As expected, major central banks from the US to Europe and Japan, kept rates on hold this week. Oil prices fluctuated in the range of USD 113-118 as markets speculate with the possibility of a renewed US attack on Iran after the midterms, and European gas futures broke the EUR 100/MWh level for the first time since December 2022. The French 10-year bond yield stabilised below 5% after Moody’s kept the country’s rating unchanged last Friday.
The Q3 reporting season is about halfway through, and the overall performance is still looking solid. Results from the large tech have been a mixed bag, but investor reception has been weaker than the revenue growth alone would suggest. On the macro side of things, the investment boom seems intact. Taiwanese GDP grew 14.4% y/y in Q3, and exports from Taiwan and South Korea have continued their strong growth.
This week, the Federal Reserve left policy rates unchanged at 3.75-4.00%, in line with consensus and our expectations. Even though market reaction was to the dovish side, we read Warsh’s comments on the economic outlook as hawkish, and maintain our call for two 25bp rate hikes at the December and March meetings. Risks are tilted towards more hikes. Read more in Research US – Fed Review: Fed pauses, but tightening cycle is not over, 28 October.
The ECB also kept the deposit rate at 2.50% as expected. Despite the dovish tilt in the press release, we expect a 25bp hike to 2.75% in December, which President Lagarde clearly signalled during the press conference. Lagarde also announced she would step down early, on 7 February 2027. The two favorites to replace her are Klaas Knot of the Netherlands and Pablo Hernández de Cos of Spain. Read more on ECB Review – A no-hike decision, 29 October, and Research Euro Area – ECB’s game of musical chairs, 25 September.
Next week’s main event will be the US election on Tuesday. Tentative results will be available by Wednesday morning, but final results could take weeks or even longer. Polymarket is giving a 69% chance of Democrats winning the Senate, while winning the House looks like a done deal for them. Join us for the Webinar: US Midterms Morning Update – First glance at the results.
A key question for energy markets is whether the US will launch a new attack on Iran after the midterms. This is by no means certain, especially as US munitions stockpiles have depleted. The CFR wrote in August, how the US has used 64% of their Patriot air-defence interceptors and 40% of their THAAD ballistic missiles interceptors, and how replenishing the stocks will take years. The outcome of the Israeli parliamentary election this week was undecisive. Forming a government may turn out difficult, and in the meanwhile, Netanyahu’s caretaker government will remain in charge.
Next week’s key data points will be the private PMIs from China, and the US ISM indices due on Monday and Tuesday, as well as the October jobs report and Michigan survey on Friday. Euro area flash inflation print for October will be released on Wednesday. We expect Riksbank to hike rates to 2% on Wednesday, while Norges Bank will remain on hold on Thursday.
