Author: Fiona Craig

Barclays expects European corporate earnings to increase by 16% in 2026 and 10% in 2027, although its strategists anticipate a more restrictive environment for equity markets as global monetary policy shifts towards higher interest rates.

In a research note led by Emmanuel Cau, the bank said the end of the global monetary easing cycle is removing a source of support for equities, potentially limiting future returns and moderating economic growth.

The strategists noted that economic activity continues to benefit from fiscal spending and capital investment in artificial intelligence, infrastructure and strategic autonomy. Nominal economic growth also remains above nominal bond yields, according to the bank.

However, Barclays expects higher financing costs to place limits on debt-funded AI investment and contribute to wider differences in equity performance across sectors and companies.

Interest Rates Change Equity Valuation Conditions

The bank said rising government bond yields are increasing competition between equities, fixed-income investments and cash.

As interest rates move higher, Barclays expects investors to place greater emphasis on earnings performance, particularly as equity risk premiums have continued to decline.

The strategists said the investment environment now offers fewer advantages from holding equities solely because alternative assets provide limited returns.

Barclays expects corporate earnings to remain a principal factor supporting European stock valuations, with the current investment cycle contributing to continued profit growth.

The bank anticipates that third-quarter earnings growth will remain in double digits, although below the pace recorded during the second quarter.

Price-to-earnings ratios have also returned towards historical averages, according to Barclays, following recent market adjustments.

Market Positioning and Fourth-Quarter Prospects

Barclays said the combination of rising oil prices, higher bond yields and renewed fiscal uncertainty affected European equities during September, following gains earlier in the summer.

France has been a particular focus of fiscal concerns, although the bank does not consider the current situation comparable with the European sovereign debt crisis of 2011.

The strategists believe that investor positioning has become less extended, while seasonal patterns could provide some support during the final quarter of the year.

They also noted that equity markets have already adjusted to higher financing costs and energy prices through lower valuation multiples and reduced participation in market gains.

Current market pricing implies three to four interest rate increases by major central banks over the coming 12 months, according to Barclays.

In energy markets, improved crude oil flows have helped contain Brent prices, although uncertainty remains over the possibility of a sustained easing of tensions between the United States and Iran.

The bank therefore sees a limited possibility of further gains in European equities before year-end rather than a broad improvement in market conditions.

Barclays Maintains Regional and Sector Preferences

Barclays continues to hold a market-weight allocation to European equities relative to U.S. stocks.

Within Europe, the bank prefers Germany and peripheral markets over France, while Japan remains its principal regional overweight.

The strategists favour companies exposed to capital investment spending, alongside banking stocks. Barclays has also selectively increased allocations to telecommunications businesses with lower sensitivity to wider market movements.

By contrast, the bank maintains a cautious assessment of consumer, real estate and materials companies, reflecting their sensitivity to interest rates and energy costs.

Barclays said AI-related investment continues to support growth, although enthusiasm surrounding the sector has moderated as borrowing costs increase.

The bank’s forecasts suggest that European earnings could continue expanding through 2027, while higher bond yields and tighter monetary conditions may limit the extent of equity market gains.

European Central Bank chief economist Philip Lane said increased investment in artificial intelligence, particularly in the United States, is contributing to higher long-term bond yields, adding another global factor to the ECB’s assessment of monetary policy.

Speaking in an interview with Italian news agency ANSA published Tuesday, Lane identified AI investment as a major development affecting international economic conditions.

He explained that U.S. companies are taking on substantial long-term debt to finance AI-related spending, contributing to upward pressure on bond yields.

The expansion of artificial intelligence is also affecting global trade flows, with demand increasing for semiconductor chips and other materials associated with the technology. Lane noted that European businesses participate in parts of this supply chain.

Higher long-term interest rates can restrict economic activity and reduce inflation in the eurozone, particularly when the increases originate from global rather than domestic developments, Lane said.

He added that the ECB would incorporate these effects into its assessment of inflation, economic risks and the appropriate level of policy interest rates.

ECB Monitors Energy Costs and Secondary Inflation Effects

Lane said energy prices remain an important consideration for monetary policy following the increases that have contributed to the ECB’s recent rate decisions.

Although energy costs have risen, he indicated that there has been limited evidence so far of substantial second-round inflation effects, where initial price increases spread more widely through the economy.

The extent of any further transmission remains uncertain, according to Lane, who cautioned against assuming that current conditions fit neatly into the ECB’s baseline or adverse economic projections.

Lane also discussed the eurozone’s performance during the summer, when a temporary reduction in energy prices following an understanding between Iran and the United States provided some support to economic activity.

