In the October 2026 CAPIS Monthly Research Briefing, Ed O’Dowd welcomed back John Fagan and Brendan Walsh of Markets Policy Partners (MPP). They covered the U.S. and global macro outlook, the Treasury market’s shift toward a demand-destruction story, Fed rate-hike expectations, the upcoming midterm elections, and geopolitical risks from the Gulf to Russia and U.S.–China critical minerals.
00:02 – Introduction
Ed introduced MPP as a returning research partner covering macroeconomic policy, politics and geopolitics, noting there has been no shortage of news across their recent appearances.
01:21 – U.S. Economy: Real Supports, but Cracks in the AI Story
John said the U.S. economy still has real support from AI capex, the stock market wealth effect, tax rebates from the One Big Beautiful Bill and potential tariff refunds. But a lot rides on the AI story: doubts and repricing there could hit growth twice, through slower capex and a weaker wealth effect.
03:08 – The Treasury Market Shifts From Inflation to Demand Destruction
According to John, longer-dated Treasuries have shifted from pricing overheating and inflation to pricing demand destruction, as consumers face sharply higher gas and food prices driven mainly by geopolitics. MPP sees no sign of a wage-price spiral, and breakevens have stayed tame.
05:48 – Diesel-Driven Inflation and a Resilient Labor Market
Brendan said inflation is increasingly driven by diesel costs moving through shipping and farming into grocery and restaurant prices, citing PepsiCo’s planned price increases. That problem is largely out of the Fed’s hands. The labor market, however, has held up remarkably well: companies aren’t hiring aggressively, but they aren’t cutting staff, and most are still reporting solid earnings.
07:19 – Curbed Enthusiasm, Not a Washout
John said even a calmer AI capex cycle means significant investment, and MPP doesn’t expect a stock market washout. In his view, most of the 10-year rally is done and yields should level off. Brendan added that companies are accepting today’s rates as the new normal, with market angst focused on speculative AI firms borrowing heavily against profits that may never arrive.
09:04 – No Global Engine to Pick Up the Slack
If U.S. growth slows, John doesn’t see another economy picking up the slack. China’s data has been sobering, with the housing overhang still weighing, and he doesn’t expect Beijing to launch a large fiscal stimulus given its existing fiscal position.
10:37 – Europe, Japan and the UK: Stagflation and Sovereign Bond Stress
John described Europe, Japan and the UK as facing rising sovereign yields and more pronounced stagflation, without the flight-to-safety benefit Treasuries enjoy. He flagged France’s fiscal and political turmoil and contagion to Italy, while Brendan pointed to widening spreads in Spain and Greece. With elections that could empower Euroskeptic parties and limited room for the ECB to step in, John called the picture overseas “substantially darker” than in the U.S.
13:25 – Fed Outlook: A Hold in October, a Likely Hike in December
John agreed with market pricing of roughly a 10% chance of a hike at next week’s meeting, noting “it’s bad manners for the Fed to hike rates” right before an election. He sees a December hike as more likely than not, but said the market’s roughly 85% odds may be too high if AI-related weakness or softer data continue. He also expects upcoming Treasury refunding to be heavily skewed toward bills.
16:41 – The 2027 Rate Path Leans Dovish
John said expectations for 2027 are “all over the place,” but MPP leans dovish. Equities don’t need a 10% drop to change the Fed’s path: a choppy, sideways market, weaker capex signals and a soft payrolls print could produce a hold in December as well.
18:04 – Midterms: Divided Government and Data Center Regulation
John said Democrats are widely expected to take the House, while the Senate is a toss-up. Either way, a handful of independent-minded Republican senators make gridlock likely, which should help keep long-term yields contained. He also argued AI and data centers have just seen their most permissive regulatory environment. A Democratic House would likely advance popular, bipartisan regulation in this area, even if it faces a veto, adding another headwind for the sector heading into 2028.
22:02 – Re-escalation Risk in the Gulf
John called geopolitics the clear catalyst for current inflation and sees a growing risk of re-escalation after the midterms. Iran can disrupt flows through the Strait of Hormuz with little effort, and repeated Houthi attacks on Saudi infrastructure make a stable equilibrium hard to imagine.
24:42 – What a Democratic Congress Might Prioritize
Brendan noted Congress was sent home early amid votes to impeach Defense Secretary Pete Hegseth, and a strong Democratic showing could create the votes for removal. John suggested a strategic Democratic majority would focus on AI and data center regulation, ending the war and shifting the U.S. position on Ukraine.
26:25 – International Equities: “The Cleanest Dirty Shirt”
Ed asked whether investors would rotate into international equities. Brendan noted EEM had just entered correction territory and that rotation is mostly flowing into U.S. defensives, while John called the U.S. “the cleanest dirty shirt.” Brendan added that many Asian markets have even greater semiconductor exposure than the U.S.
28:32 – Russia and European Security
John said Europeans are deeply concerned about Russian drones, cyberattacks and destabilization efforts, which strain NATO cohesion while many countries’ fiscal positions are already stretched.
29:46 – U.S.–China Relations and Critical Minerals
The Xi–Trump summit played out as MPP expected: positive atmospherics, little substance, and trade talks pushed into the new year. John warned China’s rare earth export restrictions could start disrupting production as stockpiles run down, particularly in Japan. Brendan said defense faces the biggest challenge: beginning January 1, U.S. military equipment cannot contain Chinese critical minerals, and some, like yttrium, which is essential in aerospace, aren’t available outside China.
32:54 – Q&A: Why Russia Won’t Back Down in Ukraine
Ed asked whether Putin is staying in Ukraine to save face. Brendan agreed Putin can’t back down without appearing weak, despite heavy casualties and the addition of North Korean troops. John said Putin is pressuring Europe to strengthen his negotiating hand and pursuing a war of attrition, while upcoming European elections, including Marine Le Pen’s pledge to cut Ukraine funding, could weaken support. He added that a leadership change in Moscow that brought peace would be a huge positive for global markets, but Putin appears well insulated against that possibility.
39:13 – Closing Remarks and November Preview
John and Brendan pointed attendees to MarketsPolicy.com and The Macrocast, their weekly podcast with Forbes Tate Partners. Ed encouraged clients to reach out to CAPIS to connect with MPP and previewed the November Monthly Research Briefing on Thursday, November 12, featuring Katie Stockton of Fairlead Strategies on technical analysis across asset classes.