A busy week ahead!
Equity markets sold off quite sharply on Friday, led by the Nasdaq in the US, while French government bonds came under pressure, with yields rising and spreads over Germany widening out again. The euro and sterling are managing to hold onto most of the gains they made against the dollar over the latter part of last week, trading at around $1.12 and $1.3425 respectively this morning, while EURGBP has edged up from fresh 2026 lows (of about £0.8320) to trade just shy of £0.8350. Sterling had a good October, gaining around 2.5% and 1% against the euro and dollar respectively, supported by expectations for an aggressive series of rate hikes from the Bank of England (BoE), with the market fairly consistently pricing in at least 100bps of tightening over the next year or so. The BoE meets this Thursday and is expected to raise rates by 25bps to 4%, though what it signals about further hikes beyond this will be of more interest. The US midterm elections take place tomorrow (Tuesday), with markets apprehensive that Trump might relaunch attacks on Iran shortly afterwards, while economic data of note due this week include a flash inflation reading for October in the Euro area on Wednesday and the October jobs (non-farm payrolls) report in the US on Friday.
There was fairly limited movement in the main government bond markets on Friday, despite the weakness in stocks, with US, German and UK yields all finishing just a few basis points lower on the day. In equity markets, the Nasdaq shed almost 3% and the S&P 500 almost 2%, while European indices lost around1%. The future markets are currently pointing to some respite for stocks today though.
The Euro area economy grew by 0.4% quarter-on-quarter and by 1.3% year-on-year in Q3 2026 according to Friday’s flash GDP release, slightly ahead of the consensus forecast, though the data continue to be impacted by large swings in Ireland’s GDP. Smoothing over the first three quarters of this year, growth in the zone has averaged about 0.3% a quarter, much the same as in 2025, and better than expected given the global energy shock (although obviously the latter has intensified recently).
Fed member Logan says “it (is) clear to me, given the current outlook, that the (Fed) needs to implement at least two more 25-basis-point rate increases,” adding that “adjusting policy gradually can help households, businesses and market participants adapt to higher rates and reduce the risk that economic activity deteriorates more sharply than necessary.” The market is currently pricing in about a 75% chance of a 25bps rate increase next month and about 55bps of hikes in total by June next year.
As indicated, it is a busy week ahead, with the US midterms on Tuesday, Euro area inflation data on Wednesday, the Bank of England rate announcement on Thursday, and US payrolls on Friday. In addition, other economic data of note are the ISM manufacturing and services reports in the US today and Wednesday respectively.