Global Economy & Markets, Weekly Roundup 27/10/26
Market pricing has taken out one rate hike in the past month by the ECB, despite higher energy prices landscape
The European Central Bank (ECB) is expected to remain on hold on October 29th, with the Deposit Facility Rate at 2.50%. Challenges in the global energy supply chain remain acute, sustaining upside risks for inflation, albeit financial conditions have tightened modestly.
Indeed, Brent crude and natural gas (TTF) prices have increased on a weighted basis by circa 35% since the September meeting. On the other hand, our GDP-weighted 10-year euro area sovereign bond spread index has widened by 60 bps, while corporate bond spreads have increased by 35 bps (Investment Grade) and 105 bps (High Yield), respectively. Finally, equity prices are c. 3% off their highs, but with the banking sector underperforming (-12%).
At the same time, economic growth has been resilient. For Q3:2026, we expect real GDP growth of +0.2% qoq (+1.1% yoy). Regarding Q4, the composite PMI eased to 51.9 in October from a 41-month high of 53.1 in September, below consensus estimates for 52.7, albeit remaining meaningfully above the expansion/contraction threshold of 50.0. Consumer confidence declined by -1.1 pt mom to a 5-month low of -17.9 in October, undershooting expectations of -17.0 and remaining meaningfully below an average of -11.4 since 1999.
Financial markets assign a c. 70% chance for a +0.25% rate hike to be decided on December 17th, which will also be accompanied by ECB staff’s economic projections.
Moody’s maintained France’s sovereign credit rating at Aa3 with a negative outlook, albeit under the assumption that a “deficit-reducing” Budget for 2027 will be adopted, with financing costs and social unrest abating somewhat in the next few months. Recall that deliberations in the legislature for the 2027 Budget continue, due to conclude by December 17th.
Standard & Poor’s (S&P) maintained Greece’s sovereign credit rating at BBB with a stable outlook in view, inter alia, of continued strong fiscal performance and resilient economic activity (estimated real GDP growth of +2.1% yoy on average in 2026-2029). S&P estimates a general government surplus of 0.8% of GDP in 2026 (3.8% primary surplus) and of 0.2% of GDP (primary: 3.2%) over 2027-2029.
As a result, the ratio of general government debt to GDP is envisaged at 135.4% at end-2026 and at 114.1% at 2029 (peak of 209.4% in 2020). Note also that cash buffers held by the Public Debt Management Agency are expected at €33 billion or 12.4% of GDP at year-end 2026.
The US Federal Reserve is likely to remain on hold on October 28th taking also into account recent commentary from officials, with the Federal Funds Rate (FFR) at a range of 3.75% - 4.00%.
FOMC participants (including Vice Chair Jefferson) have commented recently that they do not see “urgency” to deliver additional hikes and that hikes “do not need to come at consecutive meetings, but they should be in place in an acceptable period of time,” as Governor Waller put it.
For the subsequent meeting though on December 9th, which will be accompanied by the FOMC members’ economic projections and their assumptions for the appropriate path of the FFR (conducted on a quarterly basis), according to pricing in FFR futures, investors assign a c. 80% probability for a +0.25% hike.
The European Central Bank (ECB) is expected to remain on hold on October 29th, with the Deposit Facility Rate at 2.50%. Challenges in the global energy supply chain remain acute, sustaining upside risks for inflation, albeit financial conditions have tightened modestly.
Indeed, Brent crude and natural gas (TTF) prices have increased on a weighted basis by circa 35% since the September meeting. On the other hand, our GDP-weighted 10-year euro area sovereign bond spread index has widened by 60 bps, while corporate bond spreads have increased by 35 bps (Investment Grade) and 105 bps (High Yield), respectively. Finally, equity prices are c. 3% off their highs, but with the banking sector underperforming (-12%).
At the same time, economic growth has been resilient. For Q3:2026, we expect real GDP growth of +0.2% qoq (+1.1% yoy). Regarding Q4, the composite PMI eased to 51.9 in October from a 41-month high of 53.1 in September, below consensus estimates for 52.7, albeit remaining meaningfully above the expansion/contraction threshold of 50.0. Consumer confidence declined by -1.1 pt mom to a 5-month low of -17.9 in October, undershooting expectations of -17.0 and remaining meaningfully below an average of -11.4 since 1999.
Financial markets assign a c. 70% chance for a +0.25% rate hike to be decided on December 17th, which will also be accompanied by ECB staff’s economic projections.
Moody’s maintained France’s sovereign credit rating at Aa3 with a negative outlook, albeit under the assumption that a “deficit-reducing” Budget for 2027 will be adopted, with financing costs and social unrest abating somewhat in the next few months. Recall that deliberations in the legislature for the 2027 Budget continue, due to conclude by December 17th.
Standard & Poor’s (S&P) maintained Greece’s sovereign credit rating at BBB with a stable outlook in view, inter alia, of continued strong fiscal performance and resilient economic activity (estimated real GDP growth of +2.1% yoy on average in 2026-2029). S&P estimates a general government surplus of 0.8% of GDP in 2026 (3.8% primary surplus) and of 0.2% of GDP (primary: 3.2%) over 2027-2029.
As a result, the ratio of general government debt to GDP is envisaged at 135.4% at end-2026 and at 114.1% at 2029 (peak of 209.4% in 2020). Note also that cash buffers held by the Public Debt Management Agency are expected at €33 billion or 12.4% of GDP at year-end 2026.
The US Federal Reserve is likely to remain on hold on October 28th taking also into account recent commentary from officials, with the Federal Funds Rate (FFR) at a range of 3.75% - 4.00%.
FOMC participants (including Vice Chair Jefferson) have commented recently that they do not see “urgency” to deliver additional hikes and that hikes “do not need to come at consecutive meetings, but they should be in place in an acceptable period of time,” as Governor Waller put it.
For the subsequent meeting though on December 9th, which will be accompanied by the FOMC members’ economic projections and their assumptions for the appropriate path of the FFR (conducted on a quarterly basis), according to pricing in FFR futures, investors assign a c. 80% probability for a +0.25% hike.