He said renewed increases in energy costs and uncertainty surrounding the conflict have created questions about whether those conditions will continue.

Government Spending and Italian Inflation

Looking at fiscal policy, Lane noted that this year’s economic support includes Germany’s infrastructure and defence programme, alongside the concluding year of the European Union’s Next Generation recovery fund.

He indicated that the composition of fiscal support would change in the years ahead.

In Italy, where the latest reported inflation rate stood at 4.1%, Lane supported targeted assistance for households with lower incomes rather than broad-based fiscal expansion.

He said general increases in public spending would not help bring inflation back to the ECB’s 2% target within an appropriate timeframe.

The ECB’s September forecasts anticipate that Italian wages will increase faster than consumer prices in 2027 and 2028.

However, Lane warned that wage growth exceeding sustainable levels could affect foreign investment and employers’ willingness to recruit additional workers.

Interest Rate Policy and Long-Term Economic Stability

Lane reiterated the ECB’s position that interest rate increases are intended to preserve price stability.

He said inflation remaining at 3% or 4% would have substantial effects on households, while expectations of persistently elevated inflation could also contribute to rising long-term borrowing costs.

Lane advised governments to account for higher interest expenses when preparing public budgets and to focus on reforms that support economic growth.

His remarks outlined several considerations for ECB policymakers, including global borrowing linked to AI investment, energy market developments, inflation expectations and the future direction of fiscal policy.

UBS has maintained its positive assessment of the copper market, projecting a larger supply deficit in 2027 and forecasting that prices will move towards $15,500 per metric ton.

The bank estimates that the copper market will record a supply shortfall of 219,000 metric tons in 2026, rising to 379,000 metric tons the following year.

The forecasts indicate an increase of 160,000 metric tons in the annual deficit, reflecting UBS’s expectation of a widening imbalance between copper availability and demand.

Based on its supply outlook, UBS expects copper prices to approach $15,500 per metric ton in 2027.

The bank has also reiterated its recommendation for investors to hold long positions in the commodity, citing its expectations for the market.

In addition, UBS considers potential near-term declines in copper prices as opportunities to add exposure through long positions.

The bank’s outlook therefore combines expectations of a widening supply deficit with a forecast for higher copper prices in 2027, while maintaining its existing positioning recommendation.

Prices for memory chips climbed by almost 20% during the third quarter of 2026 compared with the preceding three months, according to Bernstein, which expects supply shortages to continue affecting the market into 2027.

The research firm’s assessment of contract pricing showed that conventional DRAM and NAND memory products both recorded increases during the July-to-September period. The quarterly advance was smaller than that recorded in the second quarter but remained above historical pricing trends.

Bernstein identified demand from artificial intelligence applications as a principal factor behind the supply imbalance. The firm said AI-related requirements continue to exceed available production, contributing to persistent shortages across the memory market.

Looking ahead, Bernstein anticipates another increase in memory contract prices during the final quarter of 2026. It also expects supply constraints to remain in place during 2027, potentially extending the period of rising prices.

Despite that outlook, the firm expects the potential magnitude of future price increases to become more limited. Price ceilings established under long-term agreements could restrict adjustments, while the growing cost of memory components may constrain spending across both AI and traditional computing applications.

Bernstein also highlighted the effects of higher memory prices on customers outside the artificial intelligence market, where component costs are increasing alongside AI-related demand.

The firm’s projections point to continued supply constraints and further pricing adjustments, although contractual limits and customer cost pressures are expected to affect the extent of future increases.

Shell (LSE:SHEL) has agreed to acquire a 30% interest in Equinor’s (TG:DNQ) Bay du Nord offshore oil project in Canada, as the companies advance development plans ahead of a targeted investment decision in early 2027.

The transaction, announced on Friday, will bring Shell into the project, which is located in the Flemish Pass basin approximately 500 kilometres offshore Newfoundland and Labrador.

Equinor said the agreement would support continued development work as the partners prepare for the next major investment milestone.

The companies did not disclose the financial terms of the transaction or provide details of the consideration Shell will pay for its interest.

Bay du Nord Development Targets Early 2027 Investment Decision

The Bay du Nord project is situated in the Flemish Pass basin, an offshore area in the North Atlantic off Canada’s eastern coast.

Equinor has been progressing development plans for the project, with a final investment decision currently targeted for early 2027.

A final investment decision would determine whether the project proceeds into its next major development phase, taking into account technical, commercial and financial considerations.

Shell’s acquisition of a 30% interest introduces another major international energy company into the development as preparations continue.

