Stocks rallied last week, cheered by Muse, the new artificial intelligence (AI) agent from Meta that went viral. Bonds, usually the calmest corner of markets, had one of their roughest weeks in years, with US government borrowing costs last seen in 2007. Yet both were looking at the same facts: a central bank that has just raised rates, oil above USD 100 a barrel, and inflation that will not settle. Why they read them so differently is this week’s story.

Equities. The S&P 500 added 0.63% and the Nasdaq Composite, home to most big tech names, rose 1.21%. Meta jumped roughly 10% on the launch of Muse, which can carry out tasks on its user’s behalf. Europe’s STOXX 600 rose about 0.5%, with Germany and France roughly flat. Japan’s Nikkei 225 gained 2.1% on chipmaker enthusiasm, whereas Hong Kong’s Hang Seng fell about 1%.

What it means. None of this reflects a stronger economy. Stock investors are reading the week through a single lens, AI, which they believe is still in its most profitable phase. That conviction is strong enough to shield large, cash-rich technology groups from higher borrowing costs, since they can largely fund themselves from their own profits. Smaller companies and emerging markets have no such cushion: they rely on borrowed money and feel every rise in its price.

Rates and credit. In the bond market, investors read a different week. The 10-year US Treasury yield, the benchmark behind mortgages and business loans, pushed above 5.2%, its highest since 2007, and 30-year yields rose faster still. In Europe, Germany’s 10-year Bund eased to 3.59% and France’s 10-year OAT to 4.67%, but the gap between them widened past 1.10 percentage points, its widest since 2012, on French debt and 2027 election worries. In contrast, corporate bond spreads, the extra interest companies pay over governments, barely moved.

What it means. The rise in US Treasury yields means that investors lending to the American government now want to be paid more, because they expect higher inflation, heavier government borrowing, or both. The calm in corporate spreads is the telling detail. Bond investors fear inflation and public debt, not companies failing to repay, which is how stocks could keep climbing. How long they can hold out is now Wall Street’s big debate. Rising yields hurt shares in two ways: they raise borrowing costs across the economy, and they turn bonds into a real rival, since a safe return above 5% from Treasuries makes risky stocks harder to justify.

Currencies. The dollar rose against nearly every major currency, on bets that stubborn inflation could push the Federal Reserve, which raised rates on September 16 for the first time in nearly three years, to tighten again. The euro lost 0.93% and the pound 1.27%, and even the Swiss franc, a traditional refuge, gave up 0.85%.

What it means. Higher US rates draw money into dollar assets, so the dollar climbs when the Fed turns hawkish, that is, more inclined to raise rates.

Commodities. Oil eased late in the week after an early surge on Middle East tensions, as hopes of a US-Iran opening around the Strait of Hormuz, the waterway carrying a fifth of the world’s oil, calmed traders. Brent ended near USD 102.75 a barrel and US crude near USD 92.89. Gold slipped 1.6% to around USD 4,342 an ounce, while copper neared a record at about USD 6.95 a pound, up 22% in six months.

What it means. Oil and gold answered to the same force, geopolitical risk, in opposite ways: oil rose on supply fears, then gave ground as they faded, while gold lost its shine against bonds that now pay a solid return.

The week ahead. Fresh US data will test which market has read things correctly. Wednesday brings the Fed’s preferred inflation gauge, the personal consumption expenditures (PCE) index. Friday’s jobs report will show whether the economy is cooling enough to calm inflation without a jump in unemployment.

What it means. The real question: can the US economy keep growing without keeping inflation, and therefore rates, uncomfortably high? Hot figures would prove the bond market right; softer ones would give stock investors firmer ground.

See you next Monday, when the numbers will have had their say.