It is Saturday morning here in Gibraltar and I am sitting in the garden looking at just how much everything has grown.

Some plants are flourishing, others seem to be struggling for space, and a few have become so enthusiastic that they are beginning to crowd out their neighbours.

From where I am sitting, the garden looks rather healthy. It is only when I look a little more closely that I begin to wonder whether everything is doing quite as well as it first appears.

Which brings me to the question of pruning.

The trouble, of course, is knowing what to cut back and what to leave alone. Cutting everything back simply because it has grown would be rather foolish.

Markets are not so different. Knowing when to cut back a little risk is one thing; knowing when to leave a good investment alone is quite another.

Whether I will follow my own advice is another matter.

Let’s turn to the week.

Recap: Where We Left Off (Week 40)

Last week, we were left with a rather awkward question. Could earnings and enthusiasm for artificial intelligence continue to support equity markets while the cost of money remained stubbornly high?

Friday's weak employment figures had offered some hope of relief from further Federal Reserve tightening. The bond market was less persuaded, leaving the US 10-year Treasury at 5.28%.

This week, the S&P 500 gained 1.2%, the Nasdaq 0.6% and the Dow 0.9%. The 10-year yield eased four basis points to 5.24%. Not exactly cheap money, but a little less expensive.

What did not happen was the broader recovery that cheaper borrowing expectations might have encouraged. The Russell 2000 fell another 0.9%, despite gains in the major indices.

That is probably the more interesting result.

Investors are still prepared to pay for earnings they can see. They are rather less enthusiastic about financing those they hope might arrive later.

The pressure has eased a little. The distinction has not.

This Week: Records Above, Pressure Below; Relief Is Not Resolution

US & Global Equities

• US Markets: The S&P 500 gained 1.2%, the Dow 0.9% and the Nasdaq 0.6%. The interesting part was not simply that equities rose, but that the broader indices outperformed technology. Investors appear willing to look beyond the familiar AI names, although with the US 10-year Treasury still yielding 5.24%, enthusiasm remains rather selective.

• Small Caps: The Russell 2000 fell 0.9%, making it the obvious exception to an otherwise positive week for US equities. Lower bond yields offered some relief, but apparently not enough to persuade investors that refinancing conditions had fundamentally improved. There is a difference between borrowing becoming slightly less expensive and borrowing becoming comfortable again.

• Europe: The STOXX Europe 600 edged up 0.1% to 631.95, while the FTSE 100 gained 0.9% to 10,552.05. Both recovered some ground after the previous week's losses, but the difference in performance is worth noting. Europe's energy exposure and sovereign borrowing costs remain uncomfortable companions, particularly with Brent still above $100.

• Japan: The Nikkei 225 rose 1.1% to 69,030.92, extending its year-to-date advance to 37.1%. Japan continues to stand apart from other developed markets, even as its monetary-policy assumptions are changing. The rally has survived the discussion about moving away from excessively loose policy. Whether it remains quite so relaxed when that discussion becomes action is another matter.

Gold, Digital Assets and Other Assets

• Gold: New York gold futures rose 1.4% to $4,191.00, although they remain 3.4% below their year-end level. The recovery came despite US Treasury yields remaining above 5%, suggesting that geopolitical uncertainty and inflation concerns are still providing some support. Gold has not entirely lost its appeal, but the competition from income-producing assets is rather more serious these days.

• Bitcoin: Bitcoin fell 2.3% to $82,544.71 at Friday's UTC close, leaving it 6.6% below its year-end level. That was a rather different response from gold. Despite the familiar comparisons with digital gold, Bitcoin continues to behave more like an asset sensitive to liquidity and investor appetite for risk. The label is attractive; the behaviour is less obliging.

• Oil: Brent gained 2.4% to $104.72, while WTI rose 0.8% to $91.85. Both remain substantially higher than at the beginning of the year. The difference between the two benchmarks is worth watching, particularly when disruption to shipping, refining and regional supply can matter as much as the global balance of crude production.

• Energy and rates: Oil above $100 and a US 10-year Treasury yield of 5.24% make an uncomfortable combination. Higher energy costs threaten to keep inflation persistent, while expensive borrowing continues to test companies with weaker balance sheets.

Macro & Policy

• Federal Reserve: The minutes of the September meeting showed that policymakers remained concerned about persistent inflation, with further tightening still under consideration. That was hardly the reassurance markets might have hoped for after the previous week's weak employment report. The Fed is watching the labour market soften, but apparently not yet convinced that inflation has received the message.

• US services: The ISM services index stood at 54.9 in September, comfortably in expansion territory, while its prices-paid component reached 74.0. That is an awkward combination. Businesses are still reporting activity, but the cost of delivering it remains elevated. Growth is welcome, although growth accompanied by persistent price pressure is not quite the same thing as relief.

• US consumers: Preliminary October consumer sentiment fell to 46.3, with one-year inflation expectations at 4.7%. Consumers appear considerably less comfortable than the headline equity indices might suggest. That matters because spending can remain resilient for some time after confidence weakens, but the gap cannot be assumed to persist indefinitely.

• Bond market: The US 10-year Treasury yield eased four basis points to 5.24%, offering modest relief after the previous week's rise. It was a move in the right direction, but hardly a change in the cost-of-capital landscape. Investors still want substantial compensation for lending over time, regardless of whether equities are enjoying themselves.

Geopolitical Analysis

• Iran and the Gulf: President Trump said the US would not launch further strikes against Iran before November's midterm elections. Oil prices eased on the announcement, but the blockade remained and attacks on shipping continued. A reduction in the threat of escalation is welcome. It is not quite the same thing as making the Strait of Hormuz safe to navigate again.

