The IMF raised its 2026 global growth forecast to 3.1%, even as rising energy prices, persistent US inflation and a sharp sell-off in AI-related shares exposed growing financial market vulnerabilities. Investors reassessed interest rate expectations and the sustainability of debt-financed AI infrastructure expansion, while US Treasury yields reversed their initial rise as demand for safer assets increased.

Across Asia, China’s third-quarter growth accelerated to 4.5%, although domestic investment remained weak. India faced renewed inflation and bond-market pressures, while MSCI’s proposed reclassification of Indonesia raised concerns about capital outflows. The developments show how resilient economic growth can coexist with rising financial risks.

Read more on the week’s key developments:

1. IMF raises 2026 growth forecast but warns debt limits room for another shock

The International Monetary Fund raised its 2026 global growth forecast by 0.1 percentage point to 3.1%, while warning that a prolonged Middle East-driven oil shock could weigh on economies already carrying high public debt. Brent crude touched $110 a barrel on 16 October as supply concerns intensified. That day, President Donald Trump waived duties under the Graham Act’s provisions on Russian oil and gas imports and sanctions evasion, along with several sanctions provisions. Sanctions under earlier executive orders remained in force. The waiver could reduce the threat of penalties for some buyers, though its effect on Russian fuel supplies is uncertain.

The IMF expects global growth of 3.4% in 2027 and inflation of 4.7% this year, easing to 4.1% next year. It sees AI investment supporting activity in the near term, while flagging energy costs, public debt and stretched asset valuations as risks. The Fund urged governments to rebuild fiscal space and central banks to prevent temporary price shocks from becoming entrenched. It estimates that price-suppressing measures can require three to 22 times more fiscal resources than targeted, temporary transfers.

2. US inflation rises across consumer, producer and import prices

US consumer prices rose 0.6% month on month in September, lifting annual inflation to 3.7% from 3.4%, above the 3.6% forecast. Gasoline prices jumped 9.1%, accounting for more than half the monthly CPI increase, while food prices were unchanged. Core CPI rose 0.3% on the month and 2.6% year on year, up from 2.4% in August and above the 2.5% forecast. Producer prices rose 1.3%, their largest monthly increase since March 2022. Energy accounted for more than 80% of the 2.6% rise in final-demand goods prices; core PPI rose 0.5% on the month and 5% over the year. Import prices rose 1.1% in September and 8.1% over the year.

Retail sales rose 0.8% in nominal terms, but only 0.2% excluding petrol stations, where sales jumped 6.4%. CPI initially lifted the market-implied chance of an October rate increase to 45% from 20%; by Friday it was below 20%, while futures priced about a 90% chance of a December increase. The 10-year Treasury yield briefly reached about 5.3% after CPI, then fell to about 5.09% by 16 October, from 5.24% a week earlier. The decline can lift the value of banks’ existing fixed-rate securities, while markets’ December rate expectations suggest little near-term relief on deposit costs.

3. AI-linked shares fall across Asian and US markets as chip and funding concerns grow

Technology shares fell across markets during the week. South Korea’s KOSPI dropped about 5.5% on 13 October, prompting a five-minute sidecar on programme selling, then fell 7.57% on 15 October, triggering a 20-minute market-wide circuit breaker. Taiwan shares fell 2%, while Japan’s Nikkei 225 declined 1.8% on 13 October. In the US, the Nasdaq Composite fell 4.5% in the five sessions to 16 October, its worst week since June, closing at 26,140 after a 2.1% drop on Friday.

Investors weighed future chip supply against the borrowing behind data-centre expansion. Reports of progress by Chinese memory-chip maker ChangXin Memory Technologies on a denser memory-cell architecture raised questions about future competition for Samsung Electronics, SK Hynix and Micron. CoreWeave’s shares fell about 25% over five sessions, while yields on its bonds rose above 15%. For banks, the concern is potential credit and funding exposure to leveraged AI infrastructure investment; the market moves do not establish wider credit contagion.