The transaction could provide additional support for the project’s development planning, although the companies have not specified how responsibilities or future investment commitments will be divided.

Equinor indicated that the agreement represents a further step towards reaching the planned investment decision.

Government Engagement Supports Project Progress

Equinor also highlighted the importance of its ongoing engagement with Canadian authorities in advancing Bay du Nord.

The company said constructive discussions with both provincial and federal governments had helped the project progress through important milestones.

Continued cooperation with the authorities will remain significant as development work proceeds towards the targeted investment decision.

Large offshore energy projects typically require extensive technical planning, regulatory oversight and coordination with government bodies before major construction and production commitments can be made.

For Bay du Nord, Equinor indicated that maintaining this engagement would be an important part of the development process.

The company did not announce a revised timetable or provide additional details about outstanding project milestones.

Shell Expands Participation in Canadian Offshore Energy

The acquisition will give Shell a 30% interest in a potential new offshore oil development in eastern Canada.

For Equinor, the agreement brings an additional international energy company into Bay du Nord as the project approaches a significant investment decision.

The companies have not disclosed updated development costs, production forecasts or a timetable for the start of commercial operations.

Further progress will depend on the completion of development planning, regulatory requirements and the investment decision expected in early 2027.

The announcement marks another stage in the development of Bay du Nord, with Shell and Equinor preparing to advance the offshore project in the Flemish Pass basin.

Gold prices climbed during Asian trading on Friday as the US dollar weakened and Treasury yields declined, improving the appeal of bullion while investors continued to assess inflation risks and the prospect of further Federal Reserve interest rate increases.

Spot gold rose 1.5% to $4,218.15 an ounce, while US gold futures gained the same percentage to reach $4,219.40.

The metal was on course for a weekly increase of approximately 1.3%, including Friday’s advance.

Other precious metals also strengthened. Silver increased 2% to $60.63 an ounce, while platinum gained 2.5% to $1,686.15 an ounce.

Dollar Pullback and Bond Yield Declines Lift Bullion

The US dollar paused its recent rally, making gold less expensive for buyers using other currencies.

Meanwhile, the yield on the benchmark 10-year US Treasury note fell for a second consecutive session.

Lower bond yields generally provide support for gold because they reduce the relative returns available from interest-bearing investments.

Unlike government bonds or bank deposits, bullion does not generate income, leaving it sensitive to changes in interest rate expectations.

The decline in Treasury yields helped offset some concerns that US monetary policy could remain restrictive for longer than previously anticipated.

However, the outlook for gold remains closely linked to inflation developments and expectations surrounding the Federal Reserve’s next policy decisions.

Federal Reserve Official Sees Scope for Additional Rate Increases

Comments from St. Louis Federal Reserve President Alberto Musalem added to expectations that US interest rates could rise further.

Speaking on Thursday, Musalem indicated that additional monetary tightening would be required to bring inflation back to the Federal Reserve’s 2% target within a reasonable timeframe.

He suggested that borrowing costs might need to increase over the next six to nine months.

Musalem did not specify whether he would support a rate increase at the central bank’s October 27–28 meeting.

According to the CME FedWatch tool, traders assigned an 18% probability to an October increase and an 82% probability to a rise in December.

The possibility of further tightening presents a challenge for gold, as higher interest rates increase the opportunity cost of holding an asset that does not pay interest.

Nevertheless, demand for bullion can also increase when investors seek protection against inflation, financial instability or broader economic uncertainty.

Oil Price Gains Raise Concerns About Persistent Inflation

The outlook for energy markets remained an important factor influencing investor expectations.

Brent crude climbed above $104 a barrel amid concerns that the continuing Middle East conflict could disrupt oil supplies.

Higher crude prices can increase costs across transportation, manufacturing and household energy consumption, potentially sustaining inflationary pressures.

If inflation remains elevated, central banks may have less flexibility to reduce interest rates and could instead maintain or strengthen restrictive monetary policies.

This creates a mixed environment for gold.

While rising inflation can encourage demand for assets perceived as stores of value, higher interest rates can make alternative investments more attractive.

As a result, movements in oil prices and changes in monetary policy expectations may continue to influence the direction of bullion.

Central Bank Purchases Remain a Potential Source of Demand

Longer-term support for gold could come from continued buying by central banks and concerns about high levels of government debt.

Monetary authorities have been an important source of demand for the metal, although future purchases will depend on individual reserve management decisions.

Analysts have also highlighted expectations that China’s central bank may continue increasing its gold holdings.

Additional purchases could support demand, but the size and timing of any future acquisitions remain uncertain.

