5 global market themes investors need to watch this week

Global markets are confronting a tougher backdrop as borrowing costs remain elevated, oil prices stay above $100 a barrel and central banks continue tightening policy. Political uncertainty in France, currency volatility, Brazil's election and key central-bank signals could keep investors on edge. (Source: Reuters)

France's minority government has presented its 2027 budget bill, setting the stage for weeks of political wrangling over spending cuts. The country's 10-year bond yield is hovering near 5%, its highest level since 2002, while public debt has climbed to almost 120% of economic output. France plans to issue a record €340 billion in bonds next year, adding to concerns over its finances. Strikes against planned budget cuts are also gaining momentum. With presidential elections approaching, investors are watching closely for signs of further market stress and the European Central Bank's response.

Currency markets are emerging from their summer lull, with the dollar on course for a third consecutive weekly gain. The dollar index is at its highest level in 18 months, supported by stronger US growth, elevated Treasury yields and high energy prices. The euro, meanwhile, has fallen below $1.13 for the first time since May 2025. Rising borrowing costs in heavily indebted euro zone economies, including France, combined with higher energy prices, are weighing on the region's growth outlook. Euro volatility has also increased as traders position for further weakness.

Brazil voted in an election that could determine whether Latin America's largest economy follows the region's recent rightward political shift. Leftist President Luiz Inacio Lula da Silva is expected to lead in the first round but may fall short of an outright victory, setting up a potential October 25 runoff. Markets are focused on the country's fiscal outlook. High interest rates have supported the Brazilian real as a popular carry trade, but they are also squeezing households and businesses. The next government will inherit rising debt and the challenge of restoring fiscal credibility.

Investors will look for clues on the Federal Reserve's next interest-rate move when minutes from its latest meeting are released on Wednesday. The Fed raised rates for the first time since 2023 at its previous meeting and signalled that further tightening could come before the end of the year. However, expectations for another hike have cooled after data showed US inflation rose less than expected in August. Markets will closely assess policymakers' views on inflation, growth and how much more monetary tightening may be needed.

Japan's corporate sector will provide two important signals on Thursday as investors assess the impact of higher energy costs and a weak yen. The Reuters Tankan survey will offer an update on business sentiment and could provide clues about whether the Bank of Japan will follow September's rate increase with another hike this month. Later, Fast Retailing, the operator of Uniqlo, reports annual results. The retailer is viewed as a bellwether for consumer spending in Japan and China. Investors will focus on its outlook and how energy costs and the weaker yen are affecting profit margins.