4. China’s third-quarter growth accelerates to 4.5% as domestic demand stays weak

China’s economy grew 4.5% year on year in the third quarter, up from 4.3% in the second quarter and above the 4.4% median forecast. GDP rose 1.2% quarter on quarter, compared with 0.9% in the previous quarter. September industrial output increased 5.5%, while retail sales growth picked up to 1.1% from 0.4% in August. Growth for the first nine months was 4.6%, within the government’s 4.5–5% target.

Investment remained weak: fixed-asset investment fell 7.2% in January–September, including a 20.6% fall in property investment. September exports rose 29.6% in yuan terms, or 36.3% in US-dollar terms. Producer prices rose 5% year on year, while consumer prices increased 0.9%. The National Bureau of Statistics said domestic demand remained insufficient. IMF Asia and Pacific Department Director Krishna Srinivasan said fiscal support was “quite limited in size and scope” and that growth relied heavily on external demand. The IMF projects China’s growth at 4.5% this year and 4.0% in 2027.

5. MSCI proposes reclassifying Indonesia as a standalone market

MSCI proposed reclassifying Indonesia from emerging-market to standalone status, citing opaque ownership and suspected coordinated trading that it said left the market insufficiently investable. The Jakarta Composite fell 11.57% on 16 October, its steepest one-day decline since 1998. On Monday, 19 October, it fell more than 5% to a six-year low. The rupiah weakened to 18,070 per US dollar on Friday and traded at 18,040 on Monday. The exchange reduced the lower auto-rejection limit for shares to 7% from 15%.

The proposal follows MSCI’s January warning and an index freeze. Authorities have proposed disclosing shareholders with stakes above 1%, publishing more detailed investor categories and gradually raising the minimum free float from 7.5% to 15%; MSCI said investors had yet to see consistent implementation or effective enforcement. A move to standalone status could lead index-tracking funds to reduce Indonesian holdings and prompt other institutions to reassess allocations, affecting foreign portfolio flows and market liquidity. UBS estimates the change could prompt about $4 billion in passive outflows, with active investors potentially adding a further $15 billion. The change remains a proposal: feedback is due by 30 April 2027, with MSCI’s decision due by 30 June.

6. Singapore holds policy settings despite expectations for further tightening

The Monetary Authority of Singapore (MAS) kept its currency-policy settings unchanged on 14 October, leaving the Singapore dollar’s appreciation slope, band width and midpoint in place. Markets had expected a steeper slope. The decision followed two tightenings earlier in the year and came as third-quarter GDP growth slowed to 5.4% year on year from 6.2% in the second quarter. On a quarter-on-quarter basis, GDP grew 1.1%; manufacturing contracted 0.9% after expanding 6.3% in the previous quarter.

MAS said core inflation should ease from mid-2027 as imported cost pressures slow and domestic costs remain subdued. It narrowed its 2026 core-inflation forecast to 1.5–2.0%, from 1.5–2.5%, and said the appreciating band would help counter near-term imported inflation. Core inflation averaged 2.1% in July and August, up from 1.5% in the second quarter. September non-oil domestic exports rose 68.4%, mainly because of lumpy ship and boat exports; electronics exports also grew on AI-related demand.

7. US bank earnings show loan growth and mixed capital-markets results

Third-quarter results showed loan growth at major US banks. Average loans rose 12% year on year at Citi, 11% at Wells Fargo and 10% at J.P. Morgan; average deposits rose 11%, 10.7% and 8%, respectively. Wells Fargo’s net interest margin fell to 2.43% from 2.61% a year earlier, while J.P. Morgan’s deposit margin slipped to 2.78% from 2.79%. Wells Fargo’s provision for credit losses rose to $1.029 billion from $681 million.

