Investors may have experienced volatility throughout October, with AI concerns and protests in Europe having an impact on markets. Read on to find out what other factors may have affected the markets last month.
The month started with a global bond market sell-off, which led to markets falling. Worries about the amount of debt being issued by governments, deficits, and inflation led to bond sales rising. The leading UK index, the FTSE 100, was down 1.68% and experienced its worst day since May 2026 on 1 October 2026.
Following several days of sell-offs, European shares began to rise on 5 October. The pan-European Stoxx 600 index increased by 0.4%.
The positive movements continued on 6 October, with the Stoxx 600 index rising a further 0.8%. The main indices in Germany, France, Italy, and Spain were all up. Wall Street in the US rallied too, partly thanks to AI stocks performing well, and the broad S&P 500 index was up 0.6%.
Yet, just a week later, worries about the long-term profitability of AI reared their head. A chip sell-off affected the US market, with the S&P 500 remaining almost flat, while the Nasdaq, a technology-focused index, was down 0.4%. Among the companies that experienced a downturn were Nvidia, Micron, and AMD.
The chip sell-off deepened on 15 October and affected markets around the world. Indeed, South Korea’s main index, the KOSPI, was down 8%, while Japan’s Nikkei fell 4.5%. Markets in the US and Europe also fell.
One index to buck the trend was London’s FTSE 100. The index was up 1.1% on the back of positive GDP data.
With the UK government’s Budget looming, there was speculation that banks would face a new tax surcharge. This led to bank shares falling on 16 October, including Lloyds Banking Group (-1.9%) and NatWest (-1.6%).
The week ending 16 October marked the worst week for South Korea’s stock market since October 2008, during the financial crisis. The KOSPI fell 14.5% over the course of the week following a slump in technology stocks.
On 19 October, violent protests occurred in France and Italy, which affected markets. Investors sold French government bonds, which pushed yields higher. France’s main index was down 1.45%, while Italy’s FTSE MIB fell 1.7%. The effects were also seen in other European markets.
AI news featured heavily on 26 October despite volatility suggesting investors remained concerned about the sector.
First, Meta announced plans to raise $95 billion (£70.8 billion) to help pay for ambitious AI projects, which will partly be funded by the sale of company stock. Next, AI firm Anthropic, which operates the Claude chatbot, took steps to float on the New York Stock Exchange. Anthropic’s reports show that the firm had revenues of $16.2 billion (£12 billion) in the first half of 2026, but made a loss of $80 billion (£59.6 billion).
UK
Data from the Office for National Statistics show GDP grew by 0.1% in August, beating expectations of a fall. The growth was driven by manufacturing output, which was up 1.2%.
PwC said the latest figures put the UK on track to be the second-fastest-growing G7 economy this year, falling behind only the US. The International Monetary Fund also upgraded the economy’s 2026 forecast to 1.3% – an increase of 0.3 percentage points – but warned growth was likely to edge down next year due to inflationary pressures.
The surprise growth could mean the Bank of England (BoE) is more likely to hike interest rates, as it suggests the UK economy is strong enough to withstand a rise.
Rising inflation, which was 3.5% in the 12 months to September, also places additional pressure on the BoE to raise interest rates.
Manufacturing reports indicate that businesses are struggling with rising costs. S&P Global noted that inflation pressures have resulted in factory growth slowing. In addition, accountancy firm BDO said UK businesses were facing the highest inflation pressure in three years due to rising energy, fuel, and raw material costs.
The UK Budget was delivered on 28 October and was the first under Andy Burnham and John Healey as prime minister and chancellor, respectively. Despite speculation being rife in the weeks leading up to the speech, the Budget largely focused on small changes, so investment markets remained relatively stable.
Europe
Soaring energy prices affected inflation in the eurozone. The rate of inflation in the 12 months to September 2026 was 3.8%, compared to 3.2% in August. The rising figure could mean the European Central Bank will hike interest rates again in the coming months.
As the EU’s largest economy, Germany plays an important role in the bloc. Figures suggest German manufacturing is experiencing headwinds. Indeed, the Federal Statistical Office data shows factory orders were down 10.6% in August when compared to the previous month, though they were up 2.7% when compared to August 2025.
Industry association VDMA also notes that engineering orders fell 5% in August when compared to the start of 2026, partly due to a lack of large orders. Both domestic and foreign bookings have fallen.
The EU took steps to limit China’s share of the hybrid electric vehicle market. It will impose an annual import limit of 350,000 on qualifying vehicles from China, which is expected to halve China’s market share.
On 15 October, EU leaders met in Brussels to further discuss the trade deficit with China – which hit €360 billion (£300 billion) in 2025. The deficit has been linked to job losses and factory closures across the continent, and some countries are calling for further steps to protect other industrial sectors.
US
The US economy grew by 3.4% in the third quarter of 2026. The higher-than-expected growth was thanks to increased investments, consumer spending, and government spending, which helped to offset a decline in exports.
However, inflation data wasn’t as welcome.
Inflation was 3.7% in the 12 months to September 2026, up from 3.4% in the previous month. The latest figure could place pressure on the Federal Reserve to increase interest rates, while President Donald Trump has advocated slashing them.
Further economic data paints a mixed picture. The US economy only added 29,000 new jobs in September, compared to the 90,000 expected. It’s a significant fall from the 133,000 recorded in August.
However, industrial output was up 0.7% in September, which was partly linked to an AI boom.
Government borrowing costs may suggest the current administration has some difficult decisions to make. Borrowing costs reached their highest levels since 2002, with the yield on 10-year Treasuries hitting 5.344% on 1 October. The rise was caused by investors growing anxious about inflation, future interest rate rises, and government borrowing levels.
Asia
Economic data from China was positive. Indeed, the country’s GDP grew 4.5% year-on-year between June and September 2026. The latest figures put China’s economy on track to reach its government target of 4.5% to 5% growth in 2026 without the need for extra stimulus measures.
GDP figures are supported by soaring exports. Exports jumped 31% in September to put China on track to a record trade surplus. September’s trade surplus was $133.53 billion (£99.5 billion), which brings the surplus for the first nine months of the year to $938 billion (£699 billion). In 2025, the trade surplus set a record of $1.189 trillion (£0.89 trillion).
Please note: This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.