Man City was defeated by Arsenal but you also have to see Real Madrid in their last match that they also suffered a defeat when facing Espanyol, for Man City's defeat I can still understand because Arsenal's performance was better than theirs but Real Madrid's defeat to Espanyol was really unacceptable how will they face Man City later? yes I hope the defeat will not affect the mentality of each team so that we can see both teams competing fiercely to win a place in the last 16.
For the defeat in the domestic league, it may not have a big impact on the journey in the Champions League even though sometimes the good performances they show in their respective leagues do not necessarily provide good results in the Champions League. Take for example PSG or several representatives in other leagues so that we get an idea that the Champions League is much more competitive and different from the domestic league.
Man City's defeat when facing Arsenal may still be at a reasonable stage as you said because Arsenal's performance is much better than Man City this season, but what is surprising is the defeat suffered by Real Madrid because they faced a team in the relegation zone.