Gold prices are also influenced by investment fund flows, currency movements and changes in real interest rates, meaning central bank demand is only one component of the broader market outlook.

Copper Futures Rise as Metals Markets Strengthen

Industrial metals also advanced during Friday’s trading session.

Benchmark copper futures on the London Metal Exchange increased 1.2% to $14,512.33 per tonne.

US copper futures rose 1.5% to $6.67 per pound.

The gains accompanied the broader advance in metals, although copper is more directly exposed to industrial activity, manufacturing demand and supply conditions.

Gold’s rise reflected the immediate benefit of a weaker dollar and declining US bond yields, while higher energy costs and expectations of further Federal Reserve tightening continued to complicate the outlook.

Market participants will remain focused on inflation indicators, oil prices, central bank policy signals and official-sector gold purchases for further direction.

Oil prices declined on Friday after US President Donald Trump said Washington would not carry out military strikes against Iran before next month’s congressional midterm elections, providing some relief to markets concerned about disruptions to Middle Eastern energy supplies.

Brent crude futures fell 72 cents, or 0.7%, to $103.53 a barrel by 02:20 GMT. US West Texas Intermediate (WTI) futures dropped 52 cents, equivalent to 0.6%, to $90.97 a barrel.

Despite the decline, Brent remained on track to finish the week higher after gaining 4% on Thursday, when increased attacks on oil shipments from the Middle East renewed concerns about supply availability.

WTI was heading for a modest weekly loss, even as Hurricane Isaias forced substantial production shutdowns in the US Gulf of Mexico.

US-Iran Discussions Ease Immediate Escalation Fears

Speaking on Thursday, Trump said the United States was holding “productive discussions” with Iran and indicated that no military action was planned before the November 3 midterm congressional elections.

His remarks followed media reports suggesting that US officials had been considering strikes against Iranian targets ahead of the vote.

The comments reduced immediate concerns about an expansion of the conflict, which is now in its eighth month and has disrupted energy shipments from the region.

Diplomatic developments also attracted attention after Iran’s Tasnim news agency reported comments from Foreign Minister Abbas Araqchi.

According to the report, Araqchi said Tehran was reviewing Washington’s response to an Iranian proposal that could allow the Strait of Hormuz to reopen within seven days.

No final agreement was reported, leaving uncertainty over the timing of any restoration of normal maritime traffic.

The Strait of Hormuz remains a major concern for energy markets because of the volume of petroleum transported through the waterway.

Before the conflict, shipments through the strait represented approximately 20% of global oil and fuel flows.

An increase in threats against commercial shipping in the Gulf and the Strait of Hormuz during October has contributed to considerable volatility in crude prices.

The prospect of renewed access to the shipping route could reduce some supply concerns, although security conditions and the progress of negotiations remain uncertain.

Washington Maintains Economic Pressure on Tehran

While diplomatic contacts continued, the United States announced further sanctions targeting Iran’s energy trade.

The measures, introduced on Thursday, covered individuals, commercial networks and 17 vessels involved in transporting Iranian crude oil, refined petroleum products and petrochemicals.

Washington is maintaining economic pressure on Tehran as part of its efforts to bring the conflict to an end.

The latest restrictions illustrate the continuing uncertainty surrounding Iranian energy exports despite reports of negotiations between the two countries.

For oil markets, the potential effects of diplomatic progress must be weighed against the possibility of further restrictions on trade and continued disruptions to shipping.

Hurricane Isaias Cuts Gulf of Mexico Oil Output

The market was also monitoring Hurricane Isaias as it approached the US Gulf of Mexico coast.

Energy companies operating offshore suspended production at several facilities as a precaution against the storm.

According to the US Marine Minerals Administration, approximately 1.3 million barrels per day of oil output had been shut in by Thursday.

The closures represented 62.9% of current oil production in the affected offshore region.

The disruption has temporarily reduced US supply, although the duration of the shutdowns will depend on weather conditions, possible infrastructure damage and the ability of operators to restart production.

As the world’s largest oil producer, the United States plays an important role in global supply balances, making interruptions in Gulf of Mexico operations relevant to international crude prices.

Oil Markets Continue to Weigh Multiple Supply Risks

Friday’s decline in crude futures followed Trump’s comments on negotiations with Iran, but several sources of supply uncertainty remained unresolved.

Brent’s expected weekly advance reflected continuing concerns about the security of Middle Eastern shipping routes, while hurricane-related shutdowns added pressure on US production.

Further developments in US-Iran negotiations, the possible reopening of the Strait of Hormuz, enforcement of American sanctions and the resumption of Gulf of Mexico production are likely to influence oil market sentiment in the coming sessions.