Global Credit Bullets | Monday, 2 November 2026

On Tuesday, elections for the renewal of House and Senate seats take place in the US. Major prediction markets have a Democratic sweep priced at 70%. In terms of policy, we do not expect any major changes, as most policy priorities have been tackled via executive order over the past two years, and fiscal policy, the key Congressional prerogative, is unlikely to turn tighter under any scenario. Markets would intuitively treat a strong result for Republicans as bullish for equities and bearish for bonds, and the opposite for a Democratic sweep. Market focus is likely to be on Iran, as the administration is suggesting room for escalation immediately after the election.  Brent reached $118 per barrel last week, the highest level since February.

Last Wednesday, the Federal Reserve left the policy rate on hold as expected. While December remains the base case for another hike, the language at the press conference was dovish and suggested limited conviction. Chairman Warsh emphasised the role of upcoming information on economic activity in determining the December rate decision, suggesting a skip is possible. This approach consolidates the market view of a small recalibration rather than a full-fledged hiking cycle.

The European Central Bank held rates and sounded dovish. President Lagarde stressed the absence of second round effects on inflation and underscored the potential impact on growth. On France, she reminded markets of the existence of the TPI instrument, effectively limiting spreads from above (although the adoption of any support is far from immediate). President Lagarde confirmed market speculation about her departure. She will leave the ECB on 7th February. Governing Council members De Cos and Knot are frontrunners for the role. The latter is more likely to be hawkish and less supportive of periphery.

Market stress is on the rise, with AI, the big driver of equity strength over the past two years, under pressure. The Nasdaq index is now down more than 10% from its peak, with some individual stocks falling by 25%. Credit is starting to follow, with low quality and distressed names suffering heavy losses in 2026. We continue to be cautious on risk assets (credit and equities) and more constructive on duration risk.

Last Monday, Brazilian markets experienced a once in a lifetime debacle in local assets, following the re-election of left-wing leader Lula as President. The currency slumped 10%, equity markets fell 30%, and local bond yields widened by 300 basis points. The move was so dramatic because polls proved badly wrong, with market players expecting a right wing victory with high confidence. Market focus now turns to the first signals of Lula’s potential policy direction. Ministry appointments will be the first such signals. Historically, Lula’s governments always proved pragmatic, suggesting current levels may be attractive for long term investors.

Algebris Investments’ Global Credit Team