“There is nothing so disturbing to one’s well-being and judgment as to see a friend get rich.” ~ Charles Kindleberger, American Economist and author of Manias, Panics, and Crashes: A History of Financial Crises

October reinforced a growing paradox in the U.S. economy. On the surface, America still looks remarkably strong: GDP growth remains near 4%, consumer sentiment is firm, and corporate investment in AI, infrastructure, and defence continues at a brisk pace. Yet beneath that surface lies a deepening fragility: a two-speed economy sustained by fiscal stimulus at the top, and the hope of AI-led economic boom at the bottom.

This imbalance captures what economic historian Charles Kindleberger once described as the hegemonic trap: when the global leader turns inward whilst rising powers fail to assume the mantle of stability, the world slips into fragmentation, liquidity shortages, and self-reinforcing deflationary stagnation. The risk is that the United States, through a mix of tariffs, populist fiscal policy, and political paralysis, is edging closer to that very trap.

The divergence between perception and reality is striking. The top tier of consumers and corporations continues to thrive on government spending, AI-driven productivity, and asset inflation. Meanwhile, small businesses and lower-income households face rising financing costs, weakening labour markets, and declining real income growth. What looks like resilience on paper increasingly resembles bifurcation in practice - an economy overheating at one end and cooling at the other.

Inflation remains superficially sticky around 3%, but the underlying trend is undeniably disinflationary. Tariffs are raising costs initially, yet the retaliatory trade measures and weakening demand are inherently deflationary. Global trade volumes are falling and real activity is softening, echoing the same feedback loop Kindleberger chronicled during the 1930s: falling trade, falling liquidity, falling demand.

Fiscal fragility is adding to the pressure. U.S. interest payments now exceed defence spending, and political appetite for consolidation is virtually non-existent. The fiscal impulse that drove the post-pandemic boom is losing power, even as its cost compounds. The most likely consequence is that of financial repression - a world where money is indirectly transferred from savers to the government.

For investors, this transition is profound. The inflation scare of 2022–2024 is giving way to disinflation and, potentially, outright deflation risk. That shift makes U.S. Treasuries and U.K. Gilts, particularly longer-dated maturities, increasingly attractive. In the current environment duration perhaps carries positive convexity, especially as the next policy move is more likely to be easing than tightening.

In many ways, the Kindleberger trap defines today’s investment landscape: geopolitical fragmentation, fiscal exhaustion, and liquidity scarcity starting to spread across borders. Yet within that instability lies opportunity. As the world shifts from fiscal expansion to restraint, U.S. Treasuries may prove to be not just a hedge, but the defining trade of 2026.

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MARKET REVIEW

Deflationary Boom Assets (Equities, Corporate Bonds, EMD)
Global equities extended their advance in October, supported by resilient corporate earnings and cooling inflation data. The Bloomberg World Equity Index gained +2.23% (USD), with growth stocks (+2.84% USD) outperforming value (+0.89% USD). U.S. equities rose +2.35% (USD), led by the Magnificent 7 (+4.93% USD) as falling bond yields lifted long-duration assets. Japan added +3.86% (USD), while Europe ex-UK gained +0.60% (USD) amid softer PMI data. China gave back some of its YTD gains and fell -2.44% (USD), driven by renewed property-sector strains. Credit markets remained constructive: U.S. corporates advanced +0.38%, sterling corporates +2.20%, and EM hard-currency debt +1.72%, as spreads tightened and issuance slowed.

Deflationary Bust Assets (Government Bonds)
Government bonds staged a broad rally as yields retreated from multi-year highs, driven by signs of moderating inflation and dovish central-bank rhetoric. The U.S. Treasury Index gained +0.62% (USD), while UK Gilts surged +2.87% (GBP) on lower inflation prints. Eurozone government bonds also improved (+0.87% EUR), aided by stabilising growth data. Global aggregates were marginally weaker (-0.25%) due to currency effects. The overall tone reflected market positioning for rate cuts in 2026, even as growth momentum remained uneven.‍

Inflationary Boom Assets (Managed Futures, CTAs, Commodities excl. Precious Metals)
Industrial metals led commodity gains, with copper up +6.33% and the broader Industrial Metals Index +4.52% on renewed optimism for Chinese infrastructure spending. Energy was mixed: Brent crude fell -2.91% despite geopolitical tensions, but the Bloomberg Energy Index rose +8.63% (USD), driven by natural gas strength. Managed futures rebounded modestly, with the SG CTA Index +1.47% (USD) and SG Trend +1.91% (USD), helped by directional gains in fixed income and currencies.

Inflationary Bust Assets (Precious Metals & Inflation-Linked Bonds)
Government bonds staged a broad rally as yields retreated from multi-year highs, driven by signs of moderating inflation and dovish central-bank rhetoric. The U.S. Treasury Index gained +0.62% (USD), while UK Gilts surged +2.87% (GBP) on lower inflation prints. Eurozone government bonds also improved (+0.87% EUR), aided by stabilising growth data. Global aggregates were marginally weaker (-0.25%) due to currency effects. The overall tone reflected market positioning for rate cuts in 2026, even as growth momentum remained uneven.

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To see graphs, download the PDF using the button at the top of this page.

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