At Wells Fargo, the provision for credit losses rose to $1.03 billion from $681 million a year earlier, largely reflecting a higher loan-loss allowance associated with loan growth. Separately, commercial net charge-offs rose $125 million from the previous quarter, driven by higher commercial real-estate and commercial-and-industrial losses; consumer net charge-offs fell. Morgan Stanley’s results varied by business: investment-banking revenue rose 2% to $2.16 billion, equity-trading revenue climbed 41% to $5.8 billion, and fixed-income revenue fell 7% to $2.01 billion. Wealth-management revenue increased 10% to $9.1 billion, while net new assets reached a record $232.4 billion; the firm said just over half was associated with IPO-related flows.

8. US net interest outlays top $1 trillion as deficit nears $2 trillion

The US Treasury reported that federal net interest outlays reached $1.052 trillion in fiscal 2026, the first time they crossed $1 trillion and an 8.4% increase from the previous year. The federal deficit widened by $217 billion to $1.992 trillion, its largest in five years and the third largest on record. Net interest outlays exceeded national defence spending of $965 billion, but ranked behind Social Security and Medicare.

The figures appeared in the Treasury’s September Monthly Treasury Statement, released on 16 October, and cover the fiscal year to 30 September. Net interest is interest paid less interest received; gross interest expense was higher, at $1.36 trillion, because it includes interest credited to government trust funds. Treasury securities anchor yields used to price many corporate bonds and loans. The IMF has warned that high public debt and large expected bond issuance could make a disorderly rise in sovereign yields more disruptive.

9. India approves Fairfax-backed buyer for 60.72% of IDBI Bank

India’s Cabinet approved Fairfax-backed 10955230 Canada Inc. as the strategic buyer for a 60.72% stake in IDBI Bank. The stake comprises 30.48% held by the government and 30.24% by the Life Insurance Corporation of India (LIC). The agreed consideration is INR528.78 billion ($5.56 billion). After the proposed sale, the government would retain 15% and LIC 19%. Completion remains subject to the Reserve Bank of India’s fit-and-proper assessment of the buyer and other regulatory approvals.

At about $5.56 billion, the proposed transaction is roughly twice the size of Emirates NBD’s completed $2.75 billion purchase of a 60% stake in RBL Bank in June. That deal was funded through a new share issue; the IDBI transaction would transfer existing government and LIC holdings. IDBI was placed under the Reserve Bank of India’s Prompt Corrective Action framework in 2017 after losses and weak asset quality. Restrictions were lifted in 2021 as the bank’s financial position improved.

10. India’s wholesale inflation tops 11% as bond yields hit a three-year high

India’s wholesale price inflation accelerated to 11.39% in September from 9.92% in August, above the 10.18% forecast and the highest under the current data series. Consumer inflation rose to 5.54% from 4.83%, nearing the Reserve Bank of India’s 6% upper tolerance limit. Crude petroleum and natural-gas prices rose 57.32% year on year, while manufactured-product prices climbed 9.76%. Industry analysts estimated that state-run fuel retailers were losing about INR20 ($0.24) per litre on diesel as pump prices remained unchanged since May. The RBI raised its repo rate on 7 October, its first increase in nearly four years.

On 14 October, the 10-year government bond yield rose four basis points to 7.40%, its highest since March 2023. Overnight indexed swap rates, a market gauge of expected future short-term rates, also climbed: the one-year rate rose 10.25 basis points to 6.44%, and the two-year rate gained eight basis points to 6.60%. Governor Sanjay Malhotra had said monetary policy and financial stability could not be treated separately.

What to watch

China’s one- and five-year loan prime rates and UK labour-market data (20 October); Bank Indonesia’s policy decision (21 October); Japan’s trade figures and UK CPI (21 October); US initial jobless claims, and policy decisions by the Bangko Sentral ng Pilipinas and Bank of Korea (22 October); Japan’s CPI, flash PMIs in Japan, the US, UK and euro area, UK retail sales and the University of Michigan sentiment survey (23 October); and Brazil’s presidential runoff (25 October).

Markets will also track corporate-credit spreads, this week’s technology earnings and companies’ AI capital-expenditure guidance for signs of whether the correction is extending beyond equities.