• Energy infrastructure: Hurricane Isaias prompted precautionary production shutdowns in the US Gulf, while Washington imposed further sanctions on tankers carrying Iranian oil. Neither development necessarily removes barrels permanently, but both complicate the movement of energy to where it is needed. The distinction between having oil and being able to deliver it is becoming increasingly expensive.

• European sovereign debt: Borrowing costs rose across several European markets, including France, as energy prices revived inflation concerns. This is not simply a question of what central banks might do next. Governments must still persuade investors to finance their borrowing at acceptable rates. That becomes rather more difficult when inflation is uncomfortable and the supply of new debt is unlikely to disappear.

• EU-China trade: Brussels and Beijing reached an understanding on Chinese hybrid-vehicle exports, European market access and rare-earth licensing. It is a useful step away from a broader trade confrontation, but implementation remains unclear. For European manufacturers, the important question is whether the agreement actually improves competitive conditions and access to essential materials. Diplomatic progress is welcome; functioning supply chains would be better.

What's Pertinent This Week (Week 41)?

• Market breadth is still telling a different story: The S&P 500 gained 1.2%, but the Russell 2000 fell 0.9%. That is quite a distinction in a week when the major indices were generally positive. Investors are still prepared to reward established earnings, while remaining considerably more cautious about businesses dependent on affordable financing. For portfolio construction, the question is whether apparent diversification is actually providing much protection when the cost of capital remains so high.

• Inflation remains the obstacle to easier money: The ISM services prices-paid index reached 74.0, while the US 10-year Treasury yield finished at 5.24%. These are not particularly comfortable numbers for anyone expecting borrowing conditions to improve quickly. Companies with strong cash generation can probably afford to be patient. Others may have rather less choice.

• Energy risk has become difficult to ignore: Brent finished at $104.72, up 71.2% since the beginning of the year. Political statements may reduce the immediate fear of escalation, but they do not automatically restore shipping capacity or remove supply-chain constraints. For investors, energy exposure is no longer simply a question of which oil companies benefit. It also affects operating margins, inflation expectations and the ability of central banks to offer relief elsewhere.

What Will Week 42 Bring?

Tuesday, 13 October: US bank earnings

JPMorgan Chase, Goldman Sachs, Wells Fargo and Citigroup begin reporting third-quarter results. The headline profits will attract attention, but I will be more interested in what management says about credit quality, deposit costs and demand for borrowing. Banks have a useful vantage point on the economy. They also have a habit of revealing problems before those problems become particularly obvious elsewhere.

Wednesday, 14 October: US consumer inflation

September's Consumer Price Index will test whether inflation is becoming more manageable or whether higher energy costs are finding their way into broader prices. With the US 10-year Treasury still yielding 5.24%, there is limited room for another unpleasant surprise. A softer reading would be welcome, although one month's figures would hardly settle the argument.

Thursday, 15 October: US producer inflation

September's Producer Price Index should provide another indication of the pressures businesses face before goods and services reach consumers. The important question is whether companies can absorb those costs without sacrificing margins, or pass them on without damaging demand. Neither choice is especially attractive when borrowing is already expensive.

Other catalysts: US retail sales, further corporate earnings, developments affecting Gulf shipping and oil supplies, European sovereign borrowing costs and any practical progress on EU-China trade arrangements. The question throughout is whether the week's developments change the economic outlook or merely provide another reason for markets to move around.

Strategic positioning: I see little reason to abandon good businesses simply because markets are expensive, but equally little reason to assume that recent gains have removed the risks. Balance-sheet strength, reliable cash generation and sufficient liquidity remain valuable. Keeping some flexibility seems sensible when inflation, earnings and geopolitics are all capable of changing the picture rather quickly.

Ed's Closing Bell

I have been looking at the garden again while writing this. The more I look, the less convinced I am that everything needs pruning.

Some plants clearly need attention, while others would probably benefit from being left entirely alone. The difficulty is deciding which is which.

Markets present much the same problem. Record highs do not mean that everything underneath is healthy, but neither do high valuations automatically mean something must fall. There is a difference between recognising risk and assuming that every risk requires immediate action.

When does sensible pruning become unnecessary interference?

I suspect I will spend rather longer deciding what to prune than actually doing it. Probably no bad thing. The secateurs can wait until I have had another look.

Final Words

As ever, these are my personal observations and reflections, not investment advice. Markets have a habit of making the obvious look rather less obvious once the numbers arrive.

Please conduct your own research and seek appropriate professional advice before making investment decisions.

From Gibraltar

Not everything that grows needs pruning, but it is worth knowing what is taking up the space.

Further Reading

• ISM PMI Reports Roundup: September Services
• BLS: Schedule of Selected Releases 2026
• China and EU Avert Trade Conflict with Understanding on Hybrid Cars
• Oil Prices Fall as Trump Pauses Iran Attacks, China Restarts Fuel Exports

Quay Disclaimer

The views expressed in this blog are my own personal market observations and reflections. They do not constitute investment advice, a financial promotion, or a recommendation to buy or sell any security. This publication is not made in my capacity as a director of Quay Financials (Gibraltar) Limited, which is authorised and regulated by the Gibraltar Financial Services Commission. You should always conduct your own research and seek independent advice appropriate to your circumstances before making any investment decision.

Information has been obtained from sources believed to be reliable, but no representation or warranty is given as to its accuracy, completeness or timeliness. Market levels and weekly changes are compiled from public market data available at 10 October 2026 and may vary by venue, instrument and closing convention. The value of investments and the income derived from them may fall as well as rise, and investors may not recover the amount originally invested. Past performance is not a reliable indicator of future results. Readers should conduct their own research and obtain independent professional advice appropriate to their circumstances before making an investment decision.