Making sense of macroeconomic and market moves and what the shifting landscape means for investors.
Top stories
- Expectations increased for a December interest rate hike from the Bank of Japan after hawkish comments from Governor Kazuo Ueda. Market pricing for a December rate hike climbed to 92% probability at the time of writing from 60% last Friday. Ueda said on Monday “At the Monetary Policy Meeting (MPM), the Bank will examine and discuss economic activity and prices at home and abroad as well as developments in financial and capital markets, including the point I just mentioned, based on various data and information, and will consider the pros and cons of raising the policy interest rate and make decisions as appropriate.” This was seen as implying the Bank would not be waiting for the spring wage round before beginning to hike rates.
- President Trump said he has made his decision on the new Chair of the Federal Reserve saying his search was “down to one” and the nomination will follow “early next year”. Kevin Hassett is expected to be Trump’s pick. Trump spoke in the Oval Office on Tuesday with Hassett stood behind him, saying “I guess a potential Fed chair is here too. I don’t know. Are we allowed to say that? Potential?”
- The Reserve Bank of India cut interest rates by 25 basis points to 5.25%, bringing the total size of cuts under Governor Sanjay Malhotra, who took over early last year, to 125bps. Malhotra noted that “despite an unfavourable and challenging external environment, the Indian economy has shown remarkable resilience”, though he added that growth was “expected to soften somewhat”. Indian inflation has eased from over 6% last year to close to zero in October, leaving further room should the economy soften. The Indian economy expanded by 8.2% in the third quarter, supported by robust consumer spending, and growth in manufacturing and services.
By the numbers – all eyes on the UK budget
- 35am – the time the UK Office for Budget Responsibility released their assessment of the UK’s Budget last Wednesday, thereby publishing details of the Chancellor’s intentions before they were announced in Parliament. The debacle followed a series of leaks in the run-up to the Budget, and saw the Head of the OBR resign this week. Richard Hughes said he took “full responsibility” for the leak, which the OBR had described as the “worst failure” in its history. The report contained confidential and market sensitive information and was available on the OBR website from 11.35am, well ahead of the start of the Chancellor’s Budget speech at 12.30pm. Reuters began reporting its contents from 11.41am.
- 214,750 – the four-week moving average for new unemployment claims in the US. This is the lowest level since January and challenges the narrative over a softening US labour market. Other data, including private payrolls surveys, posted a less optimistic view. The monthly employment report, which should have been published today, has been delayed thanks to the (now ended) US government shutdown.
- 8% year on year – the level of third quarter economic growth in Brazil, the slowest pace in three years. Amid signs of the economy cooling, expectations for interest rates cuts from near 20-year highs are now rising. Brazilian inflation eased to 4.68% in October while the benchmark interest rate remains at 15%. President Lula will want to see a stronger economy as he seeks re-election next October but the existing size of the fiscal deficit may constrain any attempts to bolster economic activity.
Market movers
It’s that time of year when we inevitably get swamped by predictions for the year ahead. The OECD had their turn this week, when they updated their economic forecasts and expect the end to rate cutting cycles across leading economies during 2026. The OECD expects just two more cuts from the Fed by the end of 2026 as the bank will need to balance the inflationary effects of tariffs against a softening labour market. The OECD expects no further cuts in the eurozone, but a tightening of policy in Japan, where it expects inflation to stabilise around 2%. The UK is expected to see rate cuts “cease in the first half of 2026”. The new estimates reflect the OECD’s view that in many countries interest rates will need to remain higher than their pre-pandemic levels to keep inflation in check, partly due to public debt levels running at much higher levels than was previously typical. The OECD said the global economy has withstood the shock of US tariffs better than feared, with global GDP expected to expand by 3.2% in 2025, then easing to 2.9% next year and picking up to 3.1% in 2027. Director of economic policy and research Åsa Johansson said the global expansion was “fragile and should not be taken for granted”. The OECD also urged governments to use the current period of relative stability to tackle rising debt burdens, noting that only a few countries, including the UK, France, Italy and Poland were planning sufficient fiscal tightening over the next two years.
The investment lens
As we read (and write) investment outlooks for 2026, what price a peace deal between Russia and Ukraine? Recent weeks have shown some momentum from the US and Ukrainian side in terms of aligning behind a US plan to end the conflict. With neither Russia or Ukraine making significant progress on the military front but with casualties continuing to mount, pressure continues to build, not least from the President Trump, for both sides to make pragmatic concessions to bring the war to an end. However, any signs of talks making progress between the US and Ukraine appear to be stuck in a cycle of stalling when they come up against Russia’s maximalist demands, not least around territory, with Russia requesting Ukraine surrenders the 20% of the Donbas region still under its control. Talks between the US and Russia this week were described as “very useful” but the Kremlin said they were “no closer to an agreement” and President Putin claimed Russia was “ready for war” with Europe if that is what it wanted. As the war moves towards its fifth year, a move towards peace remains a low probability event but with potentially some upside for the economic outlook, given the consequences for commodity prices and potential US efforts to ‘re-integrate’ Russia into the global economy.
